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As filed with the Securities and Exchange Commission on May 6, 2010

Registration No. 333-164471

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

AMENDMENT NO. 4 TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Motricity, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		3663		20-1059798
(State of incorporation)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

601 108th Avenue Northeast

Suite 800

Bellevue, WA 98004

(425) 957-6200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Richard E. Leigh, Jr.

601 108th Avenue Northeast

Suite 800

Bellevue, WA 98004

(425) 957-6200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Mark D. Director Christian O. Nagler Kirkland & Ellis LLP 601 Lexington Avenue New York, New York 10022 (212) 446-4800 (212) 446-4900 (facsimile)		William H. Hinman, Jr. Simpson Thacher & Bartlett LLP 2550 Hanover Street Palo Alto, California 94304 (650) 251-5000 (650) 251-5002 (facsimile)

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ¨		Accelerated filer   ¨
Non-accelerated filer  x  (Do not check if a smaller reporting company)		Smaller reporting company   ¨

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.

 

 

 

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The information in this preliminary prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED MAY 6, 2010

                 Shares

Motricity, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of Motricity, Inc.

Motricity is offering                  of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional                  shares. Motricity will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders. See “Principal and Selling Stockholders.”

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $         and $        . We have applied to list our common stock on the NASDAQ Global Market under the symbol “MOTR”.

See “Risk Factors” beginning on page 12 to read about factors you should consider before buying shares of the common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

		Per Share		Total
Initial public offering price		$		$
Underwriting discount		$		$
Proceeds, before expenses, to Motricity		$		$
Proceeds, before expenses, to the selling stockholders		$		$

To the extent that the underwriters sell more than                  shares of common stock, the underwriters have the option to purchase up to an additional                  shares from the selling stockholders at the initial public offering price less the underwriting discount.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on or about             , 2010.

 

J.P. Morgan		Goldman, Sachs & Co.

 

Deutsche Bank Securities		RBC Capital Markets

 

Baird		Needham & Company, LLC		Pacific Crest Securities

Prospectus dated                         , 2010.

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TABLE OF CONTENTS

 

		Page
PROSPECTUS SUMMARY		1
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA		7
RISK FACTORS		12
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		31
USE OF PROCEEDS		33
DIVIDEND POLICY		34
CAPITALIZATION		35
DILUTION		37
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA		40
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		43
BUSINESS		76
MANAGEMENT		91
EXECUTIVE COMPENSATION		96
PRINCIPAL AND SELLING STOCKHOLDERS		129
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS		132
DESCRIPTION OF CAPITAL STOCK		137
SHARES ELIGIBLE FOR FUTURE SALE		143
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS TO NON-UNITED STATES HOLDERS		146
UNDERWRITING (CONFLICTS OF INTEREST)		149
LEGAL MATTERS		154
EXPERTS		154
WHERE YOU CAN FIND MORE INFORMATION		155
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		F-1

Through and including             , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider and evaluate all of the information in this prospectus, including the risks and uncertainties described below, which we believe describe the most significant, but not all, risks of an investment in our common stock, before making a decision to invest in our common stock. The occurrence of any of the following risks and uncertainties could harm our business, financial condition, results of operations or growth prospects. As a result, the trading price of our common stock could decline, and you could lose all or part of your investment.

Risks Related to Our Business and Operations

We depend on a limited number of customers for a substantial portion of our revenues. The loss of a key customer or any significant adverse change in the size or terms of a contract with a key customer could significantly reduce our revenues.

We depend, and expect to continue to depend, on a limited number of significant worldwide wireless carriers for a substantial portion of our revenues. Currently, 4 of the top 10 global wireless carriers use our services. In the event that one or more of these major wireless carriers decides to reduce or stop using our managed and professional services, we could be forced to shift our marketing focus to smaller wireless carriers, which could result in lower revenues than expected and increased business development, marketing and sales expenses. This could cause our business to be less profitable and our results of operations to be adversely affected.

In addition, a change in the timing or size of a purchase by any one of our key customers could result in significant variations in our revenue and operating results. Our operating results for the foreseeable future will continue to depend on our ability to effect sales to a small number of customers. Any revenue growth will depend on our success in selling additional services to our large customers and expanding our customer base to include additional customers that deploy our solutions in large-scale networks serving significant numbers of subscribers.

In 2009, we generated approximately 53% and 20% of our total revenue from contracts with AT&T Mobility LLC and its affiliates, or AT&T, and Verizon Wireless and its affiliates, respectively. For the three months ended March 31, 2010, we generated approximately 40% and 39% of our total revenue from contracts with AT&T and Verizon Wireless, respectively. No other customer accounted for more than 10% of our revenues in 2009 or in the first three months of 2010. Our current five largest customers accounted for approximately 84% of our revenues in 2009 and 90% of our revenues for the three months ended March 31, 2010. Certain of our customer agreements expire in mid to late 2010, including agreements with AT&T and Verizon Wireless. Failure to renew our agreements with AT&T, Verizon Wireless or our other large customers would materially reduce our revenue and have a material adverse effect on our business, operating results and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview” and “Business—Customers and Vendors—Customers” for more information.

The mobile data services industry is, and likely will continue to be, characterized by rapid technological changes, which will require us to develop new service enhancements, and could render our existing services obsolete.

The market for content and applications for mobile devices is characterized by rapid technological change, with frequent variations in user requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices. Our success will depend, in part, on our ability to enhance and expand our existing services,

 

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develop new technology that addresses the increasingly sophisticated and varied needs of wireless carriers and their subscribers, respond to technological advances and emerging industry standards and practices and license leading technologies that will be useful in our business in a cost-effective and timely way. We may not be able to successfully use new technologies or adapt our current and planned services to new customer requirements or emerging industry standards. The introduction of new products embodying new technologies or the emergence of new industry standards could render our existing services obsolete, unmarketable or uncompetitive from a pricing standpoint.

The market in which we operate is highly competitive and many of our competitors have significantly greater resources.

The mobile data communications services market is rapidly evolving and intensely competitive. Our competitors include mobile device manufacturers, search engines, portals and directories, and wireless service integrators. Competition in the wireless industry throughout the world continues to increase at a rapid pace as consumers, businesses and governments realize the market potential of wireless communications products and services. In addition, new competitors or alliances among competitors could emerge and rapidly acquire significant market share, to our detriment. There may be additional competitive threats from companies introducing new and disruptive solutions. Some of our competitors may be better positioned than we are. Although we have attained a significant position in the industry, many of our current and potential competitors may have advantages over us, including:

 

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longer operating histories and market presence;

 

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greater name recognition;

 

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access to larger customer bases;

 

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single source solutions that deliver mobile devices, hardware, services and infrastructure;

 

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economies of scale and cost structure advantages;

 

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greater sales and marketing, manufacturing, distribution, technical, financial and other resources; and

 

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government support.

These competitors also have established or may establish financial or strategic relationships among themselves or with our existing or potential customers or other third parties. In addition, some of our competitors have used and may continue to use aggressive pricing or promotional strategies, have stronger relationships on more favorable terms with wireless carriers and may devote substantially greater resources to system development than we do. These relationships may affect customers’ decisions to purchase services from us.

We also face competition from existing service providers in the international markets in which we already compete or may enter. For example, in India we compete with numerous companies, some of which are solely focused on the local mobile data services market, are directly owned and managed by local citizens. These factors could provide local competitors with advantages over us, particularly if the local government enacts laws or policies that favor local competitors or restrict or disadvantage us because our international operations are part of a U.S.-domiciled company. Other competitors in international markets are subsidiaries of larger companies with established local operations, and with greater experience and resources. In other countries that we may enter, there may be incumbent competitors presently selling data services products. These incumbents may have competitive advantages that could impede our expansion and growth in these countries.

 

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Open mobile phone operating systems and new business models may reduce the wireless carriers’ influence over access to mobile data services, and may reduce the total size of our market opportunity.

The majority of our revenue is based on mobile subscribers accessing mobile content and applications through our customers’ carrier-branded mobile solutions. However, with the growth of the iPhone and smartphone business models, our customers’ services may be bypassed or become inaccessible. These business models, which exclude carrier participation beyond transport, along with the introduction of more mobile phones with open operating systems that allow mobile subscribers to browse the Internet and, in some cases, download applications from sources other than a carrier’s branded services, create a risk that some carriers will choose to allow this non-branded Internet access without offering a competitive value-added carrier-branded experience as part of their solution set. These so-called “open operating systems” include Symbian, BlackBerry, Android, Windows Mobile and webOS. We believe wireless carriers need to offer branded services that can compete head-to-head with the new business models and open technologies in order to retain mobile subscribers and increase ARPU. Although our solutions are designed to help wireless carriers deliver a high value, competitive mobile data experience, if mobile subscribers do not find these carrier-branded services compelling, there is a risk that mobile subscribers will use open operating systems to bypass carrier-branded services and access the mobile Internet. It is also possible one or more wireless carriers will adopt a non-carrier branded, third-party web portal model. To the extent this occurs, the total available market opportunity for providing our current services and solutions to carriers may be reduced.

Our sales cycle can be long, which may make our revenues and operating results less predictable.

Wireless carriers must typically make substantial investments to deploy our mobile data services solution. As a result, the typical sales cycle for our services is long, averaging nine to twelve months per customer. Many of the potential customers for our services have only recently begun to evaluate the benefits of expanding their offerings of mobile services, and many have only recently designated personnel to evaluate, procure and implement new mobile services. We believe that we may be required to spend a significant amount of time and resources educating potential customers on the use and benefits of our services, and in turn, we expect potential customers to spend a significant amount of time performing internal reviews and obtaining authorization to purchase our services. Furthermore, the emerging and evolving nature of mobile data technological standards and services may lead potential customers to postpone purchasing decisions.

We have a history of net operating losses and may continue to suffer losses in the future.

For the years ended December 31, 2005, 2006, 2007, 2008, and 2009, we had net losses of approximately $22.5 million, $55.2 million, $77.9 million, $78.0 million and $16.3 million, respectively. For the three months ended and as of March 31, 2010, we had a net loss of approximately $1.5 million and an accumulated deficit of approximately $313.7 million. If we cannot become profitable, our financial condition will deteriorate, and we may be unable to achieve our business objectives.

We compete with in-house mobile data solutions similar to those we offer.

The mobile data service industry is evolving rapidly to address changing industry standards and the introduction of new technologies and network elements. Wireless carriers are constantly reassessing their approaches to delivering mobile data to their subscribers, and one or more of our customers could decide to deploy an in-house mobile data delivery service solution that competes with our services. Even if the mobile data delivery services offered by a mobile service provider’s in-house

 

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solution were more limited than those provided by our services, a wireless carrier may elect to accept limited functionality or services in lieu of providing a third party access to its network. An increase in the use of in-house solutions by wireless carriers could have an adverse effect on our business, operating results and financial condition.

We have a significant relationship with a development vendor, and changes to that relationship may result in delays or disruptions that could harm our business.

We rely upon development vendors to provide additional capacity for our technical development and quality assurance services. Our primary development vendor is GlobalLogic, Inc., a software research and development company providing software development services primarily from its offices in India and Ukraine. Our current agreement with GlobalLogic terminates on December 29, 2011. GlobalLogic may only terminate this agreement for cause. If GlobalLogic were, for any reason, to cease operations, we might be unable to replace it on a timely basis with a comparably priced provider. We would also have to expend time and resources to train any new development vendor that might replace GlobalLogic. If GlobalLogic were to suffer an interruption in its business, or experience delays, disruptions or quality control problems in its software development operations, or if we had to change development vendors, our ability to provide services to our customers would be delayed and our business, operating results and financial condition would be adversely affected.

Demand for our managed and professional services depends on increases in carrier subscribers’ use of mobile data services and mobile devices to access the mobile Internet and on our customers’ continued investment and improvement in wireless networks.

Our services comprise a mobile data service delivery platform that enables wireless carriers to monitor and charge their subscribers for access to mobile applications, content and programs that are developed by third parties and hosted by us. The majority of our revenue is based on mobile subscribers accessing mobile content and applications through our customers’ carrier-branded mobile solutions. Our ability to generate revenues from our services will depend on the extent to which businesses and consumers continue to adopt and use mobile devices to access the mobile Internet and to receive products and services via their mobile devices. While many consumers use mobile devices to communicate, the majority of consumers do not presently use mobile devices to access the mobile Internet or obtain other products or services. Consumers and businesses may not significantly increase their use of mobile data services and mobile devices to access the mobile Internet and to obtain products and services as quickly as our business model contemplates. If consumers do not continue to increase their use of mobile data services, our business, operating results and financial condition will be adversely impacted.

Further, increased demand by consumers for mobile data services delivered over wireless networks will be necessary to justify capital expenditure commitments by wireless carriers to invest in the improvement and expansion of their networks. Demand for mobile data services might not continue to increase if there is limited availability or market acceptance of mobile devices designed for such services; the multimedia content offered through wireless networks does not attract widespread interest; or the quality of service available through wireless networks does not meet consumer expectations. If long-term expectations for mobile data services are not realized or do not support a sustainable business model, wireless carriers may not commit significant capital expenditures to upgrade their networks to provide these services, the demand for our services will decrease, and we may not be able to increase our revenues or become profitable in the future.

 

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If we are unable to protect the confidentiality of our proprietary information, the value of our technology could be adversely affected.

Our business relies upon certain unpatented or unregistered intellectual property rights and proprietary information, including the mCore platform. Consequently, although we take measures to keep our key intellectual property rights and proprietary information confidential, we may not be able to protect our technology from independent invention by third parties. We currently attempt to protect most of our key intellectual property through a combination of trade secret, copyright and other intellectual property laws and by entering into employee, contractor and business partner confidentiality agreements. Such measures, however, provide only limited protection, and under certain circumstances we may not be able to prevent the disclosure of our intellectual property, or the unauthorized use or reverse engineering or independent development of our technology. This may allow our existing and potential competitors to develop products and services that are competitive with, or superior to, our services.

Further, we intend to expand our international presence by targeting countries with large populations and propensities for adopting new technologies. However, many of these countries’ intellectual property laws are not as stringent as those of the U.S. Effective patent, copyright, trademark and trade secret protections may be unavailable or limited in some foreign countries. As a result, we may not be able to effectively prevent competitors in these countries from using or infringing our intellectual property rights, which would reduce our competitive advantage and ability to compete in these regions or otherwise harm our business. In the future, we may also have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and divert our management’s attention and resources. In addition, such litigation may not be successful.

Consolidation in the telecommunications industry may reduce the number of our customers and negatively impact our financial performance.

The telecommunications industry continues to experience consolidation and an increased formation of alliances among telecommunications service providers and between telecommunications service providers and other entities. Should one of our significant customers consolidate with another company or enter into such an alliance and decide either to use a different mobile data service provider or to manage its transactions internally, it could have a negative material impact on our prospects. These consolidations and alliances may cause us to lose customers or require us to reduce prices as a result of enhanced customer leverage, which would have a material adverse effect on our business. We may not be able to offset the effects of any price reductions. We may not be able to expand our customer base to make up any decreases in revenue if we lose customers or if our transaction volumes decline.

We expect that our revenue will fluctuate, which could cause our stock price to decline.

Our revenue is subject to fluctuations due to the timing of sales of high-dollar professional services projects. Because these projects occur at irregular intervals and the dollar values vary based on customer needs, we may experience quarter-to-quarter fluctuations in revenue. In addition, any significant delays in the deployment of our services, unfavorable sales trends in our existing service categories, or changes in the spending behavior of wireless carriers could adversely affect our revenue growth. If our revenue fluctuates or does not meet the expectations of securities analysts and investors, our stock price would likely decline.

Our customer contracts lack uniformity and often are complex, which subjects us to business and other risks.

Our customers include some of the largest wireless carriers which have substantial purchasing power and negotiating leverage. As a result, we typically negotiate contracts on a customer-

 

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by­customer basis and sometimes accept contract terms not favorable to us in order to close a transaction, including indemnity, limitation of liability, refund, penalty or other terms that could expose us to significant financial or operating risk. If we are unable to effectively negotiate, enforce and accurately and timely account and bill for contracts with our key customers, our business and operating results may be adversely affected.

In addition, we have contractual indemnification obligations to our customers, most of which are unlimited in nature. If we are required to fulfill our indemnification obligations relating to third-party content or operating systems that we provide to our customers, we intend to seek indemnification from our suppliers, vendors, and content providers to the full extent of their responsibility. Even if the agreement with such supplier, vendor or content provider contains an indemnity provision, it may not cover a particular claim or type of claim or may be limited in amount or scope. As a result, we may or may not have sufficient indemnification from third parties to cover fully the amounts or types of claims that might be made against us. Any significant indemnification obligation to our customers could have a material adverse effect on our business, operating results and financial condition.

We provide service level commitments to our customers, which could cause us to incur financial penalties if the stated service levels are not met for a given period and could significantly reduce our revenue.

Our customer agreements provide service level commitments on a monthly basis. Our service level commitment varies by customer. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability and/or degraded performance of our service, we may incur financial penalties. Our revenue could be significantly impacted if we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our customers. The failure to meet our contractual level of service availability may require us to credit affected customers for a significant portion of their monthly fees, not just the value for the period of the downtime. As a result, failure to deliver services for a relatively short duration could result in our incurring significant financial penalties. Service level penalties represented 4% of total revenue in 2008, 1% of total revenue in 2009 and 3% of total revenue for the three months ended March 31, 2010. Any system failure, extended service outages, errors, defects or other performance problems with our managed and professional services could harm our reputation and may damage our customers’ businesses.

We use datacenters to deliver our platform and services. Any disruption of service at these facilities could harm our business.

We host our services and serve all of our customers from five datacenter facilities located around the U.S. We operate two datacenter facilities located in Washington State. The other three facilities are operated by third parties in Georgia, Massachusetts and North Carolina. We do not control the operations at the third-party facilities. All of these facilities are vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, terrorist attacks, power losses, telecommunications failures and similar events. They also could be subject to break-ins, computer viruses, denial of service attacks, sabotage, intentional acts of vandalism and other misconduct. The occurrence of a natural disaster or an act of terrorism, a decision to close the third-party facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in our services. Although we maintain off-site tape backups of our customers’ data, we do not currently operate or maintain a backup datacenter for any of our services, which increases our vulnerability to interruptions or delays in our service. Interruptions in our services might harm our reputation, reduce our revenue, cause us to incur financial penalties, subject us to potential liability and cause customers to terminate their contracts.

 

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Capacity constraints could disrupt access to our services, which could affect our revenue and harm our reputation.

Our service goals of performance, reliability and availability require that we have adequate capacity in our computer systems to cope with the volume of traffic through our mCore service delivery platform. As our operations grow in size and scope, we will need to improve and upgrade our systems and infrastructure to offer our customers and their subscribers enhanced services, capacity, features and functionality. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources before the volume of our business rises, with no assurance that our revenues will grow. If our systems cannot be expanded in a timely manner to cope with increased traffic we could experience disruptions in service, lower customer and subscriber satisfaction and delays in the introduction of new services. Any of these problems could impair our reputation and cause our revenue to decline.

Our research and development investments may not lead to successful new services or enhancements.

We will continue to invest in research and development for the introduction of new enhancements to existing services designed to improve the capacity, data processing rates and features of our services. We must also continue to develop new features and to improve functionality of our platform based on specific customer requests and anticipated market needs. Research and development in the mobile data services industry, however, is complex, expensive and uncertain. We believe that we must continue to dedicate a significant amount of resources to research and development efforts to maintain our competitive position. If we continue to expend a significant amount of resources on research and development, but our efforts do not lead to the successful introduction of service enhancements that are competitive in the marketplace, there could be a material adverse effect on our business, operating results, financial condition and market share.

Our solutions are complex and may take longer to develop than anticipated, and we may not recognize revenue from new service enhancements until after we have incurred significant development costs.

Most of our services must be tailored to meet customer specifications. In addition, our international customers often require significant customization of our platform to meet local needs. As a result, we often develop new features and enhancements to our existing services. These new features and enhancements often take substantial time to develop because of their complexity and because customer specifications sometimes change during the development cycle. We often do not recognize revenue from new services or enhancements until we have incurred significant development costs. In addition to delayed recognition of revenue from such new services and enhancements, our operating results will suffer if the new services or enhancements fail to meet our customers’ expectations.

We believe our long-term success depends, in part, on our ability to expand the sales of our services to customers located outside of the U.S. As a result, our business is susceptible to risks associated with international sales and operations.

In addition to the U.S., we currently operate in the United Kingdom, the Netherlands and Singapore, and we intend to expand our offering of mobile data services into a number of additional international markets in the near future. As a result, we are subject to the additional risks of conducting business outside the U.S., which may include:

 

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increased costs associated with localization of our services, including translations into foreign languages and adaptation to local practices and regulatory requirements;

 

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longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

 

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difficulties managing and staffing international operations;

 

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delays resulting from difficulty in obtaining export licenses, tariffs and other trade barriers and restrictions on export or import of technology;

 

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less stringent intellectual property protections;

 

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unexpected changes in, or impositions of, legislative, regulatory or tax requirements and burdens of complying with a wide variety of foreign laws and other factors beyond our control;

 

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general geopolitical risks in connection with international operations, such as political, social and economic instability;

 

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compliance with anti-corruption and bribery laws, including the Foreign Corrupt Practices Act of 1977;

 

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changes in diplomatic, trade or business relationships;

 

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foreign currency fluctuations that may substantially affect the dollar value of our revenue and costs in foreign markets;

 

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foreign exchange controls that may prevent or limit our ability to repatriate income earned in foreign markets; and

 

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increased financial accounting and reporting burdens.

We have limited experience operating in foreign jurisdictions and are rapidly building our international operations. Operating in international markets requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability.

Our ability to use net operating and certain built-in losses to reduce future tax payments may be limited by provisions of the Internal Revenue Code, and may be subject to further limitation as a result of future transactions.

Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, contain rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss and tax credit carryforwards and certain built-in losses recognized in the years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders who directly or indirectly own 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change occurs, the yearly taxable income limitation on the use of net operating loss and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long term tax exempt rate and the value of the company’s stock immediately before the ownership change. As a result, we may be unable to offset our taxable income with losses, or our tax liability with credits, before such losses and credits expire.

In addition, it is possible that future transactions (including issuances of new shares of our common stock and sales of shares of our common stock) will cause us to undergo one or more additional ownership changes. In that event, we generally would not be able to use our pre-change loss or certain built-in losses prior to such ownership change to offset future taxable income in excess of the annual limitations imposed by Sections 382 and 383 and those attributes already subject to limitations (as a result of our prior ownership changes) may be subject to more stringent limitations.

 

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Competition for our employees is intense and failure to recruit and retain skilled personnel could negatively affect our financial results as well as our ability to maintain relationships with clients and drive future growth.

We provide sophisticated mobile data delivery platforms and services to our customers. To attract and retain customers, we believe we need to demonstrate professional acumen and build trust and strong relationships, and that we must identify, recruit, retain and motivate new hardware and software engineers, programmers, technical support personnel and marketing and sales representatives. Competition is intense for skilled personnel with engineering, product development, technical and marketing and sales experience, and we may not be able to identify individuals that possess the necessary skills and experience, or we may not be able to employ these individuals on acceptable terms and conditions, or at all. Moreover, competition has been increasing the cost of hiring and retaining skilled professionals, a trend which could adversely affect our operating margins and financial results. Our business and growth may suffer if we are unable to hire and retain skilled personnel.

We rely heavily on our executive officers and other key employees for the success of our business and the loss of our executive team could adversely impact our business.

We believe our success will depend in part upon retaining the services of executive officers and other key employees. Many of our executive officers joined our company within the last two years. If our executive officers or non-executive key employees leave and we cannot replace them with suitable candidates quickly, we could experience difficulty in managing our business properly. This could harm our business prospects, client relationships, employee morale and financial results. We currently maintain a key-person life insurance policy on our chief executive officer.

Our ability to sell our services is highly dependent on the quality of our support and services offerings, and our failure to offer high quality support and services would have a material adverse effect on our sales and results of operations.

Our customers depend on our support organization to resolve issues relating to our mCore service delivery platform. We believe that a high level of support is critical for the successful marketing and sale of our services and future enhancements to mCore. Failure to effectively assist our customers in deploying their mobile data portals and storefronts, quickly resolve post-deployment issues, and otherwise provide effective ongoing support would adversely affect our ability to sell our services to existing customers and could harm our reputation among potential customers. In addition, as we expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English. As a result, our failure to maintain high quality support and services could have a material adverse effect on our business, operating results and financial condition.

We rely on the development of content and applications by third parties, and if wireless carriers and their subscribers do not find such content compelling, our sales could decline.

Our business is dependent on the availability of content and applications for mobile devices that wireless carriers and their subscribers find useful and compelling. A significant percentage of our revenue is derived from the sale of applications and content through storefronts and portals we operate for our wireless carrier customers. We also believe that demand for our services will increase as the number of applications and the volume of mobile content increases because our services facilitate the navigation and organization of large numbers of applications and large amounts of content. We do not develop applications or content; rather, we facilitate the sale and consumption of applications and content developed by third parties through our wireless carrier customers. If third-party developers fail to create content and applications that wireless carriers and their subscribers find useful and

 

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compelling, our sales would decline, and that would have a significant adverse effect on our business, operating results and financial condition.

Our solutions may contain undetected software errors, which could harm our reputation and adversely affect our business.

Our solutions are highly technical and have contained and may contain undetected errors, defects or security vulnerabilities. Some errors in our solutions may only be discovered after a solution has been deployed and used by our wireless carrier customers. Any errors, defects or security vulnerabilities discovered in our solutions after commercial release could result in loss of revenue or delay in revenue recognition, loss of customers and increased service cost, any of which could adversely affect our business, operating results and financial condition. In addition, we could face claims for product liability, tort or breach of warranty. Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention away from the business and adversely affect the market’s perception of us and our services. In addition, if our business liability insurance coverage is inadequate or future coverage is unavailable on acceptable terms or at all, our operating results and financial condition could be adversely impacted.

We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders and harm our business, operating results or financial condition.

We expect to make selective domestic and international acquisitions of, and investments in, businesses that offer complementary products, services and technologies, augment our market coverage, and/or enhance our technological capabilities. We may also enter into strategic alliances or joint ventures to achieve these goals. We may not be able to identify suitable acquisition, investment, alliance, or joint venture opportunities or consummate any such transactions or relationships on terms and conditions acceptable to us. Such transactions or relationships that we enter into may not be successful. In addition, acquisitions and investments outside of the U.S. involve unique risks related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.

These transactions or any other acquisitions or dispositions involve risks and uncertainties, which may have a material adverse effect on our business. The integration of acquired businesses may not be successful and could result in disruption to other parts of our business. In addition, the integration may require that we incur significant restructuring charges. To integrate acquired businesses, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. The difficulties of the integrations may be further complicated by such factors as geographic distances, lack of experience operating in the geographic market or industry sector of the acquired business, delays and challenges associated with integrating the business with our existing businesses, diversion of management’s attention from daily operations of the business, potential loss of key employees and customers of the acquired business, the potential for deficiencies in internal controls at the acquired business, performance problems with the acquired business’ technology, difficulties in entering markets in which we have no or limited direct prior experience, exposure to unanticipated liabilities of the acquired business, insufficient revenues to offset increased expenses associated with the acquisition, and our ability to achieve the growth prospects and synergies expected from any such acquisition. Even when an acquired business has already developed and marketed products and services, there can be no assurance that product or service enhancements will be made in a timely fashion or that all pre-acquisition due diligence will have identified all possible issues that might arise with respect to such acquired assets.

Any acquisition may also cause us to assume liabilities, record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential impairment charges, incur

 

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amortization expense related to certain intangible assets, increase our expenses and working capital requirements, and subject us to litigation, which would reduce our return on invested capital. Failure to manage and successfully integrate the acquisitions we make could materially harm our business and operating results.

Any future acquisitions may require additional debt or equity financing, which in the case of debt financing, will increase our leverage and, in the case of equity financing, would be dilutive to our existing stockholders. Any decline in our perceived credit-worthiness associated with an acquisition could adversely affect our ability to borrow and result in more restrictive borrowing terms. As a result of the foregoing, we also may not be able to complete acquisitions or strategic transactions in the future to the same extent as in the past, or at all. These and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our business, financial condition and results of operations.

If we fail to manage future growth effectively, our business could be harmed.

We have experienced, and expect to continue to experience, rapid growth. Our revenue from continued operations grew from $17.9 million during the year ended December 31, 2005 to $119.5 million during the twelve months ended March 31, 2010. We also increased the number of our full-time employees from 272 at December 31, 2005 to 355 at March 31, 2010. This growth has placed significant demands on our management, operational and financial infrastructure. To manage growth effectively, we must continue to improve and enhance our managerial, operational and financial controls, and train and manage our employees, and expand our employee base. We must also manage new and existing relationships with customers, suppliers, business partners and other third parties. These activities will require significant expenditures and allocation of valuable management resources. If we fail to maintain the efficiency of our organization as we grow, our profit margins may decrease, and we may be unable to achieve our business objectives.

In recent years, we have recognized significant impairment losses related to our goodwill, intangible assets and property and equipment. Additional impairment losses may be recognized which would adversely affect our financial results.

We are required under GAAP to test goodwill for impairment annually and to assess our amortizable intangible assets and long-lived assets, as well as goodwill, for impairment when events or changes in circumstance indicate the carrying value may not be recoverable. Such impairment losses totaled $26.9 million, $29.1 million and $5.8 million in 2007, 2008 and 2009, respectively. Factors which have led to impairments in the past include changes in business strategy, restructuring of the business in connection with acquisitions, actual performance of acquired businesses below our expectations and expiration of customer contracts. Unanticipated events or changes in circumstances could impact our ability to recover the carrying value of some or all of these assets. In addition, we expect to make additional acquisitions in the future which would increase the amount of such assets on our books that would be subject to potential future impairment. In the event any of our current or future assets became impaired, the associated impairment charge could adversely impact our results of operations.

Our business involves the use, transmission and storage of confidential information, and the failure to properly safeguard such information could result in significant reputational harm and monetary damages.

Our business activities involve the use, transmission and storage of confidential information. We believe that we take commercially reasonable steps to protect the security, integrity and confidentiality of the information we collect and store, but there is no guarantee that inadvertent or unauthorized disclosure will not occur or that third parties will not gain unauthorized access to this information

 

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despite our efforts. If such unauthorized disclosure or access does occur, we may be required, under existing and proposed laws, to notify persons whose information was disclosed or accessed. We may also be subject to claims of breach of contract for such disclosure, investigation and penalties by regulatory authorities and potential claims by persons whose information was disclosed. The unauthorized disclosure of information may result in the termination of one or more of our commercial relationships and/or a reduction in customer confidence and usage of our services, which would have a material adverse effect on our business, operating results and financial condition.

We may be subject to liability for our use or distribution of information that we receive from third parties.

As part of our business, we obtain content and commercial information from third parties. When we distribute this information, we may be liable for the data contained in that information. There is a risk that we may be subject to claims related to the distribution of such content such as defamation, negligence, intellectual property infringement, violation of privacy or publicity rights and product or service liability, among others. Laws or regulations of certain jurisdictions may also deem some content illegal, which may expose us to additional legal liability. We also gather personal information from subscribers in order to provide personalized services. Gathering and processing this personal information may subject us to legal liability for, among other things, defamation, negligence, invasion of privacy and product or service liability. We are also subject to laws and regulations, both in the U.S. and abroad, regarding the collection and use of subscriber information. If we do not comply with these laws and regulations, we may be exposed to legal liability.

Some of the agreements by which we obtain content do not contain indemnity provisions in our favor. Even if a given contract does contain indemnity provisions, they may not cover a particular claim or type of claim or the party granting indemnity may not have the financial resources to cover the claim. Our insurance coverage may be inadequate to cover fully the amounts or types of claims that might be made. Any liability that we incur as a result of content we receive from third parties could adversely impact our results of operations.

Actual or perceived security vulnerabilities in mobile devices could negatively affect our business.

The security of mobile devices and wireless networks is critical to our business. Individuals or groups may develop and deploy viruses, worms and other malicious software programs that attack mobile devices and wireless networks. Security experts have identified computer worms targeted specifically at mobile devices. Security threats could lead some mobile subscribers to reduce or delay their purchases of mobile content and applications in an attempt to reduce the security threat posed by viruses, worms and other malicious software. Wireless carriers and device manufacturers may also spend more on protecting their wireless networks and mobile devices from attack, which could delay adoption of new mobile devices that tend to include more features and functionalities that facilitate increased use of mobile data services. Actual or perceived security threats, and reactions to such threats, could reduce our revenue or require unplanned expenditures on new security initiatives.

If we fail to maintain proper and effective internal controls or are unable to remediate the deficiencies in our internal controls, our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed.

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial

 

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statements in accordance with GAAP. We are in the process of documenting and reviewing our internal controls and procedures. Beginning with fiscal year 2011, we will be required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, which requires annual management assessment of the effectiveness of our internal control over financial reporting and a report by our independent auditors addressing this assessment. Our compliance with Section 404 will require that we incur additional expense and expend management time on compliance-related issues. If we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market’s confidence in our financial statements could decline and the market price of our common stock could be adversely impacted.

With respect to fiscal year 2007, we and our independent registered public accounting firm identified a material weakness in our internal controls over financial reporting. The material weakness related to insufficient personnel within our accounting function and inadequate accounting policies and procedures documentation. With respect to fiscal years 2008 and 2009, we and our independent registered public accounting firm identified significant deficiencies in our internal controls over financial reporting but they did not create a material weakness. While we have made efforts to improve our accounting policies and procedures, additional deficiencies and weaknesses may be identified. If material weaknesses or deficiencies in our internal controls exist and go undetected, our financial statements could contain material misstatements that, when discovered in the future could cause us to fail to meet our future reporting obligations and cause the price of our common stock to decline.

Claims by others that we infringe their intellectual property rights could force us to incur significant costs.

We cannot be certain that our services do not and will not infringe the intellectual property rights of others. Many parties in the telecommunications and software industries have begun to apply for and obtain patent protection for innovative proprietary technologies and business methods. Given that our platform interacts with various participants in the mobile data ecosystem, existing or future patents protecting certain proprietary technology and business methods may preclude us from using such proprietary technology or business methods, or may require us to pay damages for infringement or fees to obtain a license to use the proprietary technology or business methods (which may not be available or, if available, may be on terms that are unacceptable), or both, which would increase our cost of doing business. In addition, litigation concerning intellectual property rights and the infringement of those rights, including patents, trademarks and copyrights, has grown significantly over the last several years and is likely to grow further in the future. If we become the subject of infringement claims, we may be forced into litigation, which will require us to devote significant resources and management time and attention to defend against such infringement claims. If it is determined that our services infringe the intellectual property rights of a third party, we may be required to pay damages or enjoined from using that technology or forced to obtain a license (which may not be available or, if available, may be on terms that are unacceptable) and/or pay royalties to continue using that technology. The assertion of intellectual property infringement claims against our technology could have a material adverse effect on our business, operating results and financial condition.

Government regulation of the mobile industry is evolving, and unfavorable changes or our failure to comply with regulations could harm our business and operating results.

As the mobile industry continues to evolve, we believe greater regulation by federal, state or foreign governments or regulatory authorities becomes more likely. For example, we believe increased regulation is likely in the area of data privacy, and laws and regulations applying to the solicitation, collection, processing or use of personal or consumer information, could affect our customers’ ability to use and share data, potentially reducing our ability to utilize this information for the purpose of

 

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continued improvement of the overall mobile subscriber experience. In addition, any regulation of the requirement to treat all content and application provider services the same over the mobile Internet, sometimes referred to as net neutrality regulation, could reduce our customers’ ability to make full use of the value of our services. Further, taxation of services provided over the Internet or other charges imposed by government agencies or by private organizations to access the Internet may be imposed. Any regulation imposing greater fees for Internet use or restricting information exchange over the Internet could result in a decline in the use of the mobile Internet and the viability of mobile data service providers, which could harm our business and operating results. Finally, any further or more restrictive regulation of the ability of wireless carriers to include charges for goods and services in a mobile subscriber’s bill or their ability to offer up these capabilities to third parties, such as ourselves, on a bill-on-behalf-of basis could negatively impact our business.

Our use of open source software could limit our ability to commercialize our services.

We have incorporated open source software into our services. Although we closely monitor our use of open source software, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our services. In that event, we could be required to seek licenses from third parties in order to continue offering our services, to re-engineer our products or to discontinue sales of our services, any of which could materially adversely affect our business.

Our failure to raise additional capital or generate the cash flows necessary to expand our operations and invest in our services could reduce our ability to compete successfully.

In the future, we may require additional amounts of capital to execute our business plan. We may require capital to complete planned upgrades and enhancements to our products and services, increase our investment in capital equipment to support new and existing customers, extend our marketing and sales efforts, expand internationally and make strategic acquisitions if attractive opportunities become available. Our future capital requirements will depend on many factors, including the time and cost of our service enhancements, the rate of mobile data subscriber growth, the acceptance rate of mobile devices as multi-functional computing platforms, the demand for wireless applications, the time and cost of successfully entering into new customer contracts and the amount of investment needed to achieve our sales and marketing objectives.

Based on our current cash balances and projected revenues, and taking into account the additional capital we expect to receive from this offering, we estimate that we will have sufficient capital to execute our near term business plans and maintain positive cash flow. However, this may not be the case. Further, we may not have sufficient capital to take advantage of opportunities for strategic acquisitions of significant complementary or competitive businesses that could enhance our business and operating results. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests and the per share value of our common stock could decline. If we engage in debt financing, we may be required to accept terms that further restrict our ability to incur additional indebtedness and force us to maintain specified liquidity or other ratios. We may not be able to raise any additional capital that we may require on terms acceptable to us or at all. If we cannot obtain financing on commercially reasonable terms when needed, we may not be able to pursue some elements of our current strategy and business plan, and we may not be able to achieve our financial objectives.

 

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Risks Related to this Offering and Ownership of Our Common Stock

There is no established trading market for our common stock, and the market price of our common stock may be highly volatile or may decline regardless of our operating performance.

There has been no public market for our common stock prior to this offering. If you purchase shares of our common stock in this offering, you will pay a price that was not established in the public trading markets. The initial public offering price for our shares will be determined through negotiations among the underwriters, the selling stockholders and us. This initial public offering price may vary from the market price of our common stock following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell your shares above the initial public offering price, and you may suffer a loss on your investment. In addition, an active trading market for our common stock following this offering may not develop or, if developed, may not be sustained. An inactive market may also impair our ability to raise capital to continue to fund operations by selling stock and may impair our ability to acquire other companies or assets by using our common stock as consideration.

Broad market and industry factors also may adversely affect the market price of our common stock, regardless of our actual operating performance. Factors that could cause wide fluctuations in the stock price may include, among other things:

 

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actual or anticipated variations in our financial condition and operating results;

 

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overall conditions or trends in our industry;

 

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addition or loss of significant customers;

 

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competition from existing or new products;

 

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changes in the market valuations of companies perceived by investors to be comparable to us;

 

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announcements by us or our competitors of technological innovations, new services or service enhancements;

 

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announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures or capital commitments;

 

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announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

 

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additions or departures of key personnel;

 

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changes in the estimates of our operating results or changes in recommendations by any securities or industry analysts that elect to follow our common stock; and

 

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sales of our common stock by us or our stockholders, including sales by our directors and officers.

In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our common stock. These fluctuations may be even more pronounced in the trading market for our common stock immediately following this offering. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. We may be the target of this type of litigation in the future. Securities litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources, whether or not we are successful in such litigation.

 

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Requirements associated with being a public company will increase our costs, as well as divert company resources and management’s attention, and affect our ability to attract and retain qualified board members and executive officers.

Prior to this offering, we have not been subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, or the other rules and regulations of the SEC or any securities exchange relating to public companies. We will comply with Section 404(a) (management’s report on financial reporting) under the Sarbanes-Oxley Act for the year ending December 31, 2010 and will comply with Section 404(b) (auditor’s attestation) no later than the year ending December 31, 2011. We are working with our legal, independent accounting, and financial advisors to identify those areas in which changes or enhancements should be made to our financial and management control systems to manage our growth and obligations as a public company. Some such areas include corporate governance, corporate control, internal audit, disclosure controls and procedures, and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. However, the expenses that will be required in order to prepare adequately for becoming a public company could be material. Compliance with the various reporting and other requirements applicable to public companies will also require considerable time and attention of management. We cannot predict or estimate the amount of the additional costs we may incur, the timing of such costs or the impact that our management’s attention to these matters will have on our business. In addition, the changes we make may not be sufficient to satisfy our obligations as a public company on a timely basis or at all.

In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees and our executive team.

Our principal stockholders may exert substantial influence over us and may exercise their control in a manner adverse to your interests.

Upon completion of this offering and assuming no exercise of an option to purchase additional shares by the underwriters, funds affiliated with Advanced Equities, Inc. and New Enterprise Associates, Inc. and Koala Holding LP, an entity beneficially owned by Carl C. Icahn, will own             ,             , and              shares, respectively, or approximately         %,         %, and         %, respectively, of our outstanding common stock. Koala Holding LP owns substantially all of our outstanding shares of Series H preferred stock. Because a limited number of persons may exert substantial influence over us, transactions could be difficult or impossible to complete without the support of those persons. It is possible that these persons will exercise control over us in a manner adverse to your interests.

So long as 10% of the Series H preferred stock remains outstanding, without the consent of at least a majority of the then outstanding shares of Series H preferred stock, we may not, among other things, (i) amend or waive any provision of our certificate of incorporation or bylaws so as to affect the Series H preferred stock adversely; (ii) incur indebtedness other than with respect to (x) vendors, service providers, trade creditors, employees, independent contractors and equipment lessors, in each case, in the ordinary course of business, (y) intercompany indebtedness, and (z) indebtedness not to exceed $42 million outstanding under credit facilities; (iii) pay dividends or make certain stock repurchases; or (iv) issue capital stock ranking senior or pari passu to the Series H preferred stock. In addition, holders of our Series H preferred stock will have the right to designate two members to our board of directors.

For more information regarding ownership of our outstanding stock by our principal and selling stockholders and the rights associated with our Series H preferred stock, see the sections of this prospectus entitled “Principal and Selling Stockholders” and “Description of Capital Stock.”

 

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Future sales of our common stock may cause our stock price to decline.

If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decline. These sales might also make it more difficult for us to sell additional equity securities at a time and price that we deem appropriate. Based on                  shares of common stock outstanding as of March 31, 2010, upon completion of this offering, we will have                  shares of common stock outstanding. Of these outstanding shares, all of the shares of our common stock sold in this offering will be freely tradable in the public market, except for any shares held by our affiliates as defined in Rule 144 of the Securities Act.

We, our directors and executive officers and substantially all of our stockholders, including the selling stockholders, have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of our common stock or any securities convertible into, or exercisable or exchangeable for, shares of our common stock for a period of 180 days from the date of this prospectus, which may be extended upon the occurrence of specified events, except with the prior written consent of J.P. Morgan Securities Inc. and Goldman, Sachs & Co. However, J.P. Morgan Securities Inc. and Goldman, Sachs & Co., in their sole discretion, may release any of the securities subject to these lock-up agreements at any time without notice.

After the expiration of the lock-up agreements, up to          restricted securities may be sold into the public market in the future without registration under the Securities Act to the extent permitted under Rule 144. Of these restricted securities,                  shares will be available for sale approximately 180 days after the date of this prospectus subject to volume or other limits under Rule 144. In addition, once the lock-up agreements expire, stockholders holding                  shares of these restricted securities will have registration rights that could allow those holders to sell their shares freely through a future registration statement filed under the Securities Act. See the section of this prospectus entitled “Certain Relationships and Related Party Transactions—Registration Rights Agreement” for more information on these registration rights.

Furthermore,                  shares of common stock reserved for issuance pursuant to stock options that will be outstanding immediately following the closing of this offering and                  shares available for grant under our equity incentive plans following the closing of this offering, if issued or granted, will become eligible for sale in the public market once permitted by provisions of various vesting agreements, lock-up agreements and Rule 144, as applicable. We intend to file a registration statement on Form S-8 under the Securities Act to register approximately          million shares of our common stock for issuance under these equity incentive plans. For additional information, see the section of this prospectus entitled “Shares Eligible for Future Sale.” If these additional shares of common stock are, or if it is perceived that they will be, sold in the public market, the trading price of our common stock could decline.

Our historical financial statements may not be indicative of future performance.

In light of our acquisition of the mobile division of InfoSpace on December 28, 2007, our operating results only reflect the impact of the acquisition from that date, and therefore comparisons with prior periods are difficult. As a result, our limited historical financial performance as owners of the mobile division of InfoSpace may make it difficult for stockholders to evaluate our business and results of operations to date and to assess our future prospects and viability. Furthermore, our brief operating history has resulted in revenue and profitability growth rates that may not be indicative of our future results of operations. As a result, the price of our common stock may be volatile.

In addition, we exited two lines of business in 2007 and 2008, our direct to consumer business, which was sold in two transactions in 2007 and 2008, and a business we refer to as media and

 

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entertainment, which was discontinued in 2008. The loss from discontinued operations in the 2008 period includes losses from these discontinued businesses.

As a result of the foregoing factors, our historical results of operations are not necessarily indicative of the operating results to be expected in the future.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our common stock, or if our operating results do not meet their expectations, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these reports or analysts. If any of the analysts who cover our company downgrades our stock, or if our operating results do not meet the analysts’ expectations, our stock price could decline. Moreover, if any of these analysts ceases coverage of our company or fails to publish regular reports on our business, we could lose visibility in the financial markets, which in turn could cause our stock price and trading volume to decline.

We currently do not intend to pay dividends on our common stock and, as a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

We have never declared or paid any dividends on our common stock and currently do not expect to declare or pay dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used in the operation and growth of our business. Any determination to pay dividends in the future will be at the discretion of our board of directors. In addition, our ability to pay dividends on our common stock is currently limited by the covenants of our credit facility and may be further restricted by the terms of any future debt or preferred securities. Accordingly, your only opportunity to achieve a return on your investment in our company may be if the market price of our common stock appreciates and you sell your shares at a profit. The market price for our common stock may never exceed, and may fall below, the price that you pay for such common stock.

You will experience immediate and substantial dilution in the book value of your common stock as a result of this offering.

The initial public offering price of our common stock is considerably more than the pro forma, net tangible book value per share of our outstanding common stock. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because our earlier investors paid substantially less than the initial public offering price when they purchased their shares. Investors purchasing common stock in this offering will incur immediate dilution of $         in pro forma, net tangible book value per share of common stock, based on the assumed initial public offering price of $         per share, which is the midpoint of the price range listed on the front cover page of this prospectus. In addition, following this offering, purchasers in the offering will have contributed         % of the total consideration paid by our stockholders to purchase shares of common stock. The exercise of outstanding options and warrants and the conversion of our Series H preferred stock into common stock will result in further dilution. For a further description of the dilution that you will experience immediately after this offering, see the section of this prospectus entitled “Dilution.” In addition, if we raise funds by issuing additional securities, the newly-issued shares will further dilute your percentage ownership of our company.

 

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Our management will have broad discretion over the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

Our management will have broad discretion to use our net proceeds from this offering, and you will be relying on their judgment regarding the application of these proceeds. Our management might not apply our net proceeds of this offering in ways that increase the value of your investment. We expect to use the net proceeds from this offering for working capital and general corporate purposes and for capital expenditures, which may in the future include investments in, or acquisitions of, complementary businesses, services or products. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

Congress has enacted new legislation that affects the taxation of common stock held by or through foreign entities.

Recently enacted legislation generally will impose a withholding tax of 30% on dividend income from our common stock and the gross proceeds of a disposition of our common stock paid to certain foreign entities after December 31, 2012, unless the foreign entity complies with certain conditions or an exception applies. Please see “Material United States Federal Income Tax Considerations to Non-United States Holders—New Legislation Affecting Taxation of Common Stock Held By or Through Foreign Entities” for more information.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains statements that do not directly or exclusively relate to historical facts. As a general matter, forward-looking statements reflect our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. We generally identify forward looking statements by terminology such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” or the negative version of those words or other comparable words, but the absence of these words does not necessarily mean that a statement is not forward-looking. Examples of forward-looking statements include, but are not limited to, statements we make regarding “our expectation that international revenue will increase in absolute dollars and as a percentage of our total revenue” and “our anticipated levels of capital expenditures during the next year.”

Any forward-looking statements contained in this prospectus are based upon our historical performance, current plans, estimates, expectations and other factors we believe are appropriate under the circumstances. The inclusion of this forward-looking information should not be regarded as a representation by us, the underwriters or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these statements.

The following uncertainties and factors, among others (including the factors described in the section entitled “Risk Factors” in this prospectus), could affect our future performance and cause actual results to differ materially from those expressed or implied by forward-looking statements:

 

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our expectations regarding our revenues, expenses and operations and our ability to sustain profitability;

 

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our anticipated cash needs and our estimates regarding our capital requirements;

 

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our ability to expand our customer base and relationships with wireless carriers and content and application providers;

 

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our ability to expand our service offerings;

 

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our anticipated growth strategies and sources of new revenues;

 

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unanticipated trends and challenges in our business and the markets in which we operate;

 

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our ability to recruit and retain qualified employees and staff our operations appropriately;

 

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our ability to estimate accurately for purposes of preparing our consolidated financial statements;

 

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our international expansion plans;

 

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compliance with governmental regulations; and

 

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our spending of the net proceeds from this offering.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus.

Any forward-looking statement made by us in this prospectus speaks only as of the date on which it is made. Unless required by law, we do not undertake any obligation to update or review any

 

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forward-looking statement, whether as a result of new information, future developments or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission, after the date of this prospectus.

This prospectus contains statistical data that was derived from industry publications and reports, including the Yankee Group’s “Global Mobile Forecast,” December 2009; “Content Delivery Platforms: The Multimedia Service Delivery Vehicle,” February 2007; “North America ConnectedView Forecast,” March 2010; “Link Data: North America Mobile Carrier Monitor,” March 2010; “Link Data: Asia-Pacific Mobile Carrier Monitor,” March 2010; and “Link Data: Europe Mobile Carrier Monitor,” March 2010. In the fourth quarter of 2009, Yankee Group updated its Content Delivery Platform report and intends to issue the updated report in the first half of 2010. These industry publications generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. Although we have not independently verified the data contained in these industry publications and reports, based on our industry experience we believe that the publications are reliable and the conclusions contained in the publications and reports are reasonable.

In addition, this prospectus contains statistical data on pages 76-77 from a custom report prepared by Yankee Group at our request. We have filed a consent from Yankee Group to use this information as an exhibit to this registration statement.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $         million from the sale of                  shares of common stock in this offering at the assumed initial public offering price of $         per share, the midpoint of the range set forth on the front cover page of this prospectus, after deducting underwriting commissions and discounts of $         million and estimated expenses of $         million. We will not receive any proceeds from the sale of shares by the selling stockholders. See “Principal and Selling Stockholders.”

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the range set forth on the front cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $        , after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

We plan to use the net proceeds of the offering to fund investments in, and acquisitions of, competitive and complementary businesses, products or technologies. We do not, however, have agreements or commitments for any specific investments or acquisitions at this time.

Pending use of the net proceeds from this offering, we intend to invest the remaining net proceeds in short-term, interest-bearing investment grade securities.

 

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DIVIDEND POLICY

We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. Our ability to pay cash dividends on our common stock is limited by the covenants of our credit facility and may be further restricted by the terms of any future debt or preferred securities.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2010:

 

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on an actual basis; and

 

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on a pro forma, as adjusted, basis to give effect to:

 

Ÿ

the sale by us of                  shares of our common stock at an assumed initial public offering price of $         per share, the midpoint of the range set forth on the front cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us;

 

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the conversion of 247,111,155 shares of our preferred and redeemable preferred stock (other than shares of Series H preferred stock) to 18,343,905 common shares at fixed conversion rates;

 

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the conversion of 64,102,881 shares of our redeemable preferred stock to                  common shares based on an assumed initial public offering price of $         per share, the midpoint of the range set forth on the front cover page of this prospectus;

 

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the reclassification of the redeemable preferred stock warrant liability to additional paid-in capital; and

 

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the recording of approximately $16.3 million stock-based compensation expense due to the vesting of restricted stock triggered by the closing of this offering.

You should read the following table in conjunction with our consolidated financial statements and related notes, “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this prospectus.

 

		As of March 31, 2010
		Actual				Pro Forma, As Adjusted(1)
						(Unaudited)
		(In millions)
Cash and cash equivalents		$	25.4			$
Debt:
Current portion of long-term debt		$	—			$
Long-term debt, less current portion			—
Total debt			—
Redeemable preferred stock			423.6
Stockholders’ deficit
Preferred stock, $0.001 par value; 7,613,944 shares authorized, 7,338,769 shares issued and outstanding, actual,              shares authorized,              shares issued and outstanding, pro forma			17.4
Common stock, $0.001 par value; 625,000,000 shares authorized, 7,741,412 shares issued and outstanding, actual, 625,000,000 shares authorized,              shares issued and outstanding, pro forma			0.1
Additional paid-in capital			—
Accumulated deficit			(313.7	)
Accumulated other comprehensive income			—
Total stockholders’ deficit			(296.2	)
Total capitalization		$	127.4			$

 

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(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease), respectively, the amount of additional paid-in capital, total stockholders’ deficit and total capitalization by approximately $         million, assuming the number of shares offered by us, as set forth on the front cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The outstanding share information set forth above is as of March 31, 2010 and:

 

Ÿ

excludes 1,178,873 shares of common stock issuable upon the exercise of stock options, at a weighted average exercise price of $10.67 per share and 1,471,567 shares of our common stock reserved for future grants under our equity incentive plans;

 

Ÿ

excludes 333,333 shares of common stock issuable upon the exercise of options with an exercise price of $20.40 that will be outstanding at the consummation of this offering;

 

Ÿ

excludes 446,000 shares of common stock issuable upon the exercise of options with an exercise price equal to the public offering price that will be granted and outstanding at the consummation of this offering;

 

Ÿ

excludes 2,993,394 shares of common stock issuable upon the exercise of warrants to purchase shares of common stock, at a weighted average exercise price of $16.16;

 

Ÿ

excludes 594,639 shares of common stock issuable upon the exercise of warrants to purchase 8,919,591 shares of Series I redeemable preferred stock at an exercise price of $0.97 that upon consummation of this offering will represent warrants to purchase shares of common stock;

 

Ÿ

excludes                 shares of common stock issuable upon the exercise of warrants to purchase 292,198 shares of Series A and B redeemable preferred stock at a weighted average exercise price of $0.37 that upon consummation of this offering will represent warrants to purchase shares of common stock. The common stock issuable upon conversion of the Series A and B redeemable preferred stock at the consummation of this offering has been determined using an assumed initial public offering price of $         per share, the midpoint of the price range shown on the front cover page of this prospectus; and

 

Ÿ

excludes 2,188,749 shares of common stock issuable upon the conversion of our Series H preferred stock.

 

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DILUTION

As of March 31, 2010, our net tangible book value was $41.3 million or $5.34 per share of common stock. If you invest in our common stock, your investment will be diluted immediately to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering. Our pro forma net tangible book value as of March 31, 2010 was approximately $         million, or $         per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets, less our total liabilities, divided by the number of shares of common stock outstanding as of March 31, 2010, after giving effect to the conversion of all outstanding shares of our redeemable preferred stock and preferred stock, other than Series H, into              shares of common stock immediately prior to the closing of this offering and a 15-for-1 reverse stock split of our common stock expected to be approved by our stockholders and effected prior to the effective date of the registration statement of which this prospectus is a part.

Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma net tangible book value per share of common stock immediately after the completion of this offering. After giving effect to our sale of shares of common stock in this offering at the initial public offering price of $         per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of                      would have been $         million, or $         per share. This represents an immediate increase in net tangible book value of $         per share to existing stockholders and an immediate dilution in net tangible book value of $         per share to investors purchasing common stock in this offering, as illustrated by the following table:

 

Initial public offering price per share		$
Pro forma net tangible book value per share prior to this offering as of March 31, 2010		$
Increase in pro forma net tangible book value per share attributable to investors purchasing shares in this offering
Pro forma net tangible book value per share after this offering
Dilution in pro forma net tangible book value per share to new investors		$

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the front cover page of this prospectus, would increase (decrease) our pro forma net tangible book value by $         million, our pro forma net tangible book value per share after this offering by $         per share, and the dilution to new investors in this offering by $         per share, assuming the number of shares of common stock offered by us, as set forth on the front cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares of our common stock in full in this offering, the pro forma net tangible book value per share after this offering would be $         per share, the increase in pro forma net tangible book value per share to existing stockholders would be $         per share and the dilution to new investors purchasing shares in this offering would be $         per share.

 

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The following table summarizes, on the same pro forma basis as of March 31, 2010, the differences between the existing stockholders and the new stockholders in this offering with respect to the number of shares purchased from us, the total consideration paid, and the average price per share paid before deducting the underwriting discounts and commissions and estimated offering expenses payable by us. The calculations, with respect to shares purchased by new investors in this offering, reflect an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the front cover page of this prospectus.

 

		Shares Purchased					Total Consideration						Average Price Per Share
		Number		Percentage			Amount			Percentage
Existing stockholders					%		$				%		$
New investors
Total				100.0	%		$			100.0	%

A $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the front cover page of this prospectus, would increase (decrease) total consideration paid by new investors in this offering and by all investors by $         million and would increase (decrease) the percentage of shares purchased and percentage of total consideration paid by new investors         % and         %, respectively, before deducting the estimated underwriting discounts and commissions and offering expenses payable by us in connection with this offering.

If the underwriters’ option to purchase additional shares is exercised in full, the percentage of our shares held by existing equity owners would decrease to approximately         % and the percentage of our shares held by new stockholders would increase to approximately         %.

The outstanding share information set forth above is as of March 31, 2010 and:

 

Ÿ

excludes 1,178,873 shares of common stock issuable upon the exercise of stock options, at a weighted average exercise price of $10.67 per share and 1,471,567 shares of our common stock reserved for future grants under our equity incentive plans;

 

Ÿ

excludes 333,333 shares of common stock issuable upon the exercise of options with an exercise price of $20.40 that will be outstanding at the consummation of this offering;

 

Ÿ

excludes 446,000 shares of common stock issuable upon the exercise of options with an exercise price equal to the public offering price that will be granted and outstanding at the consummation of this offering;

 

Ÿ

excludes 2,993,394 shares of common stock issuable upon the exercise of warrants to purchase shares of common stock, at a weighted average exercise price of $16.16;

 

Ÿ

excludes 594,639 shares of common stock issuable upon the exercise of warrants to purchase 8,919,591 shares of Series I redeemable preferred stock at an exercise price of $0.97 that upon consummation of this offering will represent warrants to purchase shares of common stock;

 

Ÿ

excludes                  shares of common stock issuable upon the exercise of warrants to purchase 292,198 shares of Series A and B redeemable preferred stock at a weighted average exercise price of $0.37 that upon consummation of this offering will represent warrants to purchase shares of common stock. The common stock issuable upon conversion of the Series A and B redeemable preferred stock at the consummation of this offering has been determined using an assumed initial public offering price of $         per share, the midpoint of the price range shown on the front cover page of this prospectus; and

 

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excludes 2,188,749 shares of common stock issuable upon the conversion of our Series H preferred stock.

 

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To the extent any outstanding options and warrants are exercised and upon the conversion of our Series H preferred stock into common stock, new investors will experience further dilution.

If all stock options and warrants with exercise prices less than the initial public offering price are exercised, the number of shares held by existing stockholders will increase to                  shares of our common stock, or         % of the total number of shares of our common stock outstanding after this offering.

If all shares of our Series H preferred stock are converted into common stock, the number of shares held by existing stockholders will increase to                 shares of our common stock, or         % of the total number of shares of our common stock outstanding after this offering.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The selected historical consolidated financial data set forth below as of December 31, 2008 and 2009 and for the years ended December 31, 2007, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected historical financial data as of December 31, 2007 and for the year ended December 31, 2006 have been derived from our audited consolidated financial statements not included in this prospectus. The selected historical financial data as of December 31, 2005 and 2006 and for the year ended December 31, 2005 have been derived from our unaudited consolidated financial statements not included in this prospectus. In light of our acquisition of InfoSpace Mobile, on December 28, 2007, our financial statements only reflect the impact of that acquisition since that date, and therefore comparisons with prior periods are difficult.

The selected consolidated financial data as of and for the three months ended March 31, 2009 and 2010 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the operating results to be expected for the full fiscal year.

The unaudited information was prepared on a basis consistent with that used in preparing our audited consolidated financial statements and includes all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of our financial position, results of operations and cash flows for the unaudited periods.

The following selected consolidated financial data is not necessarily indicative of the results of future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

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		Years Ended December 31,																				Three Months Ended March 31,
		2005				2006				2007				2008				2009				2009				2010
		(Unaudited)																				(Unaudited)
		(In thousands, except per share data)
Condensed Consolidated Statement of Operations Data:
Total revenues		$	17,875			$	21,903			$	35,171			$	103,151			$	113,695			$	23,276			$	29,080
Operating expenses
Direct third-party expenses			3,797				2,201				3,709				5,451				9,485				1,171				1,305
Datacenter and network operations(1)			2,625				9,561				9,468				33,000				31,786				8,683				8,034
Product development and sustainment(1)			8,190				24,617				16,229				52,261				31,389				7,677				8,182
Sales and marketing(1)			8,717				8,403				7,119				10,228				11,900				2,989				3,655
General and administrative(1)			9,632				11,239				10,334				26,052				20,841				5,175				5,264
Depreciation and amortization(1)			2,997				5,925				10,322				21,559				13,208				3,777				3,041
Restructuring(2)			180				1,084				1,283				3,236				2,058				235				407
Goodwill and long-lived asset impairment charges(3)			—				—				26,867				29,130				5,806				—				—
Abandoned transaction charge(4)			—				—				2,600				—				—				—				—
Total operating expenses			36,138				63,030				87,931				180,917				126,473				29,707				29,888
Operating loss			(18,263	)			(41,127	)			(52,760	)			(77,766	)			(12,778	)			(6,431	)			(808	)
Other income (expense), net			124				(1,110	)			1,155				2,714				(1,627	)			(96	)			(258	)
Loss from continuing operations, before income tax			(18,139	)			(42,237	)			(51,605	)			(75,052	)			(14,405	)			(6,527	)			(1,066	)
Provision for income taxes			—				—				—				1,776				1,896				444				467
Loss from continuing operations			(18,139	)			(42,237	)			(51,605	)			(76,828	)			(16,301	)			(6,971	)			(1,533	)
Cumulative effect of accounting change			(235	)			—				—				—				—				—				—
Loss from discontinued operations(5)			(4,081	)			(12,960	)			(24,928	)			(1,072	)			—				—				—
Loss from sale of discontinued operations(5)			—				—				(1,360	)			(127	)			—				—				—
Net loss			(22,455	)			(55,197	)			(77,893	)			(78,027	)			(16,301	)			(6,971	)			(1,533	)
Accretion of redeemable preferred stock and Series D1 preferred dividends			(2,784	)			(5,942	)			(8,095	)			(22,427	)			(23,956	)			(5,987	)			(6,400	)
Net loss attributable to common stockholders		$	(25,239	)		$	(61,139	)		$	(85,988	)		$	(100,454	)		$	(40,257	)		$	(12,958	)		$	(7,933	)
Net loss per share attributable to common stockholders – basic and diluted
Continuing operations		$	(3.79	)		$	(8.42	)		$	(10.30	)		$	(16.99	)		$	(6.85	)		$	(2.20	)		$	(1.38	)
Discontinued operations			(0.73	)			(2.26	)			(4.54	)			(0.20	)			—				—				—
Total net loss per share attributable to common stockholders		$	(4.52	)		$	(10.68	)		$	(14.84	)		$	(17.19	)		$	(6.85	)		$	(2.20	)		$	(1.38	)
Weighted average common shares outstanding – basic and diluted (6)			5,583				5,726				5,796				5,843				5,878				5,887				5,753
Pro forma net loss attributable to holders of common stock (unaudited)(6)
Pro forma basic net loss per share (unaudited)(6)
Weighted average number of shares of common stock used in computing pro forma basic and fully diluted net loss per share (unaudited)(6)
Consolidated Balance Sheet Data:		(Unaudited)				(Unaudited)
Cash and cash equivalents		$	21,958			$	6,143			$	67,418			$	14,299			$	35,945			$	11,730			$	25,408
Working capital			17,688				5,769				74,478				30,698				28,303				26,441				23,459
Total assets			68,611				114,599				289,391				195,447				174,176				182,844				161,518
Total long-term debt and capital lease obligations, less current portion			4,031				5,344				16,295				3,234				—				2,389				—
Total redeemable preferred stock			77,450				164,037				372,406				394,135				417,396				399,951				423,624
Total stockholders’ deficit			(30,084	)			(88,142	)			(152,510	)			(249,867	)			(288,821	)			(261,916	)			(296,162	)

 

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(1)	Depreciation and amortization is not included in each respective operating expense category. The allocation by function is as follows:

 

		Years Ended December 31,															Three Months Ended March 31,
		2005			2006			2007			2008			2009			2009			2010
		(Unaudited)															(Unaudited)
					(In thousands)
Datacenter and network operations		$	487		$	2,938		$	7,310		$	16,824		$	8,890		$	2,497		$	1,992
Product development and sustainment			—			1,462			1,548			2,237			1,962			586			428
Sales and marketing			—			4			307			2,075			1,960			572			524
General and administrative			2,510			1,521			1,157			423			396			122			97
Depreciation and amortization		$	2,997		$	5,925		$	10,322		$	21,559		$	13,208		$	3,777		$	3,041

 

(2)

Our restructuring charges relate to costs associated with closing and relocating facilities, relocating certain key employees and severance costs following the acquisition of InfoSpace Mobile. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further details.

(3)

The impairments in 2008 and 2009 relate primarily to integration activities following our acquisition of InfoSpace Mobile in December 2007 and to certain non-core operating assets. The 2007 impairments relate to goodwill due primarily to changes in consumer purchase habits. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further details.

(4)	In 2007, we issued a warrant to purchase common stock to an affiliate of an existing investor as a fee for providing a financing commitment in connection with a proposed transaction that was not completed.

(5)	In connection with a business strategy reassessment initiated in 2007, we exited the direct to consumer and media and entertainment businesses at various times during 2007 and 2008.

(6)	See Note 13 to our consolidated financial statements for a description of the method used to compute basic and diluted net loss per share attributable to common stockholders and pro forma basic and diluted net loss per share attributable to common stockholders.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and opinions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

Overview

We are a leading provider of mobile data solutions and services that enable wireless carriers to deliver high value mobile data services to their subscribers. We provide a comprehensive suite of hosted, managed service offerings, including mobile web portal, storefront, messaging, and billing support and settlement, which enables wireless carriers to deliver customized, carrier-branded mobile data services to their wireless subscribers. Our mCore service delivery platform provides the tools for mobile subscribers to easily locate and access personally relevant and location-based content and services, engage in social networking and download content and applications. We also leverage our data-rich insights into subscriber behavior and our user interface expertise to provide a highly personalized subscriber experience and targeted mobile marketing solutions. Our mCore platform provides mobile subscribers with access to over 30 million unique pieces of third-party content or applications that we optimize for delivery to over 2,000 different mobile phone models, ranging from entry level feature phones to smartphones. Since 2005, Motricity has generated over $2.5 billion in gross revenue for our carrier customers through the sale of content and applications and powered over 50 billion page views through access to the mobile Internet. For the year ended December 31, 2009, we generated revenue of $113.7 million and incurred a net loss of $16.3 million. For the three months ended March 31, 2010, we generated revenue of $29.1 million and incurred a net loss of $1.5 million. We have access to over 200 million mobile subscribers through our U.S. wireless carrier customers, and we currently provide mobile data services to approximately 35 million of these subscribers monthly.

The majority of our revenue consists of managed services revenue, charged on a monthly basis to our wireless carrier and other customers under contracts with initial terms ranging from one to three years in duration. Managed services revenue consists of fees we charge to manage, host and support our solutions and to provide other related services to our customers, and includes both fixed fees and variable, activity-based charges. In addition, we charge professional service fees to customize, implement, and enhance our solutions. Our wireless carrier customers include the five largest providers in the U.S., by number of subscribers. Revenue from these customers accounted for 84% of our total revenue for the year ended December 31, 2009, with AT&T and Verizon Wireless accounting for 53% and 20% of total revenue, respectively. Revenue from these five customers accounted for 90% of our total revenue for the three months ended March 31, 2010, with AT&T and Verizon Wireless accounting for 40% and 39% of that revenue, respectively. In addition to wireless carriers, our customers include content and application providers. We generated approximately 95% and 96% of our total revenue in the U.S. during the year ended December 31, 2009 and the three months ended March 31, 2010, respectively. As we pursue expansion opportunities with international wireless carriers, we expect international revenue to increase in absolute dollars and as a percentage of our total revenue.

We expect our growth to be heavily dependent upon our ability to maintain strong relationships with 4 of the top 10 global wireless carriers, which represent our largest customers, as well as our ability to develop new relationships with wireless carriers in developed and emerging markets, such as Southeast Asia, India and Latin America. In addition, we expect our growth to depend upon the increased adoption of our mCore service delivery platform by our customers and an increase in the

 

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activity conducted on our platform by our customers’ subscribers. The failure of any of our significant carrier customers to renew existing contracts on favorable terms, such as Verizon Wireless, which has a contract up for renewal in 2010 that represents all of our 2009 revenue from Verizon, and AT&T, which has a contract up for renewal in 2010 that represents 23% of our 2009 revenue from AT&T, would have a material adverse impact on our results of operations and future growth prospects. Our ability to achieve and sustain profitability will be affected as we incur additional expenses to expand our sales, marketing, development and general and administrative capabilities. As we establish and expand our operational capabilities internationally, we will incur additional operating expenses and capital-related costs.

We were founded in 2001 with a mission to develop a mobile data services business, and our strategy has evolved as the mobile data services industry has developed and expanded. We focused originally on Palm-based technology and related solutions which dominated the mobile data services market before wireless data services based on cellular telephony technology were developed and widely deployed by the wireless carriers. As the wireless data services market has developed we expanded the scope and nature of our data services to support wireless carriers and their subscribers. Since 2003, we have completed eight acquisitions as part of the process of developing and expanding our mobile services business. These included initial acquisitions of companies primarily engaged in the Palm-based data services market and subsequent acquisitions of companies engaged in the wireless data services market, as the wireless carriers and handset manufacturers came to dominate the mobile data services market. In December 2007, in our largest acquisition to date, we acquired the assets of the mobile division of InfoSpace, Inc., which we refer to as InfoSpace Mobile, a competing provider of mobile content solutions and services for the wireless industry. Due to the rapidly evolving nature of the mobile data services market and changes in our business strategy over time, in each of the last several years we have recognized impairment charges related to both acquired and internally developed assets. In addition, we have exited our direct to consumer and media and entertainment businesses, which are reflected as discontinued operations in our consolidated financial statements. These discontinued businesses include our original mobile data services business and several of our earlier acquisitions. As a consequence of the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of revenue and operating results are not necessarily meaningful and should not be relied upon as indications of future performance.

The InfoSpace Mobile Acquisition and Business Strategy Realignment

In December 2007, we acquired InfoSpace Mobile for a cash purchase price of $135 million and the assumption of certain liabilities. The acquisition was a key element in the broad strategic realignment of our business. We viewed InfoSpace Mobile as a competing provider of mobile content solutions and services for the wireless industry that had strong relationships with several large wireless carriers. Through its mCore platform, InfoSpace Mobile offered many of the same services we provided to our customers through our then existing platform, called Fuel. InfoSpace Mobile also operated a large development organization, with an emphasis on professional services work. In the acquisition, in addition to acquiring the mCore platform and a number of leased U.S. datacenter facilities, we acquired a 224-person employee base, additional contracts with certain new and pre-existing customers, including AT&T and Verizon Wireless, and the Bellevue, Washington office facilities that we now use as our corporate headquarters. We financed the acquisition through the issuance of $177.3 million of Series I redeemable preferred stock and warrants.

Since completing the InfoSpace Mobile acquisition, we have significantly restructured our business. Due to the similar capabilities and features of the mCore and Fuel platforms, we conducted an evaluation of the mCore and Fuel platforms and concluded that it would be inefficient to continue managing and developing two incompatible technologies. As a result, we elected to phase out our legacy Fuel platform and began migrating our customers to an enhanced version of the acquired mCore platform. In 2008, we moved our headquarters from Durham, North Carolina to Bellevue, Washington. In mid-2008, we adopted several business initiatives to increase the operating efficiencies

 

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of the combined business, including eliminating redundant positions and functions, outsourcing a portion of our development activities to India and consolidating our network operations into five datacenters. In addition, we have more recently begun to move our business focus toward the sale of comprehensive managed services solutions, utilizing our more standardized architecture, and to de-emphasize the more highly customized, professional services intensive approach. We believe that this evolution of our business strategy will accelerate innovation in our service offerings for the benefit of our wireless carrier customers and their subscribers while reducing costs to the carriers.

Prior to the InfoSpace Mobile acquisition, we provided mobile data services to wireless carriers and content and application providers using our proprietary Fuel platform. In addition, we operated two other lines of business, direct to consumer and media and entertainment. In 2007 and 2008, in connection with this business strategy realignment, we sold our direct to consumer business and discontinued our media and entertainment business. We then heightened our focus on our existing managed services model predominately for the wireless carriers. As part of our plan to pursue this more focused business strategy, our board of directors and our chief executive officer recruited additional senior management executives with substantial experience working with large carriers and managing significantly larger business organizations. In the first half of 2009, we completed the migration of all of our customers from the Fuel platform to mCore, except for AT&T’s storefront. We expect AT&T to fully migrate to the mCore platform in the second half of 2010.

Key Components of Our Results of Operations

Sources of revenue

Our revenue is earned predominantly under contracts ranging from one to three years in duration with our wireless carrier and other customers. Under the typical contract, we provide one or more of our managed services, for which we charge fixed, periodic or variable, activity-based fees (or a combination of both), and often also charge professional service fees to implement the specific mCore solutions required by the customer. We typically charge fixed monthly managed service fees to host the solutions and provide other support and services as required by the customer. Managed service fees vary by contract based on a number of factors including the scope of the solutions deployed, IT processing and bandwidth capacity requirements and the nature and scope of any other support or services required by the customer. Surcharges are typically included for excessive IT capacity requirements based on customer usage. Professional service fees primarily relate to work required for the initial customization and implementation of our mCore solutions for customers, as well as for customer-specified enhancements, extensions or other customization of the solutions following initial implementation. Professional services are typically provided on a fixed fee basis, depending on the scope and complexity of the individual project. Professional services fees from time to time may include charges for computer hardware and third-party software related to implementing our solutions.

Most of our customer contracts include a variable fee based on one of several measures, including the number of wireless subscribers who use our mCore solutions each month, the aggregate dollar volume or number of transactions processed, or specified rates for individual transactions processed, depending on the specific type of service involved. We typically receive a monthly subscription fee from our wireless carrier customers for each active portal user, where active usage is defined as utilizing the service at least one to three times per calendar month depending on the customer contract. We also receive from our wireless carrier customers a portion of the gross dollars generated by all transactions conducted through our digital storefronts, ranging from approximately 3% to 15%. In addition, from our content and application provider customers, we typically receive either a share of gross dollars generated for each premium message, or a fee for each standard message, delivered through the mCore platform. Individual carrier and content provider contracts often contain monthly minimum charges for usage-based fees or transaction-based charges for all or a portion of the contract term, based on various factors including the size of the customer’s subscriber base and the expected rate of subscriber usage of our services.

 

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Due to the nature of the services we provide, our customer contracts contain monthly service level requirements that typically require us to pay financial penalties if we fail to meet the required service levels. We recognize these penalties, when incurred, as a reduction in revenue. Typical service level requirements address down time or slow response of our services that impact mobile subscribers and response time in addressing customer requests. Potential penalties vary by contract and range from near zero to as much as 100% of monthly recurring revenue, depending on the severity and duration of the service issue. Service level penalties represented 4% of total revenue in 2008 (during integration of the InfoSpace Mobile acquisition), 1% of total revenue in 2009 and 3% of total revenue during the three months ended March 31, 2010.

Operating expenses

We classify our operating expenses into six categories: direct third-party, datacenter and network operations, product development and sustainment, sales and marketing, general and administrative and depreciation and amortization. Our operating expenses consist primarily of personnel costs, which include salaries, bonuses, commissions, payroll taxes, employee benefit costs and stock-based compensation expense. Other operating expenses include datacenter and office facility expenses, computer hardware, software and related maintenance and support expenses, bandwidth costs, and marketing and promotion, legal, audit, tax consulting and other professional service fees. We charge stock-based compensation expense resulting from the amortization of the fair value of stock option grants to each option holder’s functional area. We allocate certain facility-related and other common expenses such as rent, office and IT desktop support to functional areas based on headcount.

Direct Third-Party Expenses.    Our direct third-party expenses consist of the costs of certain content that we contract for directly on behalf of our wireless carrier customers, as well as certain computer hardware and software that we acquire on behalf of one major carrier customer. We expect these costs to increase as a percentage of revenue as we directly contract for additional content for our carrier customers and to the extent licensing costs for customer-specific, third-party software increase.

Datacenter and Network Operations.    Datacenter and network operations expenses consist primarily of personnel and outsourcing costs for operating our datacenters, which host our mCore solutions on behalf of our customers. Additional expenses include facility rents, power, bandwidth capacity and software maintenance and support. We have been consolidating our datacenters since the InfoSpace Mobile acquisition, which has reduced datacenter and network operations costs. We expect, however, to expand our datacenter and our network capabilities in order to support the expected growth in mobile data usage by mobile subscribers. We expect our datacenter and network operations expenses to increase in absolute dollars but to decrease as a percentage of revenue over time.

Product Development and Sustainment.    Product development expenses primarily consist of personnel costs and costs from our development vendors. Our product development efforts include improving and extending the functionality and performance of our service delivery platform, developing new solutions, customizing and implementing our solution set for our customers and providing other service and support functions for our solutions. Product development costs related to software used solely on an internal basis to provide our services, which we refer to as internal use software, are capitalized and amortized over the expected asset life. We expect that product development expenses will increase in absolute dollars as we continue to enhance and expand our suite of solutions and services, but will decline as a percentage of revenue over time.

Sales and Marketing.    Sales and marketing expenses primarily consist of personnel costs for our sales and marketing staff, commissions earned by our sales personnel and the cost of marketing programs. In order to continue to grow our business and awareness of our services, we expect that we

 

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will commit additional resources to our sales and marketing efforts. We expect that sales and marketing expenses will increase in absolute dollars and as a percentage of revenue over time as we work to expand our U.S. and international customer bases.

General and Administrative.    General and administrative expenses, referred to herein as G&A, primarily consist of personnel costs for our executive, finance, legal, human resources and administrative personnel, as well as legal, accounting and other professional fees and facilities-related expenses. We expect our G&A expenses to increase in absolute dollars, but decrease as a percentage of revenue over time.

Depreciation and Amortization.    Depreciation and amortization expenses consist primarily of depreciation on computer hardware and leasehold improvements in our datacenters, depreciation of capitalized software development costs, and amortization of purchased intangibles. We expect that depreciation and amortization expenses will increase in absolute dollars as we continue to expand our datacenters and our suite of solutions, but decline as a percentage of revenue over time.

Other income (expense), net

Other income and other expenses, net consists of interest we earn on our cash and cash equivalents, interest expense we incur as a result of our borrowings, if any, and non-operating income and expenses. It also includes income or expense relating to changes in the fair value of our outstanding warrants to purchase redeemable preferred shares.

Income tax provision

Income tax expenses for 2008, 2009 and for the first three months of 2010 primarily consist of a deferred U.S. tax provision for the difference between book and tax treatment of goodwill associated with the acquisition of the InfoSpace Mobile assets. Due to our history of operating losses, we have accumulated substantial net operating and capital losses, which constitute the majority of our deferred tax assets. Because of our history of operating losses, we maintain full valuation allowances against these deferred tax assets and consequently are not recognizing any tax benefit related to our current pre-tax losses. If we achieve sustained profitability, subject to certain provisions of the U.S. federal tax laws that may limit our use of these accumulated losses, we will evaluate whether we should eliminate or reduce the valuation allowances which would result in immediate recognition of a tax benefit and we would begin recording income tax provisions based on our earnings and applicable statutory tax rates going forward. Due to our large net operating loss carryforwards, we do not expect to pay U.S. federal income taxes in the next several years.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.

The following critical accounting policies are those accounting policies that, in our view, are most important in the portrayal of our financial condition and results of operations. Our critical accounting policies and estimates include those involved in recognition of revenue, business combinations, software development costs, valuation of goodwill, valuation of long-lived and intangible assets,

 

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provision for income taxes, accounting for stock-based compensation and discontinued operations. Note 2 to our financial statements included elsewhere in this prospectus provides additional information about these critical accounting policies, as well as our other significant accounting policies.

Revenue recognition

We derive our revenues from contracts that include individual or varying combinations of our managed services and often include professional service fees to customize and implement the specific software platform solutions required by individual customers. We recognize revenue when all of the following conditions are satisfied: (i) there is persuasive evidence of an arrangement; (ii) delivery has occurred; (iii) the fee is fixed or determinable; and (iv) collectability of the fee is reasonably assured. The timing of revenue recognition in each case depends upon a variety of factors, including the specific terms of each arrangement and the nature of our deliverables and obligations.

Our carrier customer contracts typically consist of professional service fees, a fixed monthly managed service fee to host the software platform solution, and a variable monthly subscription fee based on one of three measures: the number of wireless subscribers using our software solutions each month, the aggregate dollar volume or number of transactions processed, or specified rates for individual transactions processed. Certain arrangements also include minimum monthly fee provisions, monthly fees for providing additional managed services required by the customer and/or service level requirements related to the hosted solutions which often entail financial penalties for non-compliance. Professional service fees typically include both initial fees to customize and implement the specific software solution and fees to enhance the functionality of the software solution, which may occur any time during the contractual term of the arrangement.

Under our contracts where the customer does not have the right to take possession of the software, the professional service fees associated with the arrangement do not constitute a separate earnings process because the services do not have stand-alone value. Such customers do not have the ability to benefit, resell or realize value from such services without the hosting service. Consequently, the professional service revenue is deferred and recognized over the longer of the contractual term of the arrangement or the estimated period the customer is expected to benefit from the software platform or enhancement. In determining the expected benefit period, we assess factors such as the historical trends, data used to establish pricing in the arrangement, discussions with customers in negotiating the arrangement and the period over which the customer could be expected to recover and earn a reasonable return on the professional service fees. At December 31, 2009 and March 31, 2010, our balance sheets reflected deferred revenue of $11.8 million and $4.9 million, respectively, which consists primarily of such professional service fees. We recognize the related hosting and other managed service fees and the variable, activity-based fees as managed services revenue on a monthly basis when they are earned. For purposes of classifying the arrangement consideration as managed services or professional services revenue on our statement of operations, we allocate the arrangement consideration based on the contractually stated amounts for each component. The pricing of our professional services is based on the expected level of effort necessary to complete a software solution. We believe this best approximates the fair value of the professional service fees if they were a separate unit of accounting.

Under certain arrangements, the customer has the right to take possession of the software, and it is feasible for the customer to either self-host the software on its own hardware or contract with another entity for the hosting service without significant penalty. Such multiple element arrangements are analyzed under software revenue guidance to assess the elements for separation and recognition. The fixed monthly hosting fee to host the software solution is not considered essential to the functionality of other elements, is described in the contract such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services and we have established vendor-specific objective evidence of fair value through substantive renewal rates included in the

 

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contract. Accordingly we account for the hosting fee element of the arrangement separately and recognize the hosting fee as managed services revenue on a monthly basis as earned. The variable monthly subscription fee is considered a contingent fee and is recognized as managed services revenue monthly when the contingency is resolved and the related fee is earned. We then use the residual method to establish the fair value of the professional service fees and recognize the professional service revenues using the cost-to-cost percentage of completion method of accounting. We recognize the revenue based on the ratio of costs incurred to the estimated total costs at completion. Should the customer elect to self-host the software, the hosting fee is eliminated and the variable subscription fee becomes the licensing fee. No customer has elected to self-host as of March 31, 2010. If a contract which previously did not have a right to self-host without significant penalty is amended to include such a right, we reassess the contract under the above software revenue guidance.

We provide premium messaging services to subscribers of wireless carriers on behalf of third-party vendors and earn a fixed percentage of the related revenue. We bill the carriers for transactions conducted by their subscribers and provide settlement services for the third-party vendors based on payments received from the carriers. We have determined it is appropriate to record our net share of the billings to carriers as service revenue rather than the gross billing amount. The primary considerations for this determination are:

 

Ÿ

the third-party vendor sells its content or service directly to the wireless carriers’ subscribers and is considered the primary obligor;

 

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the carriers have a contractual relationship with their subscribers and are directly responsible for billing and collecting premium messaging fees from their subscribers and resolving billing disputes;

 

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the carriers establish gross pricing for the transactions;

 

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the wireless carriers generally pay us a fixed percentage of premium messaging revenues actually collected from their subscribers; and

 

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we have limited risks, including no inventory risk and limited credit risk, because the carriers generally bear the risk of collecting fees from their subscribers and we are obligated to remit to the third-party vendor only their share of the funds we actually receive from the carrier.

Business combinations

We have completed eight business combinations since 2003. The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with any amount in excess of such allocations designated as goodwill. We make significant judgments and assumptions in determining the fair value of acquired assets and assumed liabilities, especially with respect to acquired intangibles. Using different assumptions in determining fair value could materially impact the purchase price allocation and our financial position and results of operations.

Several methods are commonly used to determine fair value. For intangible assets, we typically use the “income method.” This method starts with our forecast of all expected future net cash flows. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income method and other methods include:

 

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the amount and timing of projected future cash flows;

 

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the discount rate selected to measure the risks inherent in the future cash flows;

 

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the acquired company’s competitive position; and

 

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the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry.

Software development costs

We capitalize certain software development costs, including the costs to develop new software products or significant enhancements to existing software products, which are developed or obtained for internal use. We capitalize software development costs when application development begins, it is probable that the project will be completed, and the software will be used as intended. Such capitalized costs are amortized on a straight-line basis over the estimated useful life of the related asset, which is generally three years. Costs associated with preliminary project stage activities, training, maintenance and all post implementation stage activities are expensed as incurred.

Software development costs related to software products to be sold, leased or otherwise marketed, however, are capitalized when technological feasibility has been established. In 2010, we have focused on developing software products that can be leveraged across various customers. As such, we have capitalized costs, including direct labor and related overhead. Amortization of capitalized software development costs will begin as each product is available for general release to customers. Amortization will be computed on an individual product basis for those products available for market and will be recognized based on the product’s estimated economic life. Unamortized capitalized software development costs determined to be in excess of net realizable value of the product are expensed immediately.

Valuation of goodwill

Our business acquisitions typically result in the recording of goodwill, and we periodically assess whether the recorded value of goodwill has become impaired. We test for potential impairment annually, in the fourth quarter of each year, and whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. Testing for impairment of goodwill involves estimating the fair value of the associated reporting unit and comparing it to its carrying value. If the estimated fair value is lower than the carrying value, then a more detailed assessment is performed comparing the fair value of the reporting unit to the fair value of the assets and liabilities plus the goodwill carrying value of the reporting unit. If the fair value of the reporting unit is less than the fair value of its assets and liabilities plus goodwill, then an impairment charge is recognized to reduce the carrying value of goodwill by the difference.

The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. We use valuation techniques consistent with the market approach and income approach to measure fair value for purposes of impairment testing. An estimate of fair value can be affected by many assumptions, requiring that management make significant judgments in arriving at these estimates, including the expected operational performance of our businesses in the future, market conditions and other factors. Although there are inherent uncertainties in this assessment process, the estimates and assumptions we use to estimate future cash flows—including sales volumes, pricing, market penetration, competition, technological obsolescence and discount rates—are consistent with our internal planning. Significant changes in these estimates or their related assumptions in the future could result in an impairment charge related to our goodwill.

The $74.7 million of recorded goodwill at December 31, 2008, December 31, 2009 and March 31, 2010 relates entirely to our acquisition of InfoSpace Mobile. In conjunction with our strategy reassessment in 2007 to focus primarily on the mobile network operator business and prior impairment or disposition of goodwill in our other reporting units, we have combined the reporting unit for our 2006 U.S. messaging acquisition, GoldPocket Wireless, Inc., which we refer to as GPW, with our mobile network operator reporting unit resulting in one enterprise level reporting unit for purposes of our fourth

 

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quarter 2008 annual impairment test. Our impairment test in the fourth quarter of 2009 indicated we had significant excess of fair value over the net book value of our Company such that a 50% decrease in our projected net cash flow or a doubling of the discount rate would not have resulted in impairment of our goodwill.

In 2007 and 2008, we fully impaired $33.7 million of goodwill associated with acquisitions completed prior to our acquisition of InfoSpace Mobile. In the third quarter of 2008, it became apparent that revenue from GPW would not achieve expectations, which resulted in a goodwill impairment charge of $6.8 million. During 2007, we recorded a $26.9 million impairment charge related to goodwill associated with our mobile network operator reporting unit, which represents our primary operations, and our GPW reporting unit. The annual impairment test performed on the mobile network operator reporting unit, prior to inclusion of the InfoSpace Mobile assets and operations, indicated that changes in consumer purchasing habits were resulting in lower revenues and net cash flows than originally expected, requiring a goodwill impairment of $12.1 million. The annual impairment test performed on the GPW reporting unit indicated that unanticipated competitive dynamics in the marketplace were resulting in lower revenues and net cash flows than originally expected, requiring a goodwill impairment of $14.8 million.

Valuation of long-lived and intangible assets

We periodically evaluate events or changes in circumstances that indicate the carrying amount of our long-lived and intangible assets may not be recoverable or that the useful lives of the assets may no longer be appropriate. Factors which could trigger an impairment review or a change in the remaining useful life of our long-lived and intangible assets include significant underperformance relative to historical or projected future operating results, significant changes in our use of the assets or in our business strategy, loss of or changes in customer relationships and significant negative industry or economic trends. When indications of impairment arise for a particular asset or group of assets, we assess the future recoverability of the carrying value of the asset (or asset group) based on an undiscounted cash flow analysis. If carrying value exceeds projected, net, undiscounted cash flows, an additional analysis is performed to determine the fair value of the asset (or asset group), typically a discounted cash flow analysis, based on an income and/or cost approach, and an impairment charge is recorded for the excess of carrying value over fair value.

The process of assessing potential impairment of our long-lived and intangible assets is highly subjective and requires significant judgment. An estimate of future undiscounted cash flow can be affected by many assumptions, requiring that management make significant judgments in arriving at these estimates. Although there are inherent uncertainties in this assessment process, the estimates and assumptions we use to estimate future cash flows including sales volumes, pricing, market penetration, competition and technological obsolescence are consistent with our internal planning. Significant future changes in these estimates or their related assumptions could result in an impairment charge related to individual or groups of these assets.

Our intangible assets, other than goodwill, of $10.7 million at December 31, 2009 and $11.5 million at March 31, 2010, relate primarily to customer relationships associated with our acquisition of InfoSpace Mobile. We are amortizing the recorded value of the customer relationships over an estimated useful life of approximately eight years utilizing a variable methodology.

During 2009, we recognized impairment charges of $5.8 million related primarily to our GPW long-lived and intangible assets. In June 2009, we received notification that our future revenue stream associated with a significant messaging customer obtained as part of the GPW acquisition would likely be eliminated. We performed an impairment analysis, which resulted in impairment charges of $1.9 million and $3.3 million associated with the GPW customer list and GPW capitalized software, respectively.

 

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During 2008, we recorded long-lived and intangible asset impairment charges of $22.3 million. These impairment charges included $8.4 million related to software assets acquired in the InfoSpace Mobile acquisition based on information received indicating it was likely that two significant customers would no longer be utilizing our search and storefront solutions. We also recognized impairments of $12.7 million related to restructuring of the business following the InfoSpace Mobile acquisition. The $12.7 million included $8.2 million to impair computer software, furniture and fixtures and leasehold improvements associated with moving our headquarters to Bellevue, Washington and the planned consolidation and shutdown of certain datacenter facilities. The other restructuring-related impairment of $4.5 million was associated with the planned early shutdown of and migration of customers from the Fuel software solution platform to the mCore platform. We had redundant software solution platforms as a result of the InfoSpace Mobile acquisition and, based on specific migration plans developed in cooperation with our customers during the third quarter, it was determined the Fuel platform would not generate sufficient revenues to recover the remaining carrying value of the software platform. As a result, we impaired the remaining software carrying value. The remaining $1.2 million impairment related to the remaining customer relationship intangible from our M7 Networks, Inc. acquisition in 2005, as we no longer had customers utilizing that technology.

Income taxes

We are subject to federal and various state income taxes in the U.S., and to a lesser extent, income-based taxes in various foreign jurisdictions, including, but not limited to, the Netherlands, the United Kingdom, Canada and Singapore, and we use estimates in determining our provision for these income taxes and the recognition of deferred tax assets. Deferred tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities are determined separately by tax jurisdiction. In making these determinations, we estimate tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities, and we assess temporary differences resulting from differing treatment of items for tax and accounting purposes. We recognize only tax positions that are “more likely than not” to be sustained based solely on their technical merits. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment that is subject to audit by tax authorities in the ordinary course of business.

At December 31, 2009, our gross deferred tax assets consisted primarily of domestic net operating losses and book to tax differences in fixed assets, as well as research and development credit carryforwards. As of December 31, 2009, we had U.S. federal and state net operating loss carryforwards of approximately $222 million and $89 million, respectively, which begin to expire at varying dates starting in 2019 for U.S. federal income tax purposes and in the current year for state income tax purposes. Because of our history of generating operating losses, we maintain full valuation allowances against these deferred tax assets and consequently do not recognize tax benefits for our current operating losses. If we achieve sustained profitability, we will assess the likelihood that the deferred tax assets will be realized through the ability to utilize them to offset our expected future tax obligations, subject to certain provisions of the U.S. federal tax laws that may limit our use of these accumulated losses. If we determine it is likely that all or a portion of the deferred tax assets will be realized, we will eliminate or reduce the corresponding valuation allowances which would result in immediate recognition of an associated tax benefit. Going forward, we will reassess the need for any remaining valuation allowances or the necessity to recognize additional valuation allowances in the future based on our then current and expected future financial performance. In the event we do eliminate all or a portion of the valuation allowances in the future, we will begin recording income tax provisions based on our earnings and applicable statutory tax rates from that time forward.

As a result of the InfoSpace Mobile asset acquisition at the end of 2007, we record a U.S. tax provision each subsequent period for the difference between book and tax treatment of goodwill associated with the acquisition. The tax amortization of the goodwill results in a deferred tax liability

 

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which does not provide a source of income for purposes of evaluating the realizability of the deferred tax assets. This results in recognition of income tax each period through 2022 corresponding to the tax amortization period of the goodwill. This provision has no cash tax implications absent liquidation of our Company and would otherwise only be adjusted or reversed to the extent our book goodwill balance would be impaired in the future.

Stock-based compensation

Prior to January 1, 2006, we accounted for share-based awards, including stock options, to employees using the intrinsic value method. Under the intrinsic value method, compensation expense was measured on the date of award as the difference, if any, between the deemed fair value of our common stock and the option exercise price, multiplied by the number of options granted. The option exercise prices and fair value of our common stock are determined by our board of directors based on a review of various objective and subjective factors. No compensation expense was recorded for stock options issued to employees prior to January 1, 2006 because all options were granted in fixed amounts and with fixed exercise prices at least equal to the fair value of our common stock at the date of grant.

Effective January 1, 2006, we changed our accounting treatment to recognize compensation expense based on the fair value of all share-based awards granted, modified, repurchased or cancelled on or after that date. This compensation expense is recognized on a straight-line basis over the requisite service period for all time-based vesting awards. We continue to account for share-based awards granted prior to January 1, 2006 under the intrinsic value method.

For share-based awards subsequent to January 1, 2006, we estimate the fair value of such awards, including stock options, using the Black-Scholes option-pricing model. Determining the fair value of share-based awards requires the use of subjective assumptions, including the expected term of the award and expected stock price volatility. The assumptions used in calculating the fair value of share-based awards granted since January 1, 2008, are set forth below:

 

		2008		2009
Expected life of options granted		5 years		5 years
Expected volatility		58%		50% - 58%
Range of risk-free interest rates		2.8% - 3.3%		1.7% - 2.3%
Expected dividend yield		0%		0%

The assumptions used in determining the fair value of share-based awards represent our best estimates, but these estimates involve inherent uncertainties. As a result, if factors change, and we use different assumptions, our share-based compensation could be materially different in the future. The risk-free interest rate used for each grant is based on a U.S. Treasury instrument with a term similar to the expected term of the share-based award. The expected term of options has been estimated utilizing the vesting period of the option, the contractual life of the option and our option exercise history. Because there was no public market for our common stock prior to this offering, we lacked company-specific historical and implied volatility information. Therefore, in estimating our expected stock volatility, we have taken into account volatility information of publicly-traded peer companies, and we expect to continue to use this methodology until such time as we have adequate historical data regarding the volatility of our publicly-traded stock price. Also, we recognize compensation expense for only the portion of options that are expected to vest. Accordingly, we estimated future forfeitures of stock options based on our historical forfeiture rate, taking into account unusual events such as employee attrition due to the relocation of our headquarters to Bellevue, Washington. If our actual forfeiture rate varies from our historical rates and estimates, additional adjustments to compensation expense may be required in future periods.

 

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All our employee stock options were granted at exercise prices equal to the fair value of common stock as of the grant date, except for the December 11, 2009 grant with an exercise price of $15.00 per share, as described further below. As of December 31, 2009, we had $2.9 million of unrecognized compensation expense related to unvested employee stock options, which will be recognized over a weighted-average period of 2.3 years.

The following table summarizes by grant date the number of stock options granted from January 1, 2008 through December 31, 2009, and the per share exercise price per share of each option grant:

 

Date of Grant		Stock Options Granted		Exercise Price
January 1, 2008		370,140		$	12.00
February 7, 2008		110,371			12.00
February 5, 2009		117,250			12.15
May 4, 2009		28,867			12.15
December 11, 2009		14,967			15.00
December 11, 2009		15,800			19.65
December 14, 2009		19,933			19.65

The fair value of our common stock, for the purpose of determining the grant prices of our common stock option grants, is ultimately approved by our board of directors after an extensive process involving the audit committee, management, and a third-party valuation firm. The board of directors initially delegates the valuation process to the audit committee. The audit committee works with management, and starting in 2008, also began working with a third-party valuation firm to develop each valuation. The audit committee then presents the resulting valuation to the full board of directors, and recommends its approval, which has historically been adopted. Our board of directors exercised judgment in determining the estimated fair value of our common stock on the date of grant based on various factors, including:

 

Ÿ

the prices for our redeemable preferred stock sold to outside investors in arm’s-length transactions;

 

Ÿ

the rights, preferences and privileges of our redeemable preferred stock relative to those of our common stock;

 

Ÿ

our operating and financial performance;

 

Ÿ

the hiring of key personnel;

 

Ÿ

our stage of development and revenue growth;

 

Ÿ

the lack of an active public market for our common and preferred stock;

 

Ÿ

industry information such as market growth and volume;

 

Ÿ

the execution of strategic and customer agreements;

 

Ÿ

the risks inherent in the development and expansion of our service offerings;

 

Ÿ

the likelihood of achieving a liquidity event, such as an initial public offering or a sale of our company given prevailing market conditions and the nature of and history of our business; and

 

Ÿ

the acquisitions of companies that we have completed.

We believe consideration of these factors by our board of directors was a reasonable approach to estimating the fair value of our common stock for those periods. Estimation of the fair value of our common stock requires complex and subjective judgments, however, and there is inherent uncertainty in our estimate of fair value.

 

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The fair value of our common stock as of the January 1, 2008 and February 7, 2008 grant dates was estimated by the board of directors to be $12.00 per share. Due to the proximity of the acquisition of InfoSpace Mobile in December 2007 to these grants, the issuance of the Series I redeemable preferred stock to a subset of existing and new investors to fund the acquisition was considered the most objective approach to estimating the fair value of our common stock for purposes of these grants. We sold 190.8 million shares of Series I redeemable preferred stock at a price of $0.9694 per share. Each share is convertible into .0667 shares of common stock and has a liquidation preference equal to the $0.9694 issue price plus cumulative unpaid dividends of $0.038776 per annum, whether declared or not. Based on the pre-money valuation associated with the Series I preferred stock issuance of $295 million, which was negotiated between our board of directors and investors participating in the Series I financing round, and the Series I proceeds of $185 million, we estimated the fair value of the common stock to be $12.00 by deducting the liquidation preferences of Series A, B, C, D and E as of such date from the post-money valuation of $480 million and divided by the number of fully diluted shares outstanding as of such date.

In early 2008, following the closing of the acquisition of InfoSpace Mobile in December 2007, we finalized our plans to integrate the business and initiated implementation of the plans, including relocating our headquarters to Bellevue, Washington. Significant progress was also made during that period toward the eventual disposition of the discontinued business lines. We updated our financial forecasts as of April 2008 based on the progress made in the integration process, the additional knowledge of the InfoSpace Mobile business gained and initiatives undertaken to increase revenues and reduce operating expenses of the combined business.

We engaged an independent third-party valuation firm to assist the board of directors in performing a contemporaneous valuation of our common stock as of April 30, 2008, for stock option grants. The enterprise value was calculated by using an asset-based approach, a market-based approach, determined primarily by the recent issuance of the Series I redeemable preferred stock, and an income-based approach. After considering these methods, we relied primarily on the income-based approach utilizing the discounted cash flow method to determine enterprise value. The discounted cash flow analysis incorporated three different scenarios based on different exit or terminal values, each incorporating three different market condition assumptions which were probability weighted. Assumptions utilized in each discounted cash flow scenario were:

 

Ÿ

our expected revenue, operating performance, cash flow for the current and future years, determined as of the valuation date based on our estimates;

 

Ÿ

a discount rate, which is applied to discretely forecasted future cash flows in order to calculate the present value of those cash flows; and

 

Ÿ

a terminal value multiple, which is applied to our last year of discretely forecasted operating results to calculate the residual value of our future cash flows.

The enterprise value was then allocated to our shares of redeemable preferred stock, preferred stock, warrants to purchase shares of redeemable preferred stock and common stock, and common stock, using option pricing theory. This methodology treats the various components of our capital structure as a series of call options on the proceeds expected from a future liquidity event. These call options are then valued using the Black-Scholes option pricing model. This model estimates the fair value of each individual security based on the enterprise value of the Company and assumptions based on the securities’ rights and preferences. The option pricing method also requires assumptions regarding the anticipated timing of a potential liquidity event, such as an initial public offering, and the estimated volatility of our equity securities. For this purpose, an initial public offering was assumed to occur in three to five years and estimates of the volatility of our stock were based on available information on the volatility of capital stock of comparable publicly traded companies. The value of each of the call options is deducted from the enterprise value with the remainder being the value

 

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attributed to the common stock. A discount for lack of marketability of 20% was applied to arrive at the fair value of our common stock. On the basis of this analysis the board of directors estimated the fair value of our common stock to be $12.15 per share as of April 30, 2008, which was substantially unchanged from the $12.00 valuation as of the closing of the InfoSpace Mobile acquisition.

Over the remainder of 2008 and the early part of 2009, we completed much of the post-acquisition integration of InfoSpace Mobile and other restructuring of our business. Financial results were better than expected over this period but economic conditions continued to deteriorate which reduced our confidence in our longer-term forecasts and expectations regarding the timing and potential for a public stock offering. For common stock valuation purposes, the impact of the improved short-term operating performance was assumed to be offset by the greater uncertainty regarding future prospects. On this basis, the board of directors estimated that the fair value of our common stock continued to be $12.15 per share on February 5, 2009 and May 4, 2009.

In the second quarter of 2009, we experienced improvements in our operating performance and in the economic outlook, including in the capital markets, which led our board of directors to perform another valuation of our common stock, after an extensive process described herein involving the audit committee, management and a third-party valuation firm. Greater than expected operating efficiencies achieved recently, higher projections of future growth with greater confidence and giving greater weight to a public stock offering in a two-year time frame resulted in an increase in value to $15.00 per share as of June 30, 2009. Our compensation committee approved stock option grants, primarily for new employees, on August 5, 2009 subject to completion of this valuation. Prior to completion of the valuation for June 30, 2009, the board of directors determined the need to perform another common stock valuation as of September 30, 2009, based on events during the third quarter. Our operating performance continued to improve during the third quarter and discussions occurred with several investment banks regarding a potential initial public offering of our common stock in 2010. Based primarily on greater weight placed on a near-term public stock offering and a reduction in the discount for the lack of marketability from 20% used in earlier valuations to 5%, the common stock was valued at $19.65 per share as of September 30, 2009. Since the valuations as of June 30, 2009 and September 30, 2009 were both finalized by the board of directors on December 11, 2009, the options approved on August 5, 2009, were granted at the $15.00 price, but due to the increase in fair value of our common stock to $19.65, will be treated as “in the money” grants on December 11, 2009.

Restricted stock is granted to certain employees as part of their total compensation package. All grants of restricted stock prior to October 25, 2006 are fully vested except for 24,509 shares which vest in April 2010. All restricted shares granted on or after October 25, 2006 are subject to a double trigger vesting requirement consisting of time-based vesting and occurrence of a qualified sale or qualified public offering which would include the offering contemplated by this prospectus. These employees are not required to be employed as of the occurrence of a qualified event to receive shares for which the time-based vesting has occurred based on the period of their employment. If no qualified event occurs within 10 years, the stock is forfeited. Under these terms, vesting of the shares is not probable until a qualified event is probable; therefore, no compensation expense has been recognized related to the grant of these shares of restricted stock. Upon closing of a qualified sale or qualified public offering, those shares subject to the double trigger for which time-based vesting has occurred will become vested and we will immediately recognize compensation expense for those shares. Had a qualified event occurred on March 31, 2010, the compensation expense recognized immediately would have been $16.3 million and additional compensation expense of approximately $13.2 million will be recognized over a weighted-average period of 2.9 years.

Discontinued operations

In connection with our business strategy reassessment initiated in 2007, we exited two lines of business in 2007 and 2008, the results of which are reflected in our operating results as discontinued

 

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operations. The discontinued lines of business were direct to consumer, which was sold in two transactions in 2007 and 2008, and media and entertainment, which was discontinued in 2008. We have reclassified all of the revenues and associated operating expenses which would no longer be incurred upon disposition of the business to discontinued operations for all periods presented. Any gains and losses from the sale of the businesses are also reported in discontinued operations.

Results of Operations

The following tables set forth components of our results of operations, including both continuing and discontinued operations, for the periods indicated:

 

		Years Ended December 31,												Three Months Ended March 31,
		2007				2008				2009				2009				2010
														Unaudited
		(In thousands)
Revenue
Managed services		$	31,772			$	85,677			$	81,403			$	20,222			$	20,881
Professional services			3,399				17,474				32,292				3,054				8,199
Total revenues			35,171				103,151				113,695				23,276				29,080
Operating expenses
Direct third-party expenses			3,709				5,451				9,485				1,171				1,305
Datacenter and network operations, excluding depreciation			9,468				33,000				31,786				8,683				8,034
Product development and sustainment, excluding depreciation			16,229				52,261				31,389				7,677				8,182
Sales and marketing, excluding depreciation			7,119				10,228				11,900				2,989				3,655
General and administrative, excluding depreciation			10,334				26,052				20,841				5,175				5,264
Depreciation and amortization			10,322				21,559				13,208				3,777				3,041
Restructuring			1,283				3,236				2,058				235				407
Goodwill and long-lived asset impairment charges			26,867				29,130				5,806				—				—
Abandoned transaction charge			2,600				—				—				—				—
Total operating expenses			87,931				180,917				126,473				29,707				29,888
Operating loss			(52,760	)			(77,766	)			(12,778	)			(6,431	)			(808	)
Other income (expense), net
Other income (expense)			79				1,892				(1,657	)			(82	)			(258	)
Interest and investment income, net			2,157				1,315				250				80				—
Interest expense			(1,081	)			(493	)			(220	)			(94	)			—
Other income (expense), net			1,155				2,714				(1,627	)			(96	)			(258	)
Loss from continuing operations, before income tax			(51,605	)			(75,052	)			(14,405	)			(6,527	)			(1,066	)
Provision for income taxes			—				1,776				1,896				444				467
Loss from continuing operations			(51,605	)			(76,828	)			(16,301	)			(6,971	)			(1,533	)
Loss from discontinued operations			(24,928	)			(1,072	)			—				—				—
Loss from sale of discontinued operations			(1,360	)			(127	)			—				—				—
Net loss		$	(77,893	)		$	(78,027	)		$	(16,301	)		$	(6,971	)		$	(1,533	)

 

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Depreciation and amortization by function:

 

		Years Ended December 31,									Three Months Ended March 31,
		2007			2008			2009			2009			2010
		(In thousands)
Datacenter and network operations		$	7,310		$	16,824		$	8,890		$	2,497		$	1,992
Product development and sustainment			1,548			2,237			1,962			586			428
Sales and marketing			307			2,075			1,960			572			524
General and administrative			1,157			423			396			122			97
Total depreciation and amortization		$	10,322		$	21,559		$	13,208		$	3,777		$	3,041

 

		Years Ended December 31,									Three Months Ended March 31,
		2007			2008			2009			2009			2010
As a Percentage of Total Revenues from Continuing Operations
Total revenues		100	%		100	%		100	%		100	%		100	%
Operating expenses
Direct third-party expenses		11			5			8			5			4
Datacenter and network operations, excluding depreciation		27			32			28			38			28
Product development and sustainment, excluding depreciation		46			51			28			33			28
Sales and marketing, excluding depreciation		20			10			10			13			13
General and administrative, excluding depreciation		29			25			18			22			18
Depreciation and amortization		29			21			12			16			10
Other charges		87			31			7			1			2
Total operating expenses		250			175			111			128			103
Operating loss		(150	)		(75	)		(11	)		(28	)		(3	)
Other income (expense), net		3			3			(1	)		0			(1	)
Loss from continuing operations, before income tax		(147	)		(73	)		(13	)		(28	)		(4	)
Provision for income taxes		0			2			2			2			1
Loss from continuing operations		(147	)%		(74	)%		(14	)%		(30	)%		(5	)%

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

Total Revenues

 

		Three Months Ended March 31,						Change
		2009			2010			$			%
		(Dollars in thousands)
Managed services		$	20,222		$	20,881		$	659		3.3	%
Professional services			3,054			8,199			5,145		168.5
Total revenues		$	23,276		$	29,080		$	5,804		24.9	%

Our total revenues increased $5.8 million, or 24.9%, for the three months ended March 31, 2010 compared to the corresponding 2009 period. Managed services revenues accounted for 71.8% and 86.9% of our revenues for the three month periods ended March 31, 2010 and 2009, respectively, while professional services accounted for 28.2% and 13.1%, respectively. The $5.1 million increase in

 

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professional services revenues includes $4.9 million of revenues recognized due to an amendment of a contract with a customer during the quarter which established that the arrangement meets the self-host criteria for revenue recognition. As a result of this amendment the contract met the criteria for recognition of the balance of the setup fee that had been previously deferred. The amendment converted the managed service component of the contract from a fixed monthly fee arrangement with predetermined periodic increases to a fixed monthly subscription fee plus a variable monthly subscription fee based on usage.

Managed service revenues increased $0.7 million, or 3.3% for the three months ended March 31, 2010 compared to the prior year period due to higher storefront revenues. Variable user- and transaction-based fees made up approximately 52% and 76% of our managed services revenues for the three months ended March 31, 2010 and 2009, respectively, the decrease due primarily to conversion of a storefront contract from a transaction based to a fixed fee arrangement upon extension of the contract early in the fourth quarter of 2009. The average monthly number of users of our non-messaging based solutions decreased to approximately 34.4 million for the three months ended March 31, 2010 from 34.5 million in the comparable period of 2009.

We generated 96% of our revenues in the U.S. for the three months ended March 31, 2010. Revenues from our five largest customers, represented 90% of our total revenues for the three months ended March 31, 2010, with AT&T and Verizon Wireless accounting for 40% and 39% of total revenues, respectively. For the three months ended March 31, 2009, revenues from our five largest customers represented 88% of our total revenues, with AT&T and Verizon Wireless accounting for 44% and 25% of total revenues, respectively. No other customers accounted for more than 10% of our revenues during these periods.

Operating expenses

 

		Three Months Ended March 31,						Change
		2009			2010			$				%
		(Dollars in thousands)
Direct third-party expenses		$	1,171		$	1,305		$	134			11.4	%
Datacenter and network operations, excluding depreciation			8,683			8,034			(649	)		(7.5	)
Product development and sustainment, excluding depreciation			7,677			8,182			505			6.6
Sales and marketing, excluding depreciation			2,989			3,655			666			22.3
General and administrative, excluding depreciation			5,175			5,264			89			1.7
Depreciation and amortization			3,777			3,041			(736	)		(19.5	)
Restructuring			235			407			172			73.2
Total operating expenses		$	29,707		$	29,888		$	181			0.6	%

Our operating expenses were $29.9 million for the three months ended March 31, 2010 compared to $29.7 million for the three months ended March 31, 2009. The increase of $0.2 million, or 0.6%, consists of increases in most expense categories, largely offset by expense reductions in datacenter and network operations and depreciation and amortization.

Direct third party expenses

Direct third party expenses increased $0.1 million, or 11.4%, for the three months ended March 31, 2010 compared to the corresponding 2009 period. The increase is due primarily to higher usage-based licensing expenses for customer-specific third-party software as user volume increases.

 

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Datacenter and network operations, excluding depreciation

Datacenter and network operations expense, excluding depreciation, decreased $0.6 million, or 7.5%, for the three months ended March 31, 2010 compared to the corresponding 2009 period. The decrease is primarily due to cost savings from consolidating datacenter operations and renegotiating certain vendor contracts.

Product development and sustainment, excluding depreciation

Product development and sustainment expense, excluding depreciation, increased $0.5 million, or 6.6%, for the three months ended March 31, 2010 compared to the corresponding 2009 period. The additional expense primarily relates to the recognition of $1.2 million in deferred expenses associated with the deferred revenues recognized during the first quarter of 2010 due to amendment of a customer contract.

Sales and marketing, excluding depreciation

Sales and marketing expense, excluding depreciation, increased $0.7 million, or 22.3%, for the three months ended March 31, 2010 compared to the corresponding 2009 period. The increase is due to higher personnel expenses, primarily from our international expansion efforts.

General and administrative, excluding depreciation

General and administrative expense, excluding depreciation, increased $0.1 million, or 1.7%, for the three months ended March 31, 2010 compared to the corresponding 2009 period. The increase is due to additional strategy consulting fees incurred.

Depreciation and amortization

Depreciation and amortization expense decreased $0.7 million, or 19.5%, for the three months ended March 31, 2010 compared to the corresponding 2009 period. The decrease is primarily due to the datacenter consolidation and certain assets from the InfoSpace Mobile acquisition now being fully depreciated.

Restructuring

During the first quarter of 2009, we incurred $0.2 million of restructuring charges related to the relocation of our headquarters from Durham, North Carolina to Bellevue, Washington in 2008. In the first quarter of 2010, we incurred a $0.4 million expense upon disposition of the remaining asset held for sale related to the relocation.

Other income (expense), net

 

		Three Months Ended March 31,								Change
		2009				2010
		(In thousands)
Other income (expense)		$	(82	)		$	(258	)		$	(176	)
Interest and investment income, net			80				—				(80	)
Interest expense			(94	)			—				94
Total other income (expense), net		$	(96	)		$	(258	)		$	(162	)

 

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Other expense of $0.3 million for the three months ended March 31, 2010 consists primarily of expense related to the increase in fair value of our warrants to purchase redeemable preferred shares. The higher net interest and investment income in the first three months of 2009 reflects the higher investments in marketable securities during the period. We did not incur any interest expense in the first quarter of 2010 due to the repayment of our remaining outstanding debt in April 2009.

Provision for income taxes

 

		Three Months Ended March 31,						Change
		2009			2010			$			%
		(Dollars in thousands)
Provision for income taxes		$	444		$	467		$	23		5.2	%

Income tax expense for the three months ended March 31, 2010 and 2009 primarily consist of a deferred U.S. tax provision for the difference between book and tax treatment of goodwill associated with the acquisition of InfoSpace Mobile. We maintain a full valuation allowance against our net deferred tax assets which precludes us from recognizing a tax benefit for our current operating losses. Our lack of profitability historically is a key factor in concluding there is insufficient evidence of our ability to realize any future benefits from our deferred tax assets.

Net loss

 

		Three Months Ended March 31,								Change
		2009				2010
		(In thousands)
Net loss		$	(6,971	)		$	(1,533	)		$	5,438

The major factor leading to the $5.4 million decrease in net loss to $1.5 million was the $5.8 million increase in total revenues resulting from increases in professional service and managed service revenues of $5.1 million and $0.7 million, respectively. Total operating expenses were largely the same in both periods.

Year ended December 31, 2009 compared to the year ended December 31, 2008

Total revenues

 

		Year Ended December 31,						Change
		2008			2009			$				%
		(Dollars in thousands)
Managed services		$	85,677		$	81,403		$	(4,274	)		(5.0	)%
Professional services			17,474			32,292			14,818			84.8
Total revenues		$	103,151		$	113,695		$	10,544			10.2	%

Our total revenues increased $10.5 million, or 10.2%, for the year ended December 31, 2009 compared to the year ended December 31, 2008. Managed services revenue accounted for 71.6% and 83.1% of our revenue for the years ended December 31, 2009 and 2008, respectively, while professional services accounted for 28.4% and 16.9%, respectively. The increase in revenues was due to the $14.8 million increase in professional services revenue, partially offset by the $4.3 million reduction in managed services revenue. The increase in professional services revenue was primarily due to a large portal customization and implementation project, which included $4.4 million of associated third-party computer hardware and software revenue, completed during 2009 for which we

 

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recognized the revenue based on completion milestones. Our professional services revenue can vary significantly from period to period due to the timing and magnitude of large customization and implementation projects.

The decrease in managed services revenue in 2009 consisted primarily of a $3.6 million reduction in storefront revenue due to the expiration of several small contracts and a $3.7 million reduction in storefront revenue due to declining transaction activity from two large customers. User- and transactional-based fees made up approximately 74% and 70% of our managed services revenue for 2008 and 2009, respectively, the decrease being primarily due to the decline in storefront transaction volumes. The average monthly number of users of our non-messaging based solutions increased to approximately 35 million in 2009 from approximately 33 million in 2008, although related managed services revenue did not increase due to mix changes among customers and associated pricing differences. The storefront contract expirations will not significantly impact managed services revenue comparisons with 2010 revenue as the expirations occurred late in 2008 or early in 2009. Managed services revenues are expected to increase in 2010 due in part to recent storefront contract modifications. The large portal project and two smaller portal implementation projects completed in the latter part of 2009 are expected to result in higher managed service revenues as the number of mobile subscriber utilizing those services increases.

We generated 95% of our revenue in the U.S. for the year ended December 31, 2009. Revenue from our current five largest customers, represented 84% of our total revenue for the year ended December 31, 2009, with AT&T and Verizon Wireless accounting for 53% and 20% of total revenue, respectively. For the year ended December 31, 2008, revenue from our five largest customers represented 67% of our total revenue, with AT&T and Verizon Wireless accounting for 42% and 12% of total revenue, respectively. No other customers accounted for more than 10% of our revenue during these periods.

Operating expenses

 

		Year Ended December 31,						Change
		2008			2009			$				%
		(Dollars in thousands)
Direct third-party expenses		$	5,451		$	9,485		$	4,034			74.0	%
Datacenter and network operations, excluding depreciation			33,000			31,786			(1,214	)		(3.7	)
Product development and sustainment, excluding depreciation			52,261			31,389			(20,872	)		(39.9	)
Sales and marketing, excluding depreciation			10,228			11,900			1,672			16.3
General and administrative, excluding depreciation			26,052			20,841			(5,211	)		(20.0	)
Depreciation and amortization			21,559			13,208			(8,351	)		(38.7	)
Restructuring			3,236			2,058			(1,178	)		(36.4	)
Goodwill and long-lived asset impairment charges			29,130			5,806			(23,324	)		(80.1	)
Total operating expenses		$	180,917		$	126,473		$	(54,444	)		(30.1	)%

Our operating expenses were $126.5 million for the year ended December 31, 2009 compared to $180.9 million for the year ended December 31, 2008. The decrease of $54.4 million, or 30.1%, is primarily attributable to the $20.9 million decrease in product development expense, the $5.2 million decrease in general and administrative expense, the $8.4 million decrease in depreciation and amortization expense and significantly lower goodwill and long-lived asset impairment charges for year ended December 31, 2009 compared to the prior year period. Excluding the impact of restructuring and goodwill and long-lived asset impairment charges, operating expenses decreased $29.9 million during

 

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2009, even though direct third-party expenses increased $4.0 million. The reduction is primarily driven by approximately $16 million of cost efficiencies from outsourcing a portion of our development activities to India and operating efficiencies resulting from the integration and restructuring activities we initiated in 2008 after the acquisition of InfoSpace Mobile. These activities included the relocation of our corporate headquarters to Bellevue, Washington, the cost efficiencies from outsourcing a portion of our development activities and consolidation of our datacenters.

Direct third-party expenses

Direct third-party expenses increased $4.0 million, or 74.0%, for the year ended December 31, 2009 compared to the corresponding 2008 period. The increase is primarily due to the cost of third-party computer hardware and software purchased on behalf of a major customer as part of a large custom portal development and implementation project.

Datacenter and network operations, excluding depreciation

Datacenter and network operations expense, excluding depreciation, decreased $1.2 million, or 3.7%, for the year ended December 31, 2009 compared to the corresponding 2008 period. The decrease is primarily due to lower labor related costs, as we have consolidated datacenter operations since completing the InfoSpace Mobile acquisition in December 2007.

Product development and sustainment, excluding depreciation

Product development and sustainment expense, excluding depreciation, decreased $20.9 million, or 39.9%, for the year ended December 31, 2009 compared to the corresponding 2008 period. The decrease is primarily due to approximately $16 million of cost efficiencies from outsourcing a portion of our development activities to India. The remaining expense reduction was due primarily to lower labor-related costs as a result of operating efficiencies realized from the integration and restructuring activities we initiated in 2008.

Sales and marketing, excluding depreciation

Sales and marketing expense, excluding depreciation, increased $1.7 million, or 16.3%, for the year ended December 31, 2009 compared to the corresponding 2008 period. The increase is due to increases in our sales and marketing headcount as we grow the business.

General and administrative, excluding depreciation

General and administrative expense, excluding depreciation, decreased $5.2 million, or 20.0%, for the year ended December 31, 2009 compared to the corresponding 2008 period. The decrease is primarily due to lower labor-related costs as a result of operating efficiencies realized from the integration and restructuring activities we initiated in 2008.

Depreciation and amortization

Depreciation and amortization expense decreased $8.4 million, or 38.7%, for the year ended December 31, 2009 compared to the corresponding 2008 period. The decrease is primarily due to lower depreciation expense as a result of consolidating datacenters, impairing the remaining value of certain datacenter assets determined to be no longer recoverable and impairing certain capitalized software development costs and other amortized intangibles as noted in the long-lived asset impairment charges discussed below.

 

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Restructuring

During the year ended December 31, 2009, we incurred $2.1 million of restructuring charges to close our office in the United Kingdom, move our remaining employees in Durham, North Carolina from our former headquarters facility to a smaller facility and assign the lease for our former headquarters facility to a third party.

During the year ended December 31, 2008, we incurred $3.2 million of restructuring charges related to relocating our headquarters and certain key personnel to Bellevue, Washington and eliminating redundant functions and positions as a result of the InfoSpace Mobile acquisition.

Goodwill and long-lived asset impairment charges

The $5.8 million of impairments in the 2009 period relate primarily to writing off the remaining asset balances of $1.9 million and $3.3 million associated with the GPW customer list and capitalized software, respectively.

The $29.1 million of impairments in the 2008 period consisted of:

 

Ÿ

$12.7 million related to restructuring of the business following the InfoSpace Mobile acquisition, including $8.2 million to impair computer software, furniture and fixtures and leasehold improvements associated with moving our headquarters to Bellevue, Washington and the planned shutdown of certain datacenter facilities, as well as $4.5 million for the planned shutdown of the Fuel software solution platform;

 

Ÿ

$6.8 million to impair the remaining GPW goodwill;

 

Ÿ

$4.6 million related to software assets from the InfoSpace Mobile acquisition based on our pricing decision to bundle our search functionality with our portal solution;

 

Ÿ

$3.8 million related to software assets from the InfoSpace Mobile acquisition based on the likelihood that two significant customers would no longer be utilizing our storefront solution; and

 

Ÿ

$1.2 million to impair the remaining customer relationship intangible from our acquisition of M7 Networks, Inc. in 2005.

Other income (expense), net

 

		Year Ended December 31,								Change
		2008				2009
		(In thousands)
Other income (expense)		$	1,892			$	(1,657	)		$	(3,549	)
Interest and investment income, net			1,315				250				(1,065	)
Interest expense			(493	)			(220	)			273
Total other income (expense), net		$	2,714			$	(1,627	)		$	(4,341	)

Other expense of $1.7 million for the year ended December 31, 2009 consists primarily of $1.5 million in expense related to the increase in fair value of our warrants to purchase redeemable preferred shares. Other income of $1.9 million for the year ended December 31, 2008 is primarily the result of billings to InfoSpace, Inc. (during an agreed transition period) for use of shared facilities acquired as part of the InfoSpace Mobile acquisition at the end of 2007. The higher net interest and investment income in 2008 primarily reflects the higher average cash and investment balances during the 2008 period relative to 2009. Our interest expense decreased to $0.2 million for the year ended December 31, 2009 compared to $0.5 million for the year ended December 31, 2008, due to the repayment of our remaining outstanding debt in April 2009.

 

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Provision for income taxes

 

		Year Ended December 31,						Change
		2008			2009			$			%
		(Dollars in thousands)
Provision for income taxes		$	1,776		$	1,896		$	120		6.8	%

Income tax expense for years ended December 31, 2009 and 2008 primarily consists of a U.S. tax provision for the difference between book and tax treatment of goodwill associated with the acquisition of InfoSpace Mobile. We maintain a full valuation allowance against our net deferred tax assets which precludes us from recognizing a tax benefit for our current operating losses. Our lack of profitability historically is a key factor in concluding that there is insufficient evidence of our ability to realize any future benefits from our deferred tax assets.

Discontinued operations

 

		Year Ended December 31,							Change
		2008				2009
		(In thousands)
Loss from discontinued operations		$	(1,072	)		$	—		$	1,072
Loss from sale of discontinued operations		$	(127	)		$	—		$	127

The loss from discontinued operations in 2008 consists of losses from the portion of the direct to consumer business line sold in 2008 and the media and entertainment business that was discontinued in 2008.

Net loss

 

		Year Ended December 31,								Change
		2008				2009
		(In thousands)
Net loss		$	(78,027	)		$	(16,301	)		$	61,726

The major factors leading to the $61.7 million decrease in net loss to $16.3 million were:

 

Ÿ

A $10.5 million increase in revenue resulting from increased professional services revenues, partially offset by reduced managed services revenue;

 

Ÿ

A $54.4 million reduction in total operating expenses due primarily to a $23.3 million reduction in impairment charges, approximately $16 million expense reduction associated with the outsourcing of certain development activities to India and the remaining reduction was due to the late 2008 completion of many major elements of the plan to integrate the InfoSpace Mobile acquisition. This plan included elimination of most redundant functions and staffing, the relocation of our headquarters to Bellevue, Washington, and consolidation of certain datacenters; and

 

Ÿ

A $1.2 million reduction in losses from discontinued operations and related losses upon disposition.

These improvements in operating results were partially offset by a $4.3 million reduction in other income (expense), net due primarily to the absence of fees in 2009 that were charged to InfoSpace, Inc. in 2008 (during an agreed transition period) for InfoSpace’s use of certain facilities that we acquired in the InfoSpace Mobile acquisition at the end of 2007.

 

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Year ended December 31, 2008 compared to the year ended December 31, 2007

Total revenues

 

		Year Ended December 31,						Change
		2007			2008			$			%
		(Dollars in thousands)
Managed services		$	31,772		$	85,677		$	53,905		169.7	%
Professional services			3,399			17,474			14,075		414.1
Total revenues		$	35,171		$	103,151		$	67,980		193.3	%

Our total revenues were $103.2 million for the year ended December 31, 2008 compared to $35.2 million for the year ended December 31, 2007, an increase of $68.0 million, or 193.3%. This increase was primarily attributable to the acquisition of InfoSpace Mobile at the end of 2007. InfoSpace Mobile generated approximately $55 million of revenue in 2007, prior to our acquisition of the business. The organic growth of Motricity revenue was approximately 13% from 2007 to 2008, and the growth rate from the acquired InfoSpace Mobile business was slightly higher at 15%. In both instances, we believe this growth represents additional revenues from existing customers. The structure of the customer arrangements under the InfoSpace Mobile business model resulted in a higher percentage of revenue from professional services relative to Motricity, which is reflected in the high growth in professional services revenue in our 2008 results.

Operating expenses

 

		Year Ended December 31,						Change
		2007			2008			$				%
		Year Ended December 31, 2009
Expected term		6 years			5 years
Expected volatility		58.0	%		50.0	%
Risk-free interest rate		1.8	%		2.6	%
Expected dividend yield		3.9	%		3.9	%

 

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Motricity, Inc.

Notes to Consolidated Financial Statements

(amounts in thousands, except share data and per share amounts)

 

The expected term is the remaining contractual life for each warrant and the risk-free interest rate is based on the U.S. Treasury constant maturities in effect at the end of the reporting period.

Expected volatility is calculated using a historical volatility for a peer group of ten companies, as we believe the expected volatility will approximate historical volatility of the peer group.

 

12.	Income Taxes

The following table presents the domestic and foreign components of the pre-tax loss from continuing operations and the income tax provision for the years ended December 31:

 

		2007				2008				2009
Income from continuing operations before tax:
U.S.		$	(51,183	)		$	(75,395	)		$	(13,087	)
Foreign			(422	)			343				(1,318	)
Total		$	(51,605	)		$	(75,052	)		$	(14,405	)
The income tax provision consisted of the following amounts:
Current:
U.S.		$	—			$	—			$	(88	)
Foreign			—				—				—
			—				—				(88	)
Deferred:
U.S.			—				1,776				1,984
Foreign			—				—				—
			—				1,776				1,984
Total		$	—			$	1,776			$	1,896

Significant components of our deferred tax assets and liabilities consist of the following as of December 31:

 

		2007				2008				2009
Domestic net operating loss carry forwards		$	57,652			$	75,043			$	80,251
Fixed assets			(96	)			7,822				3,132
Research and development credits			3,068				4,125				5,037
Foreign net operating loss carry forwards			300				79				399
Domestic net operating loss carry forwards			—				—				108
Compensation accruals			1,019				1,701				3,568
Deferred revenue			—				—				1,988
Amortization of intangible assets			(4,781	)			(3,433	)			(1,458	)
Allowance for bad debts			131				345				94
Severance and restructuring			8				57				63
Other accruals			255				175				(570	)
Total deferred tax assets			57,556				85,914				92,612
Valuation allowance for deferred assets			(57,556	)			(85,914	)			(92,612	)
Deferred tax assets		$	—			$	—			$	—
Amortization of goodwill							(1,776	)			(3,760	)
Net deferred tax liability						$	(1,776	)		$	(3,760	)

 

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Motricity, Inc.

Notes to Consolidated Financial Statements

(amounts in thousands, except share data and per share amounts)

 

As of December 31, 2009, we provided a full valuation allowance against the net deferred tax assets since realization of these benefits was not more likely than not. The $6,698 increase in the valuation allowance for the period December 31, 2008 to December 31, 2009 was related to additional deferred tax assets generated, consisting primarily of net operating losses. The deferred tax asset includes net assets that were acquired in business combinations.

We had research and development tax credit carryforwards of $5,037 at December 31, 2009 that will begin to expire in 2014. During 2009, our research and development credit carryforward increased due to credits generated in 2009, but was partially offset by a $45 refundable research and development credit. For 2009 we have recorded an anticipated refund of $43. The 2008 and 2009 refundable research and development credits resulted in $88 of current tax benefit.

As of December 31, 2009, we had domestic net operating loss carryforwards of $222,019 for federal purposes and $89,002 for state purposes. These net operating loss carryforwards begin to expire in varying amounts starting in 2019 for U.S. federal income tax purposes and in the current year for state income tax purposes. The ultimate availability of the federal and state net operating loss carryforwards to offset future income may be subject to limitation under the rules regarding changes in stock ownership as determined by the Internal Revenue Code.

Taxes computed at the statutory federal income tax rate of 34% are reconciled to the income tax provision as follows:

 

		2007			2008			2009
United States federal tax at statutory rate		34.0	%		34.0	%		34.0	%
Change in valuation allowance		(21.9	)		(38.0	)		(46.5	)
State taxes (net of federal benefit)		2.3			3.0			2.5
Tax credits earned		1.5			1.5			6.9
Foreign rate differential		0.0			(0.5	)		(0.9	)
Effect of rate change		(3.3	)		0.0			(1.0	)
Provision to return		1.1			1.8			(2.4	)
Non-deductible expenses and other		(13.7	)		(4.2	)		(5.8	)
Effective rate		0.0	%		(2.4	)%		(13.2	)%

As of January 1, 2007, we adopted the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance defines the confidence level that a tax position must meet in order to be recognized in the financial statements and also provides for de-recognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. Upon adoption there was no cumulative effect adjustment to accumulated deficit. The adoption of this guidance and current year activity did not have an impact on our consolidated financial statements.

 

13.	Net Loss Per Share Attributable to Common Stockholders

Basic and diluted net loss per share attributable to common stockholders have been computed based on net loss and the weighted-average number of common shares outstanding during the

 

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Motricity, Inc.

Notes to Consolidated Financial Statements

(amounts in thousands, except share data and per share amounts)

 

applicable period. We calculate potentially dilutive incremental shares issuable using the treasury stock method and the if-converted method, as applicable. The treasury stock method assumes that the proceeds received from the exercise of stock options and warrants, as well as stock option and restricted stock expense yet to be recorded for unvested shares would be used to repurchase common shares in the market at the average stock price during the period. We have excluded options to purchase common stock, restricted stock, preferred stock and warrants to purchase common and redeemable preferred stock, as the potentially issuable shares covered by these securities are antidilutive. In addition, redeemable preferred stock has also been excluded because its conversion into common stock, and therefore its impact upon dilution, cannot be determined without an initial public offering price or liquidation factor. The following table presents the antidilutive securities not included in net loss attributable to common stockholders:

 

		Year Ended December 31,						Three Months Ended March 31,
		2007		2008		2009		2009		2010
								(unaudited)
Options to purchase common stock		1,424,684		1,219,545		1,225,461		1,307,351		1,178,873
Restricted stock		940,805		1,077,789		1,909,049		1,420,225		1,986,145
Preferred stock		10,876,759		10,876,759		10,876,759		10,876,759		10,876,759
Warrants to purchase common stock		2,993,394		2,993,394		2,993,394		2,993,394		2,993,394
Warrants to purchase redeemable preferred stock		8,919,591		8,919,591		8,919,591		8,919,591		8,919,591
Total securities excluded from net loss per share attributable to common stockholders		25,155,233		25,087,078		25,924,254		25,517,320		25,954,762

The pro forma basic and diluted net loss per share calculations for the year ended December 31, 2009 and the three months ended March 31, 2010 assume the conversion of all outstanding redeemable preferred stock and preferred stock, other than Series H, into shares of common stock using the as-if-converted method, as of January 1, 2009 or the date of issuance, if later.

 

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Motricity, Inc.

Notes to Consolidated Financial Statements

(amounts in thousands, except share data and per share amounts)

 

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the period indicated:

 

		Year Ended December 31,												Three Months Ended March 31,
		2007				2008				2009				2009				2010
														(Unaudited)
Net loss attributable to common stockholders		$	(85,988	)		$	(100,454	)		$	(40,257	)		$	(12,958	)		$	(7,933	)
Weighted-average common shares outstanding			5,795,940				5,843,489				5,878,368				5,886,763				5,753,047
Net loss per share attributable to common stockholders – basic and diluted		$	(14.84	)		$	(17.19	)		$	(6.85	)		$	(2.20	)		$	(1.38	)
		(Unaudited)
Pro forma adjustment to reverse mark-to-market adjustments of the redeemable convertible preferred stock warrants
Pro forma adjustment to reverse accretion of redeemable preferred stock to redemption value and Series D1 preferred dividends
Pro forma adjustment to reflect stock-based compensation due to the vesting of restricted stock triggered by the closing of the public offering
Net loss used to compute pro forma net loss per share attributable to common stockholders										$								$
Shares used above											5,878,368								5,753,047
Pro forma adjustment to reflect assumed weighted-average effect of conversion of redeemable preferred stock and preferred stock to common stock shares used to compute pro forma basic and diluted net loss per share
Weighted-average common shares outstanding for pro forma basic and diluted net loss per share
Pro forma net loss per share attributable to common stockholders – basic and diluted										$								$

 

14.	Defined Contribution Plan

We maintain a defined contribution plan (the “401(k) Savings Plan”) for eligible employees. The 401(k) Savings Plan assets are held in trust and invested as directed by the plan participants, and shares of our common stock are not an eligible investment election. We provide a match on a specified portion of eligible employees’ contributions as approved by our board of directors. Historically, we have made matching contributions equal to 50% of the portion of contributions that do not exceed 6% of eligible pay. Our matching contributions, included in general and administrative, totaled $419 and $630 in 2008 and 2009, respectively.

 

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Motricity, Inc.

Notes to Consolidated Financial Statements

(amounts in thousands, except share data and per share amounts)

 

15.	Discontinued Operations

In 2007, we enacted a plan to exit our D2C business through sale of assets as we began to focus our strategy on providing mobile content solutions and services for the wireless industry. In connection with the strategy change, eReader, one of the D2C divisions, was sold for $2,500 during 2007, resulting in a loss on sale of $1,360, representing the excess of the carrying value over the proceeds. We received $2,200 during 2008 and $300 was collected in 2009. In June 2008, the remaining portions of the D2C business were sold for $2,500 to a related party investor and board member, resulting in a loss of $127. The board member resigned on June 3, 2008.

The significant components of loss from discontinued operations for 2007, net of income taxes, are as follows:

 

		M&E				D2C				eReader			Year Ended December  31, 2007
Revenue for discontinued operations		$	1,841			$	11,171			$	3,573		$	16,585
Net operating income (expenses) from discontinued operations		$	(21,981	)		$	(1,243	)		$	1,147		$	(22,077	)
Impairment of goodwill			—				(2,851	)			—			(2,851	)
Net income (loss) from discontinued operations		$	(21,981	)		$	(4,094	)		$	1,147		$	(24,928	)

During 2008, as part of a business strategy reassessment initiated in 2007, we decided to exit M&E through a wind-down of its operations which was completed in September 2008. Operations of M&E have been classified as discontinued operations and reflected in loss from discontinued operations in the consolidated statements of operations.

The significant components of loss from discontinued operations for 2008, net of income taxes, are as follows:

 

		M&E				D2C				Year Ended December 31, 2008
Revenue for discontinued operations		$	1,194			$	2,334			$	3,528
Net loss from discontinued operations		$	(571	)		$	(501	)		$	(1,072	)

 

16.	Related Party Transactions

Under the terms of the 2004 merger transaction between Pinpoint Networks, Inc. and PBH Holdings, the existing investors of PBH Holdings agreed to continue their guarantees of the outstanding debt that was transferred to PBH, Inc. Details of this debt are included in Note 6, “Debt Facilities.” The amount outstanding under the 2004 Line of Credit, $4,875 at December 31, 2008, was guaranteed by such investors.

In 2007, we sold D2C for $2,500 to a related party investor and board member. The board member resigned on June 3, 2008. See Note 15, “Discontinued Operations.”

In consideration of an agreement by a related party investor to provide a financing commitment letter in connection with a proposed transaction that was not completed in 2007, we issued a warrant for 128,571 shares of common stock at an exercise price of $32.25 per share.

 

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Motricity, Inc.

Notes to Consolidated Financial Statements

(amounts in thousands, except share data and per share amounts)

 

In September 2007, two related party investors deposited $36,500 and $20,000, respectively, in escrow accounts on our behalf to facilitate our ability to negotiate the acquisition of InfoSpace Mobile. In consideration of these deposits, we issued warrants to purchase 81,833 shares and 16,667 shares of common stock, respectively, at an exercise price of $14.54 per share. Additionally, in connection with the InfoSpace Mobile acquisition, we received consulting services from another related party investor in exchange for cash in the amount of $3,000 and warrants to purchase 2,578,915 shares of Series I preferred stock at an exercise price of $0.9694 per share.

A related party investor acted as a placement agent in each of our Series F, G, H and I financing rounds. As compensation for those services, we paid cash in the amount of $16,837, warrants to purchase 64,916 shares of common stock at an exercise price of $35.55 per share, warrants to purchase 29,093 shares of common stock at an exercise price of $37.35 per share, and a warrant to purchase 6,340,676 shares of preferred stock at an exercise price of $0.9694 per share.

Under the terms of the employment agreement with our Chief Executive Officer, we issued loans of $250 and $32 in 2004 for the costs of relocating to our headquarters in Durham, North Carolina. The loans carry an annual interest rate equal to the prime rate, with the applicable interest rate for the year set on January 1 of each year. Interest is payable annually, and the loans are repayable to the Company upon a liquidation event, including the sale or disposition of substantially all of our assets, the sale of more than 50% of the then outstanding common stock in a single transaction, or an initial public offering of our common stock. The outstanding loan balances, including accrued interest, was $326 and $345 at December 31, 2007 and 2008, respectively, and were included in other assets on the consolidated balance sheets. On December 18, 2009, all amounts outstanding between us and the Chief Executive Officer, including the principal and accrued interest on the loans, were settled by the Chief Executive Officer through a transfer of 22,134 shares of common stock.

During 2008, in connection with the relocation of our headquarters to Bellevue, Washington, we paid a relocation services company to purchase, on our behalf, the Chief Executive Officer’s home in North Carolina for $1,983, plus administrative fees. As a result of market conditions, in the fourth quarter of 2008, we recorded a restructuring charge of $342 related to the home and an additional restructuring charge of $203 during 2009. The asset is recorded within assets held for sale on the consolidated balance sheets for $1,700 and $1,606 as of December 31, 2008 and 2009, respectively. In March 2010, the home was sold for net proceeds of $1,199, and a loss on the sale of $407 was recorded as restructuring expense.

During 2009, we purchased the home of our new Chief Operating Officer in order to facilitate his relocation to Bellevue, Washington. We purchased the home for $1,195, and as a result of market conditions we recorded an impairment charge of $317. In November 2009, the home was sold for net proceeds of $874.

 

17.	Subsequent Events

On April 23, 2010, our Board of Directors approved an amendment to our Amended and Restated Certificate of Incorporation to effect a 15-to-1 split of our common stock. The Amended and Restated Certificate of Incorporation is expected to be approved by our stockholders, and will be filed prior to effectiveness of the registration statement relating to the initial public offering of which this prospectus is a part. All information related to common stock, options and warrants to purchase common stock and earnings per share included in the accompanying consolidated financial statements has been retroactively adjusted to give effect to the reverse stock split.

 

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Motricity, Inc.

Notes to Consolidated Financial Statements

(amounts in thousands, except share data and per share amounts)

 

 

18.	Subsequent Events (unaudited)

On April 6, 2010, under the terms of our 2010 Long Term Incentive Plan (“LTIP”), our Board of Directors granted options to purchase 333,333 shares of our common stock at $20.40 per share to our Chief Executive Officer, which vest in pro-rata equal installments on each of the first four anniversaries of the effective date of an initial public offering, provided that the initial public offering occurs prior to July 25, 2010, otherwise the options will be forfeited.

On April 19, 2010, under the terms of our LTIP, our Board of Directors approved options to employees to purchase 446,000 shares of our common stock at an initial public offering per share price, provided that the initial public offering occurs prior to July 31, 2010. These options will be granted upon completion of the initial public offering and vest in pro-rata equal installments on each of the first four anniversaries of the effective date of the initial public offering.

Our Board of Directors approved the 2010 Long-Term Incentive Plan (“2010 LTIP”) on April 23, 2010. We may grant options of up to 2,765,622 shares under the 2010 LTIP. Awards granted under the 2010 LTIP may include incentive stock options or nonqualified stock options, stock appreciation rights, restricted stock and other stock-based or cash-based awards. Option terms may not exceed 10 years and the exercise price cannot be less than 100% of the estimated fair market value per share of our common stock on the grant date. As of March 31, 2010, no awards have been granted under the 2010 LTIP. Any shares awarded or issued pursuant to the exercise of stock options may be (i) authorized and unissued shares of our common stock or (ii) shares of common stock held in or acquired for our treasury. The maximum number of shares subject to any performance award to any participant during any fiscal year shall be 266,667 shares. The maximum cash payment made under a performance award granted to any participant with respect to any fiscal year shall be $5,440.

On April 25, 2010, our Board of Directors approved an amendment to our Amended and Restated Certificate of Incorporation, which will be in effect upon consummation of the initial public offering of which this prospectus is a part. The amendment will reflect that our authorized capital stock will consist of 975,000,000 shares, comprising: (i) 625,000,000 shares of common stock, par value $0.001 per share and (ii) 350,000,000 shares of preferred stock, par value $0.001 per share.

In May 2010, we agreed with Koala Holding LP to extend the redemption date of the Series H preferred stock from August 31, 2011 to August 31, 2013 and to provide for cumulative dividends at the rate of 8% per annum, whether or not earned or declared, which shall be paid in additional shares of Series H preferred stock, accruing quarterly. In addition, Koala Holding LP has agreed that the Series H preferred stock will convert at our option into shares of common stock if (i) the public offering price of this offering is more than $             per share; or (ii) the average closing price over a 90-day period is $             per share or higher. In such event, each share of Series H preferred stock will convert into approximately 0.104 shares of common stock, subject to adjustment.

The Series H preferred stock has a liquidation preference of $2.49 per share. At any time on or after August 31, 2013, holders of not less than a majority of the then outstanding Series H preferred stock may request that all of the then outstanding shares of Series H preferred stock be redeemed in cash, for a sum per share equal to the liquidation preference thereof and all declared and unpaid dividends and all undeclared and unpaid cumulative dividends.

 

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SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

 

		Years Ended December 31,
		2008				2009
		(In thousands)
Tax Valuation Allowance:
Beginning balance		$	57,556			$	85,914
Charged to net loss			28,358				6,698
Charges utilized/write-offs			—				—
Ending balance		$	85,914			$	92,612
Allowance for Doubtful Accounts:
Beginning balance		$	794			$	997
Charged to costs and expenses			309				—
Charges utilized/write-offs			(106	)			(725	)
Acquired in acquisition			—				—
		$	997			$	272

 

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             Shares

Motricity, Inc.

Common Stock

 

 

 

 

J.P. Morgan

Goldman, Sachs & Co.

 

 

Deutsche Bank Securities

RBC Capital Markets

 

 

Baird

Needham & Company, LLC

Pacific Crest Securities

 

 

 

 

 

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13.

Other Expenses of Issuance and Distribution.

The following table sets forth the costs and expenses, other than the underwriting discounts and commissions, we expect to incur in connection with the sale of the common stock being registered. All amounts are estimated except the SEC registration fee and the Financial Industry Regulatory Authority (“FINRA”) filing fees.

 

		Amount To Be Paid
SEC registration fee		$	17,825
FINRA filing fee			25,500
Blue Sky fees and expenses*
NASDAQ listing fee*
Printing and engraving expenses*
Legal fees and expenses*
Accountants’ fees and expenses*
Transfer agent and custodian fees*
Miscellaneous*
Total		$

 

*	To be filed by amendment.

 

Item 14.

Indemnification of Directors and Officers.

We are incorporated under the laws of the State of Delaware. Section 145 of the General Corporation Law of the State of Delaware, or DGCL, provides that a Delaware corporation may indemnify any persons who were, are, or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, for any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

A Delaware corporation may indemnify officers and directors against expenses (including attorneys’ fees) in connection with the defense or settlement of an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses which such officer or director actually and reasonably incurred.

In accordance with Section 102 of the DGCL, our amended and restated certificate of incorporation contains a provision to limit the personal liability of our director’s violations of their fiduciary duty. This provision eliminates each director’s liability to us and our stockholders for monetary damages except (i) for any breach of the director’s duty of loyalty to us or to our stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of

 

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law, (iii) under Section 174 of the DGCL providing for liability of directors for unlawful payment of dividends or unlawful stock purchases or redemptions, or (iv) for any transaction from which a director derived an improper personal benefit.

We have also entered into indemnification agreements with our officers and directors, substantially in the form of the indemnification agreement filed by us as an exhibit to this registration statement on Form S-1. These indemnification agreements provide contractual indemnification to our officers and directors in addition to the indemnification provided in our amended and restated certificate of incorporation and bylaws.

We currently have directors’ and officers’ liability insurance policies to insure our directors and officers against liability for actions or omissions occurring in their capacity as a director or officer, subject to certain exclusions and limitations.

Reference is made to the form of underwriting agreement filed as Exhibit 1.1 hereto for provisions providing that the underwriters are obligated, under certain circumstances, to indemnify our directors, officers and controlling persons against certain liabilities under the Securities Act of 1933, as amended (the “Securities Act”).

 

Item 15.

Recent Sales of Unregistered Securities.

In the past three years, we have issued unregistered securities to a limited number of persons, as described below. None of these transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and we believe each transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof or Rule 701 pursuant to compensatory benefit plans and contracts related to compensation.

1. In February 2007, we sold an aggregate of 21,084,337 shares of Series H Preferred Stock at $2.49 per share for an aggregate purchase price of approximately $52.5 million to three accredited investors. In connection with this financing round, we issued three warrants to the investors to purchase 108,500 shares of our common stock at an exercise price of $35.55 per share.

2. In May 2007, we issued to an affiliate of an existing investor, as consideration for a financing commitment in connection with a proposed transaction that was not completed, a warrant to purchase 128,571 shares of common stock at an exercise price of $32.25 per share.

3. In June 2007, in connection with our credit facility, we issued warrants to purchase 20,000 shares of common stock to Silicon Valley Bank at an exercise price of $32.25 per share.

4. In September 2007, we issued warrants to purchase an aggregate of 123,500 shares of common stock at an exercise price of $14.54 per share to four investors in conjunction with the Series I Preferred Stock financing round.

5. In December 2007, we sold an aggregate of 190,839,694 shares of Series I Preferred Stock at $0.9694 per share for an aggregate purchase price of approximately $185 million to both existing and new investors. In connection with our acquisition of InfoSpace Mobile, we issued a warrant for consulting services of an investor to purchase 2,578,915 shares of Series I Preferred Stock at an exercise price of $0.9694 per share. We utilized a placement agent in completing the Series I Preferred Stock financing round, and as part of the consideration for placement services, the placement agent received a warrant to purchase 6,340,676 shares of Series I preferred stock at an exercise price of $0.9694 per share. In addition, the placement agent surrendered warrants to purchase 122,138 shares of common stock issued in conjunction with the Series F and G Preferred Stock financing rounds with exercise prices between $35.55 and $37.35 per share. We issued warrants to purchase an aggregate of 2,706,618 shares of common stock at an exercise price of $14.54 per share to the Series I investors.

 

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We have also issued stock options and made restricted stock grants under our Amended and Restated 2004 Stock Incentive Plan, a written compensatory benefit plan under which we have issued options and restricted stock grants to employees, consultants and directors. Since March 31, 2007, we have issued to certain officers, employees, consultants and directors 2,406,765 shares of restricted stock and options to purchase 1,398,020 shares of common stock at exercise prices ranging from $12.00 to $32.25 per share, with an aggregate exercise price of $19.6 million. As of March 31, 2010, options to purchase 1,178,873 shares of common stock with an aggregate exercise price of $12.6 million remain outstanding. Since March 31, 2007, we have sold and issued to our officers, employees, consultants and directors 172,773 shares of our common stock pursuant to option exercises at prices ranging from $0.30 to $32.25 per share for an aggregate purchase price of $168,981. All of our option grants in the past three years were to purchase shares of our common stock and were made under our 2004 Stock Incentive Plan.

In addition, under our 2010 Long-Term Incentive Plan, our Compensation Committee has approved a grant to certain employees of options to purchase 446,000 shares of common stock with an exercise price equal to the initial public offering price per share. If the public offering does not occur on or before July 31, 2010, these grants shall be null and void. In connection with the renegotiation of his employment agreement, our Compensation Committee has also approved a grant to our Chief Executive Officer to purchase 333,333 shares of common stock at an exercise price of $20.40 with an aggregate exercise price of $6.8 million. If the public offering does not occur on or before July 25, 2010, this grant will be forfeited.

 

Item 16.

Exhibits.

(a) See the Exhibit Index on the pages immediately preceding the exhibits for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.

(b) Financial Statement Schedules

Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.

 

Item 17.

Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described in Item 14 above, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of us in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

We hereby undertake that:

(i) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A

 

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and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and

(ii) for purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in Bellevue, Washington, on May 6, 2010.

 

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on May 6, 2010.

 

Signature		Title
/S/    RYAN K. WUERCH       Ryan K. Wuerch		Chairman and Chief Executive Officer (Principal Executive Officer)
/S/    ALLYN P. HEBNER       Allyn P. Hebner		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
Hunter C. Gary		Director
Brett Icahn		Director
* Lady Barbara Judge		Director
* Suzanne H. King		Director
* Brian Turner		Director

 

*By:		/S/    ALLYN P. HEBNER
		Attorney-in-fact

 

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SIGNATURE AND POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints Ryan K. Wuerch and Allyn P. Hebner as his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments and registration statements filed pursuant to Rule 462(b) under the Securities Act of 1933) to this Registration Statement and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitutes or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following person in the capacity indicated on May 6, 2010.

 

Signature		Title
/s/    Jeffrey A. Bowden         Jeffrey A. Bowden		Director

 

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EXHIBIT INDEX

 

EXHIBIT NO.		DESCRIPTION
1.1		Form of Underwriting Agreement*
3.1		Restated Certificate of Incorporation§
3.2		Amended and Restated Bylaws§
4.1		Amended and Restated Stockholders’ Agreement, dated as of October 15, 2007, among Motricity, Inc., certain subsidiaries, and the other parties thereto§
4.2		Amended and Restated Registration Rights Agreement, dated as of October 15, 2007, among Motricity, Inc., certain subsidiaries, and the other parties thereto§
4.3		Form of Registrant’s Common Stock Certificate*
4.4		Loan and Security Agreement, dated as of June 27, 2007, between Silicon Valley Bank and Motricity, Inc., as amended§
5.1		Opinion of Kirkland & Ellis LLP*
10.1		Master Services Agreement, dated as of December 30, 2008, between GlobalLogic, Inc. and Motricity, Inc.†§
10.2		Second Amended and Restated Wireless Services Agreement #00014249, dated as of July 22, 2005, between InfoSpace Mobile, Inc. and Cingular Wireless LLC, as amended†§
10.3		Master Services Agreement Number TJR031606, dated as of September 14, 2006, between Motricity, Inc. and Cingular Wireless LLC, as amended†§
10.4		WAP 2.0 Hosting Agreement, dated as of June 24, 2004, between Premium Wireless Services USA, Inc. d/b/a InfoSpace Mobile and Cellco Partnership d/b/a Verizon Wireless, as amended†§
10.5		Office Lease, dated as of December 21, 2007, between WA—Three Bellevue Center, LLC and Motricity, Inc.†§
10.6		Employment Offer Letter, dated as of May 20, 2009, between Motricity, Inc. and Chris Dorr#§
10.7		Employment Offer Letter, dated as of May 22, 2009, between Motricity, Inc. and Jim Ryan#§
10.8		Employment Offer Letter, dated as of January 7, 2009, between Motricity, Inc. and Jim Smith#§
10.9		Employment Offer Letter, dated as of March 6, 2009, between Motricity, Inc. and Allyn P. Hebner#§
10.10		Employment Offer Letter, dated as of August 8, 2008, between Motricity, Inc. and Richard E. Leigh, Jr.#§
10.11		Second Amended and Restated Employment Agreement, as amended, dated as of January 1, 2008, between Motricity, Inc. and Ryan K. Wuerch#§
10.12		Amended and Restated Executive Employment Agreement, dated as of January 19, 2010, between Motricity, Inc. and Ryan K. Wuerch#§
10.13		Amended and Restated 2004 Stock Incentive Plan of Motricity, Inc., as amended through August 4, 2005#§
10.14		Motricity, Inc. 2009 Corporate Incentive Plan#†§
10.15		Motricity, Inc. 2010 Corporate Incentive Plan#†§
10.16		Motricity, Inc. 2010 Long-Term Incentive Plan#§
10.17		Form of Stock Option Agreement under 2004 Plan#§

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EXHIBIT NO.		DESCRIPTION
10.18		Form of Restricted Stock Grant Agreement under 2004 Plan#§
10.19		Form of Motricity, Inc. Indemnification Agreement#§
10.20		Form of Stock Option Agreement under the 2010 LTIP#
10.21		Omnibus Amendment Agreement, dated as of January 20, 2010, between Advanced Equities, Inc. and Motricity, Inc.§
21.1		List of Subsidiaries
23.1		Consent of PricewaterhouseCoopers LLP
23.2		Consent of Kirkland & Ellis LLP (included in Exhibit 5.1)*
23.3		Consent of Yankee Group Research, Inc.§
24.1		Power of Attorney§
99.1		Compensation Committee Charter§

 

*	To be filed by amendment.

#	Indicates a management contract or compensatory plan or arrangement.

†	Confidential treatment has been requested for certain provisions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act of 1933. These provisions have been omitted from the filing and submitted separately to the Securities and Exchange Commission.

§	Previously filed.