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EX-32.2 - SECTION 906 CFO CERTIFICATION - MOTRICITY INCmotr2012331ex322.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - MOTRICITY INCmotr2012331ex311.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - MOTRICITY INCmotr2012331ex312.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - MOTRICITY INCmotr2012331ex321.htm
EX-10.5 - FIRST AMENDMENT TO AMENDED AND RESTATED PROMISSORY NOTE - MOTRICITY INCmotr2012331ex105.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 
Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
or 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to                       
Commission File Number: 001-34781
 
Motricity, Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
20-1059798
(State of incorporation)
 
(I.R.S. Employer
Identification Number)
601 108th Avenue Northeast
Suite 900
Bellevue, WA 98004
(425) 957-6200
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Q  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Q  Yes    o  No
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. (Check one): 
Large accelerated filer
o
Accelerated filer
x
 
 
 
 
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    Q  No
As of May 4, 2012 there were 46,171,073 shares of the registrant's common stock, par value of $0.001 per share, outstanding.
 




TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 




PART I

Item 1.
Condensed Consolidated Financial Statements.

2



Motricity, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data and per share amounts)
(unaudited) 
 
March 31,
2012
 
December 31,
2011
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
10,423

 
$
13,066

Restricted short-term investments
434

 
434

Accounts receivable, net of allowance for doubtful accounts of $824 and $905, respectively
26,643

 
42,521

Prepaid expenses and other current assets
4,565

 
5,758

Assets held for sale
5,268

 
5,206

Total current assets
47,333

 
66,985

Property and equipment, net
13,213

 
15,440

Goodwill
25,343

 
25,208

Intangible assets, net
9,873

 
10,120

Other assets
1,127

 
359

Total assets
$
96,889

 
$
118,112

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued expenses
$
20,154

 
$
34,583

Accrued compensation
5,379

 
5,200

Deferred revenue, current portion
1,851

 
1,824

Other current liabilities
1,686

 
681

Liabilities held for sale
4,849

 
5,120

Total current liabilities
33,919

 
47,408

Deferred tax liability
354

 
262

Debt facilities
20,991

 
20,531

Other noncurrent liabilities
532

 
786

Total liabilities
55,796

 
68,987

 
 
 
 
Stockholders’ equity
 
 
 
Common stock, $0.001 par value; 625,000,000 shares authorized; 46,171,073 and 46,226,797 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively
46

 
46

Additional paid-in capital
570,700

 
570,331

Accumulated deficit
(528,165
)
 
(519,480
)
Accumulated other comprehensive loss
(1,488
)
 
(1,772
)
Total stockholders’ equity
41,093

 
49,125

Total liabilities and stockholders’ equity
$
96,889

 
$
118,112

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


Motricity, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share data and per share amounts)
(unaudited)
 
 
Three Months Ended March 31,
 
2012
 
2011
Revenue
 
 
 
Managed services
$
21,887

 
$
21,842

Professional services
899

 
2,451

Total revenues
22,786

 
24,293

 
 
 
 
Operating expenses
 
 
 
Direct third-party expenses
5,154

 
2,930

Datacenter and network operations, excluding depreciation
3,441

 
6,083

Product development and sustainment, excluding depreciation
5,032

 
4,038

Sales and marketing, excluding depreciation
2,525

 
3,447

General and administrative, excluding depreciation
6,298

 
6,063

Depreciation and amortization
1,754

 
4,284

Acquisition transaction and integration costs

 
4,072

Restructuring
2,037

 
246

Total operating expenses
26,241

 
31,163

Operating loss
(3,455
)
 
(6,870
)
Other income (expense), net
 
 
 
Other income
4

 
41

Interest expense
(461
)
 

Other income (expense), net
(457
)
 
41

Loss before income taxes
(3,912
)
 
(6,829
)
Provision for income taxes
92

 
542

Loss from continuing operations
(4,004
)
 
(7,371
)
Income (loss) from discontinued operations
(4,681
)
 
1,230

Net Loss
(8,685
)
 
(6,141
)
 
 
 
 
Net loss from continuing operations per share – basic and diluted
(0.09
)
 
(0.18
)
Net income (loss) from discontinued operations per share – basic and diluted
(0.10
)
 
0.03

Net loss per share – basic and diluted
$
(0.19
)
 
$
(0.15
)
Weighted-average common shares outstanding – basic and diluted
45,980,781

 
42,286,133

 
 
 
 
Depreciation and amortization by function
 
 
 
Datacenter and network operations
$
975

 
$
2,540

Product development and sustainment
248

 
1,057

Sales and marketing
392

 
569

General and administrative
139

 
118

Total depreciation and amortization
$
1,754

 
$
4,284

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


Motricity, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)

 
Three Months Ended March 31,
 
2012
 
2011
Net loss
$
(8,685
)
 
$
(6,141
)
Other comprehensive loss:
 
 
 
Foreign currency translation adjustment
284

 
185

Comprehensive loss
$
(8,401
)
 
$
(5,956
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


5


Motricity, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share data and per share amounts)
(unaudited)

 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
Shares
 
Amount
 
 
 
 
Total
Balance as of December 31, 2010
 
40,721,754

 
$
41

 
$
467,565

 
$
(324,088
)
 
$
46

 
$
143,564

Net loss
 

 

 

 
(195,392
)
 

 
(195,392
)
Foreign currency translation adjustment
 

 

 

 

 
(1,818
)
 
(1,818
)
Common stock issued in business acquisition
 
3,277,002

 
3

 
43,351

 

 

 
43,354

Conversion of redeemable preferred stock to common stock
 
2,348,181

 
2

 
49,861

 

 

 
49,863

Restricted stock activity
 
(139,448
)
 

 
(674
)
 

 

 
(674
)
Exercise of common stock options and warrants
 
19,308

 

 
198

 

 

 
198

Stock-based compensation expense
 

 

 
10,030

 

 

 
10,030

Balance as of December 31, 2011
 
46,226,797

 
46

 
570,331

 
(519,480
)
 
(1,772
)
 
49,125

Net loss
 

 

 

 
(8,685
)
 

 
(8,685
)
Foreign currency translation adjustment
 

 

 

 

 
284

 
284

Restricted stock activity
 
(55,724
)
 

 

 

 

 

Stock-based compensation expense
 

 

 
369

 

 

 
369

Balance as of March 31, 2012
 
46,171,073

 
$
46

 
$
570,700

 
$
(528,165
)
 
$
(1,488
)
 
$
41,093

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


Motricity, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
Three Months Ended March 31,
 
2012
 
2011
Cash flows from operating activities
 
 
 
Net loss
$
(8,685
)
 
$
(6,141
)
(Income) loss from discontinued operations
4,681

 
(1,230
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
Depreciation and amortization
1,754

 
4,284

Stock-based compensation expense
369

 
2,144

Deferred tax liability
92

 
442

Other non-cash adjustments
538

 
31

Changes in operating assets and liabilities
 
 
Accounts receivable
15,651

 
(9,849
)
Prepaid expenses and other assets
906

 
913

Other long-term assets

 
(721
)
Accounts payable and accrued expenses
(11,296
)
 
(5,408
)
Deferred revenue
(6
)
 
(407
)
Net cash provided by (used in) operating activities - continuing operations
4,004

 
(15,942
)
Net cash provided by (used in) operating activities - discontinued operations
(4,901
)
 
2,122

Net cash used in operating activities
(897
)
 
(13,820
)
 
 
 
 
Cash flows from investing activities
 
 
 
Purchase of property and equipment
(834
)
 
(239
)
Capitalization of software development costs

 
(2,193
)
Net cash used in investing activities - continuing operations
(834
)
 
(2,432
)
Net cash used in investing activities - discontinued operations
(29
)

(1,294
)
Net cash used in investing activities
(863
)
 
(3,726
)
 
 
 
 
Cash flows from financing activities
 
 
 
Net proceeds from sale of common stock

 
147

Restricted short-term investments

 
335

Prepaid offering costs
(580
)
 

Net cash provided by (used in) financing activities - continuing operations
(580
)
 
482

Effect of exchange rate changes on cash and cash equivalents
(45
)
 
136

Net decrease in cash and cash equivalents
(2,385
)
 
(16,928
)
Cash and cash equivalents at beginning of period
13,066

 
78,519

Cash reclassified to assets held for sale at beginning of period
159

 

Cash reclassified to assets held for sale at end of period
(417
)
 

Cash and cash equivalents at end of period
$
10,423

 
$
61,591

 
 
 
 
Supplemental schedule of cash flow information:
 
 
 
Conversion of redeemable preferred stock to common stock
$

 
$
49,863

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Motricity, Inc.

Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)



1. Organization
Motricity, Inc. ("Motricity" or the "Company") is a leading provider of mobile data solutions serving mobile operators, consumer brands and enterprises, and advertising agencies. Our software as a service ("SaaS") based platform enables our customers to implement marketing, merchandising, commerce, and advertising solutions to engage with their target customers and prospects through mobile devices. Our integrated solutions span mobile optimized websites, mobile applications, mobile merchandising and content management, mobile messaging, mobile advertising and predictive analytics. Our solutions allow our customers to drive loyalty, generate revenue and reengineer business processes to capture the advantages of a mobile enabled customer base. Our predictive analytics capabilities drives relevant and targeted consumer experiences that drive brand awareness and interaction for our customers.

On April 14, 2011, we acquired substantially all of the assets of Adenyo Inc. (“Adenyo”) and its subsidiaries and assumed certain of Adenyo's liabilities (including those of its subsidiaries), pursuant to an Arrangement Agreement, dated as of March 12, 2011, by and among Adenyo Inc., Motricity Canada Inc. (formerly 7761520 Canada Inc.), Motricity, Inc. and the other parties thereto. The assets include Adenyo's interest in a subsidiary, equipment, software, accounts receivable, licenses, intellectual property, customer lists, supplier lists and contractual rights. Adenyo is a mobile marketing, advertising and analytics solutions provider with operations in the United States, Canada and France.

Following the termination of our relationship with XL, we decided to exit our business in India and the Asia Pacific region. These decisions were based on the resources and cost associated with these operations, the intensified competition in the region and our decision to streamline our operations and focus on our mobile marketing and advertising and enterprise business, while at the same time recommitting some of our resources to our North American carrier operations. We may face administrative and regulatory hurdles as we exit our subsidiaries in India and the Asia Pacific region, the process may be longer than anticipated, and we may incur significant unexpected expenses in connection with the wind down.

Additionally, as a part of our new strategic path and a reduction in the actual and anticipated performance of the subsidiaries, we decided to divest of our subsidiaries located in France and the Netherlands. The France subsidiary was acquired in 2011 as a part of our business combination with Adenyo. The Netherlands subsidiary was acquired as a part of our business combination with Infospace in 2007. We completed the divestitures of the France and Netherlands subsidiaries in May 2012. The costs associated with the divestitures of these subsidiaries are minimal.

While we believe that the exit from the international operations will have a positive effect on our profitability in the long term, there is no assurance that this will be the case or that we will be able to generate significant revenues from our other customers or from our mobile marketing and advertising and enterprise business. As of January 1, 2012, all of the operations related to India, the Asia Pacific region, our France subsidiary and our Netherlands subsidiary are reported as discontinued operations in the condensed consolidated financial statements. The prior period operations related to these entities have also been reclassified as discontinued operations retrospectively for all periods presented.

Since September 2011, with the assistance of GCA Savvian Advisors, LLC (“Savvian”), we have been exploring strategic options, including a spin-off, sale or other transaction involving our carrier business and mobile media and enterprise business. After considering the indications of interest and offers received in this process, we decided to end the process of actively pursuing a sale of our business. As such, we decided to focus our resources on other strategic paths, including increasing the focus on our mobile media and enterprise business, broadening our solutions and services to North American carriers, and pursuing financing alternatives such as the proposed rights offering.

On February 28, 2012 we amended our term loan from High River Limited Partnership ("High River") to, among other things, extend its maturity date to August 28, 2013 and on May 10, 2012 we further amended the term loan and High River agreed to provide us with a $5,000 revolving loan facility. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources. High River is beneficially owned by Mr. Carl C. Icahn, a beneficial holder, as of May 4, 2012, of approximately 16.5% of our outstanding shares. Mr. Brett C. Icahn, a director of the Company, is the son of Mr. Carl C. Icahn, and Mr. Hunter C. Gary, a director of the Company, is married to Mr. Carl C. Icahn's wife's daughter. The term loan as amended with High River was unanimously approved by a committee comprised of disinterested directors of the Company's Board of Directors.


8

Motricity, Inc.

Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)


If we are unable to meet the performance commitments under our revenue contracts or effectively enforce or accurately and timely bill and collect for contracts with our customers, it may have an adverse impact on our cash flow and liquidity. At March 31, 2012, $8,736 of accounts receivable related to our messaging business, of which $7,582 will be used to pay outstanding accounts payable balances. Independent of the messaging business, $3,836 was included in accounts receivable but was not billed until April 2012.

We believe that our future cash flow from operations and available cash and cash equivalents will be sufficient to meet our liquidity needs for the next 12 months. However, this may not be the case, our longer-term liquidity and ability to execute on our longer term business plan is contingent on our ability to raise additional capital, including in the proposed rights offering and on our not experiencing any events that may accelerate the payment of amounts outstanding under our term loan and revolving credit facility. We are required to use the proceeds from our proposed rights offering to repay our revolving loan facility, but not our term loan. Our ability to fund our capital needs also depends on our future operating performance, our ability to successfully realign our costs and strategic path, the effect of any financing alternatives we may pursue and our ability to meet financial covenants under any indebtedness we may incur. We may also need to raise additional capital to execute our longer term business plan.

We cannot assure that sufficient capital (including from the proposed rights offering) will be available on acceptable terms, if at all, or that we will generate sufficient funds from operations to repay amounts outstanding under our term loan and revolving credit facility when due or to adequately fund our longer term operating needs. If we are unable to raise sufficient funds, we may need to implement additional cost reduction measures and explore other sources to fund our longer term business needs and repay amounts outstanding under our term loan and revolving credit facility when due. Our failure to do so could result in, among other things, a default under our term loan and revolving credit facility, loss of our customers and a loss of our stockholders' entire investment. Our ability to meet our liquidity needs or raise additional funds may also be impacted by the legal proceedings we are subject to as described in more detail below. Our operating performance may also be affected by risks and uncertainties discussed in Part II, Item 1.A - Risk Factors. These risks and uncertainties may also adversely affect our short and long-term liquidity.


2. Summary of Significant Accounting Policies

Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and our wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated upon consolidation. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Motricity, Inc. Annual Report filed on Form 10-K for the year ended December 31, 2011.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair statement of the results of the interim period, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements.
The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year or for any other period.

Reclassifications
In the first quarter of 2012, we commenced the exit of our operations in India, the Asia Pacific region, France and the Netherlands. Beginning during the first quarter of 2012, all of the operations related to these regions, as well as any resulting gain or loss recognized from the exit activity, will be reported as discontinued operations in the condensed consolidated financial statements. We have also reported the prior period operations related to these entities as discontinued operations retrospectively for all periods presented. Additionally, the assets and liabilities related to France and Netherlands have been classified as held for sale in the consolidated balance sheets for all periods presented. See Note 3 - Discontinued Operations for more information.

9

Motricity, Inc.

Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)



Goodwill
Goodwill represents the excess of the purchase price of an acquired enterprise or assets over the fair value of the identifiable net assets acquired. In 2011, a goodwill impairment charge of $124,305 was recorded based upon a combination of factors, primarily the significant decline of our market capitalization below the book value of our net assets and the reduction in the actual and anticipated performance of acquired businesses below our expectations. In the first quarter of 2012, we allocated a total of $720 of our goodwill balance to our France and Netherlands subsidiaries that was considered held for sale. We have reclassified the Condensed Consolidated Balance Sheet to reflect this allocation. After this allocation the amount of goodwill was $25,343 and $25,208 at March 31, 2012 and December 31, 2011, respectively. See Note 4 - Goodwill for more information.

Accumulated Other Comprehensive Loss
Comprehensive loss includes net loss as currently reported under U.S. GAAP and other comprehensive loss. Other comprehensive loss considers the effects of additional economic events, such as foreign currency translation adjustments, that are not required to be recorded in determining net loss, but rather are reported as a separate component of stockholders’ equity. In the first quarter of 2012, we adopted the new guidance for other comprehensive income. Under the amended guidance, an entity is no longer allowed to present the components of other comprehensive income in the statement of stockholders' equity. Instead, an entity has the option to present comprehensive income in either one continuous statement or two consecutive financial statements. We have elected to present comprehensive income in two consecutive statements, see our condensed consolidated statement of comprehensive loss for details.

Fair Value of Financial Instruments
As of March 31, 2012 and December 31, 2011, we had $10,423 and $13,066 of cash and cash equivalents, respectively, and $434 of restricted short-term investments for both periods. Restricted short-term investments were evaluated using quoted market prices (Level 1) to determine their fair value. In addition, the carrying amount of certain financial instruments, including accounts receivable, accounts payable and accrued expenses approximates fair value due to their short maturities. The carrying value of our long term debt approximates the fair value due to the close proximity of the date of the loan and loan amendments to March 31, 2012.

Recent Accounting Pronouncements
There are no recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.

3. Discontinued Operations
On December 31, 2011, we agreed to terminate our relationship with PT XL Axiata Tbk (“XL”), at XL's request. The termination followed negotiations relating to the continued business relationship among us and XL and XL's indication that it wished to exit its relationship with us. Several agreements pursuant to which we provided XL with mobile data and related services in Indonesia were terminated. In connection with this termination and as a result of the review of our strategic path, we also decided to increase our focus on our mobile marketing and advertising and enterprise business and re-evaluate our international carrier business. As part of this process, we decided to exit our business in India and the Asia Pacific region. The decision to exit the business in India and the Asia Pacific region was based on the resources and costs associated with these operations, the intensified competition in the region and our decision to streamline our operations and focus on our mobile marketing and advertising and enterprise business, while at the same time recommitting some of our resources to our North American carrier operations. In connection with this exit, we have terminated all of our employees and closed down our offices in Singapore, Malaysia, Indonesia and India and our data center in India. Other costs include associated legal, accounting and tax costs. Substantially all exit costs are expected to be incurred as cash expenditures.

Additionally, as a part of our new strategic path and a reduction in the actual and anticipated performance of the subsidiaries, we decided to sell our subsidiaries located in France and the Netherlands. The France subsidiary was acquired in 2011 as a part of our business combination with Adenyo. The Netherlands subsidiary was acquired as a part of our business combination with Infospace in 2007. We completed the sale of the France and Netherlands subsidiaries in May 2012. The costs associated with the sale of these subsidiaries are minimal and no significant gain or loss is expected.


10

Motricity, Inc.

Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)


As of January 1, 2012, all of the operations related to India, the Asia Pacific region, our France subsidiary and our Netherlands subsidiary are reported as discontinued operations in the condensed consolidated financial statements. The prior period operations related to these entities have also been reported as discontinued operations retrospectively for all periods presented. The assets and liabilities related to our France subsidiary and our Netherlands subsidiary are reported as assets and liabilities held for sale in the condensed balance sheets as of March 31, 2012. We have presented the prior year assets and liabilities related to the France and Netherlands subsidiaries as held for sale to provide comparability between the periods presented.

Discontinued operations on the condensed consolidated statement of operations for the three months ended March 31, 2012 is as follows:
 
Three Months Ended March 31, 2012
 
France Subsidiary
 
Netherlands Subsidiary
 
India and the Asia Pacific Region
 
Total
Revenue
$
658

 
$
645

 
$

 
$
1,303

Operating income (loss)
(141
)
 
16

 
(3,718
)
 
(3,843
)
Pre-tax income (loss)
(141
)
 
16

 
(4,517
)
 
(4,642
)
Provision for taxes

 

 
39

 
39

Net income (loss) from discontinued operations
$
(141
)
 
$
16

 
$
(4,556
)
 
$
(4,681
)

Discontinued operations on the condensed consolidated statement of operations for the three months ended March 31, 2011 is as follows:
 
Three Months Ended March 31, 2011
 
France Subsidiary
 
Netherlands Subsidiary
 
India and the Asia Pacific Region
 
Total
Revenue
$

 
$
685

 
$
7,236

 
$
7,921

Operating income (loss)

 
(307
)
 
1,587

 
1,280

Pre-tax income (loss)

 
(308
)
 
1,571

 
1,263

Provision for taxes

 

 
33

 
33

Net income (loss) from discontinued operations
$

 
$
(308
)
 
$
1,538

 
$
1,230


Assets and liabilities held for sale for the France and Netherlands subsidiaries on the condensed consolidated balance sheets consist of the following:

11

Motricity, Inc.

Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)


 
 
March 31,
2012
 
December 31,
2011
Assets held for sale:
 
 
 
 
Cash
 
$
417

 
$
159

Accounts receivable, net of allowance for doubtful accounts
 
2,689

 
2,864

Prepaid expenses and other current assets
 
351

 
339

Property and equipment, net
 
937

 
975

Goodwill
 
720

 
720

Other assets
 
154

 
149

Total assets held for sale
 
$
5,268

 
$
5,206

 
 
 
 
 
Liabilities held for sale:
 
 
 
 
Accounts payable and accrued expenses
 
$
2,795

 
$
2,797

Accrued compensation
 
671

 
756

Deferred revenue, current portion
 
36

 
257

Other current liabilities
 
477

 
464

Debt facilities
 
870

 
846

Total liabilities held for sale
 
$
4,849

 
$
5,120



4. Goodwill
The changes in the carrying amount of goodwill for the three months ended March 31, 2012 are as follows:
Goodwill balance as of December 31, 2011
$
25,928

Goodwill allocated to assets held for sale
(720
)
Effect of foreign currency translation
135

Goodwill balance as of March 31, 2012
$
25,343


During the first quarter of 2012, we decided to sell our subsidiaries located in the Netherlands and France.  We allocated goodwill to each of these subsidiaries based on relative fair value of net assets.  We completed the sales of the Netherlands and France subsidiary in May 2012 and used the sale price to calculate the relative fair value in order to determine the allocation of goodwill. The total goodwill allocated to the Netherlands and France subsidiaries is $720 and it is classified in assets held for sale in the consolidated balance sheets. See Note 3 - Discontinued Operations for further information.

A portion of the goodwill balance is denominated in Canadian dollars. The effect of foreign currency translation of $135 is the result of the change in the value of the U.S. dollar and the value of the Canadian dollar from December 31, 2011 through March 31, 2012.

5. Restructuring

Included in Accrued expenses on our December 31, 2010 condensed consolidated balance sheet are $282 of restructuring costs primarily related to the 2009 closure of an office in the United Kingdom.

During 2011, in anticipation of the synergies associated with our acquisition of Adenyo, we initiated a restructuring plan in Europe in February 2011. This resulted in a reduction in workforce and a $246 restructuring charge in the first quarter of 2011 primarily related to involuntary termination benefits related to the elimination of redundant functions and positions. Similar restructuring activity continued throughout the remainder of 2011 and included the termination of the chief executive officer,

12

Motricity, Inc.

Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)


chief financial officer, chief development officer and general counsel.

During the first quarter of 2012, as a part of the overall realignment of our strategic path, the exit from India and the Asia Pacific region and the decision to sell our France and Netherlands subsidiaries, we initiated another restructuring plan. As a result of this restructuring plan, we implemented a reduction in force and incurred costs related to involuntary termination benefits. A portion of the restructuring charges related to this action are in included in Discontinued operations and $2,037 is included in Restructuring in the condensed consolidated statement of operations for charges incurred in the U.S. Restructuring charges of $687 that have been committed to but not yet paid, are included in Accrued compensation in the condensed consolidated balance sheets. We expect to pay these benefits by October 31, 2012.

The following table reconciles restructuring charges related to continuing operations with the associated liabilities:
 
Involuntary Termination Benefits
 
Office Relocation Costs
 
Other Costs, Primary Lease Obligations
 
Total
Balance as of December 31, 2010
$
56

 
$

 
$
226

 
$
282

Restructuring charges
5,153

 

 
(196
)
 
4,957

Utilization
(4,336
)
 

 
(30
)
 
(4,366
)
Balance as of December 31, 2011
873

 

 

 
873

Restructuring charges
2,014

 
23

 

 
2,037

Utilization
(2,200
)
 
(23
)
 

 
(2,223
)
Balance as of March 31, 2012
$
687

 
$

 
$

 
$
687






6. Debt Facilities

Term Loan
We entered into a term loan with High River on September 16, 2011 and subsequently amended the terms of the term loan on November 14, 2011 and on February 28, 2012. The term loan accrues interest at 9% per year, which is paid-in-kind quarterly through capitalizing interest and adding it to the principal balance, is secured by a first lien on substantially all of our assets and is guaranteed by two of our subsidiaries, mCore International and Motricity Canada. The principal and interest are due and payable at maturity on August 28, 2013. The term loan provides High River with a right to accelerate the payment of the term loan if, among other things, we experience an ownership change (within the meaning of Section 382 of the Internal Revenue Code of 1986 as amended) that results in a substantial limitation on our ability to use our net operating losses and related tax benefits or if the shares of any preferred stock we may issue become redeemable at the option of the holders or if we are required to pay the liquidation preference for such shares. Subject to certain limited exceptions, the term loan is subject to mandatory prepayment (without premium or penalty) from the net proceeds of corporate transactions, including dispositions of assets outside of the ordinary course of business or the issuance of additional debt or equity securities (other than the proposed rights offering). The term loan contains certain restrictive covenants, with which we were in full compliance as of March 31, 2012. The principal and accrued interest balances as of March 31, 2012 were $20,000 and $991, respectively.

High River is beneficially owned by Mr. Carl C. Icahn, a beneficial holder, as of May 4, 2012, of approximately 16.5% of our outstanding shares. Mr. Brett C. Icahn, a director of the Company, is the son of Mr. Carl C. Icahn, and Mr. Hunter C. Gary, a director of the Company, is married to Mr. Carl C. Icahn's wife's daughter. The term loan as amended with High River was unanimously approved by a committee comprised of disinterested directors of the Company's Board of Directors.


7.     Net Income (Loss) Per Share
The following table sets forth the computation of basic and diluted net income (loss) per share for both continuing operations

13

Motricity, Inc.

Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)


and discontinued operations for the periods indicated:
 
Three Months Ended March 31,
 
2012
 
2011
Continuing operations:
 
 
 
Net loss from continuing operations
$
(4,004
)
 
$
(7,371
)
Weighted-average common shares outstanding - basic and diluted
45,980,781

 
42,286,133

Net loss from continuing operations per share – basic and diluted
$
(0.09
)
 
$
(0.18
)
 
 
 
 
Discontinued operations:
 
 
 
Net income (loss) from discontinued operations
$
(4,681
)
 
$
1,230

 
 
 
 
Weighted-average common shares outstanding - basic and diluted
45,980,781

 
42,286,133

Net income (loss) from discontinued operations per share – basic and diluted
$
(0.10
)
 
$
0.03


Basic and diluted net income (loss) per share from continuing operations and from discontinued operations has been computed based on net income (loss) from continuing operations, net income (loss) from discontinued operations and the weighted-average number of common shares outstanding during the 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 and warrants to purchase common stock, when the potentially issuable shares covered by these securities are antidilutive. The following table presents the outstanding potentially antidilutive securities at each period end not included in net loss per share from continuing operations and net income (loss) per share from discontinued operations:
 
Three Months Ended March 31,
 
2012
 
2011
Options to purchase common stock
1,160,351

 
2,254,754

Restricted stock
271,979

 
872,409

Warrants to purchase common stock
2,027,403

 
2,143,846

Total securities excluded from net loss per share
3,459,733

 
5,271,009


8.     Related Party Transactions

On September 16, 2011, we borrowed $20,000 from High River pursuant to a secured promissory note, which was amended on November 14, 2011, February 28, 2012 and May 10, 2012. The principal and interest are due and payable at maturity on August 28, 2013. High River is beneficially owned by Carl C. Icahn, a beneficial holder of approximately 16.5% of the Company's outstanding shares. Brett C. Icahn, a director of the Company, is the son of Carl C. Icahn, and Hunter C. Gary, a director of the Company, is married to Carl C. Icahn's wife's daughter. The term loan as amended with High River was unanimously approved by a committee comprised of disinterested directors of the Company's Board of Directors. See Note 6-Debt Facilities and Note 10 - Subsequent Events for more information.

9.     Legal Proceedings

Putative Securities Class Action.  We previously announced that Joe Callan filed a putative securities class action complaint in the U.S. District Court, Western District of Washington at Seattle on behalf of all persons who purchased or otherwise acquired common stock of Motricity between June 18, 2010 and August 9, 2011 or in our IPO. The defendants in the case are Motricity, certain of our current and former directors and officers, including Ryan K. Wuerch, James R. Smith, Jr., Allyn P. Hebner, James N. Ryan, Jeffrey A. Bowden, Hunter C. Gary, Brett Icahn, Lady Barbara Judge CBE, Suzanne H. King, Brian V. Turner; and the underwriters in our IPO, including J.P. Morgan Securities, Inc., Goldman, Sachs & Co., Deutsche Bank Securities Inc., RBC Capital Markets Corporation, Robert W. Baird & Co Incorporated, Needham & Company, LLC and Pacific Crest Securities

14

Motricity, Inc.

Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)


LLC. The complaint alleges violations under Sections 11 and 15 of the Securities Act of 1933, as amended, (the "Securities Act") and Section 20(a) of the Securities Exchange Act (the "Exchange Act") by all defendants and under Section 10(b) of the Exchange Act by Motricity and those of our former and current officers who are named as defendants. The complaint seeks, inter alia, damages, including interest and plaintiff's costs and rescission. A second putative securities class action complaint was filed by Mark Couch in October 2011 in the same court, also related to alleged violations under Sections 11 and 15 of the Securities Act, and Sections 10(b) and 20(a) of the Exchange Act. On November 7, 2011, the class actions were consolidated, and lead plaintiffs were appointed pursuant to the Private Securities Litigation Reform Act. On December 16, 2011, plaintiffs filed a consolidated complaint which added a claim under Section 12 of the Securities Act to its allegations of violations of the securities laws and extended the putative class period from August 9, 2011 to November 14, 2011.  On February 14, 2012, we filed a motion to dismiss the consolidated class actions, which the plaintiffs opposed by filing opposition briefs on April 4, 2012. The plaintiffs are expected to file an amended complaint by May 11, 2012.

Derivative Actions.  In addition, during September and October 2011, three shareholder derivative complaints were filed against us and certain of our current and former directors and officers (including Ryan K. Wuerch, James R. Smith, Jr., Allyn P. Hebner, James N. Ryan, Jay A. Bowden, Hunter C. Gary, Brett Icahn, Lady Barbara Judge CBE, Suzanne H. King, Brian V. Turner, James L. Nelson and Jay Firestone) in the U.S. District Court, Western District of Washington at Seattle. The complaints allege various violations of state law, including breaches of fiduciary duties and unjust enrichment based on alleged false and misleading statements in press releases and other SEC filings disseminated to shareholders. The derivative complaints seek, inter alia, a monetary judgment, restitution, disgorgement and a variety of purported corporate governance reforms. Two of the derivative actions were consolidated on October 27, 2011.  On November 8, 2011, the parties filed a stipulation to stay completely the consolidated derivative action until the Court rules on the forthcoming dismissal motion in the consolidated class action.  The court granted the parties' stipulation on November 10, 2011, thereby staying the consolidated derivative action.  On November 14, 2011, the third derivative action was transferred to the consolidated derivative proceeding, thereby subjecting it to the proceeding's litigation stay.

We intend to vigorously defend against these claims.



10.     Subsequent Events

In May 2012, we completed the transactions to sell GSM Information Network B.V., our Netherlands subsidiary, and Motricity SAS, our France subsidiary. The costs associated with the sale of these subsidiaries are minimal and no significant gain or loss is expected.

At our request, High River agreed to provide us with a $5,000 revolving loan facility and in connection therewith, we further amended the Note on May 10, 2012. Under the revolving facility, we may request amounts in $2,500 increments, unless High River in its sole discretion agrees to lend amounts in smaller increments. We are require to repay any amounts drawn under the revolving credit facility at the earliest to occur of: (i) 60 days of such advance; (ii) August 28, 2013; (iii) a Corporate Transaction (as defined in the Note) with net cash proceeds in excess of $5,000; (iv) a Qualifying Rights Offering (as defined in the Note, which would include our proposed rights offering); or (v) all of our other obligations under the Note towards High River becoming due and payable (whether by acceleration or otherwise). The annual interest rate on the amounts borrowed pursuant to the revolving loan is 15%. The amendment to the Note was unanimously approved by a committee comprised of disinterested directors of the Company's Board of Directors.See Note 6 - Debt Facilities for more information.





15


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements
The following discussion should be read in conjunction with our consolidated financial statements included elsewhere herein. Unless otherwise noted, all dollar amounts in tables are in thousands.

This Quarterly Report on Form 10-Q, including this Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, regarding future events and our future results that are subject to the safe harbors created under the Securities Act of 1933, as amended, (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"). All statements other than statements of historical facts are statements that could be deemed forward-looking statements. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “endeavors,” “strives,” “may,” “should” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements regarding various estimates we have made in preparing our financial statements, including our estimated impairment charges, statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, the sufficiency of our capital resources, our evaluation of strategic and financing alternatives and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.

We may, through our senior management, from time to time make “forward looking statements” about matters described herein or other matters concerning the Company. You should consider our forward-looking statements in light of the risks and uncertainties that could cause our actual results to differ materially from those which are management's current expectations or forecasts. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under “Risk Factors” in Part II, Item 1A of this report, as well as the risks and uncertainties discussed elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2011 (the Annual Report) and in this report. We qualify all of our forward-looking statements by these cautionary statements. We caution you that these risks are not exhaustive. We operate in a continually changing business environment and new risks emerge from time to time. Except as required by law, we disclaim any intent or obligation to revise or update any forward-looking statements for any reason.

Business Overview
Motricity, Inc. ("Motricity" or the "Company") is a leading provider of mobile data solutions serving mobile operators, consumer brands and enterprises, and advertising agencies. Our software as a service ("SaaS") based platform enables our customers to implement marketing, merchandising, commerce, and advertising solutions to engage with their target customers and prospects through mobile devices. Our integrated solutions span mobile optimized websites, mobile applications, mobile merchandising and content management, mobile messaging, mobile advertising and predictive analytics. Our solutions allow our customers to drive loyalty, generate revenue and re-engineer business processes to capture the advantages of a mobile enabled customer base. Our predictive analytics capabilities drives relevant and targeted consumer experiences that drive brand awareness and interaction for our customers.

On April 14, 2011, we acquired substantially all of the assets of Adenyo Inc. (“Adenyo”) and its subsidiaries and assumed certain of Adenyo's liabilities (including those of its subsidiaries), pursuant to an Arrangement Agreement, dated as of March 12, 2011, by and among Adenyo Inc., Motricity Canada Inc. (formerly 7761520 Canada Inc.), Motricity, Inc. and the other parties thereto. The assets include Adenyo's interest in a subsidiary, equipment, software, accounts receivable, licenses, intellectual property, customer lists, supplier lists and contractual rights. Adenyo is a mobile marketing, advertising and analytics solutions provider with operations in the United States, Canada and France.

Recent Developments.
Overview. We have undergone significant changes over the past several months as described in more detail below. These changes have included: an increased focus on our mobile media and enterprise opportunities, exiting international operations, implementing cost reductions measures, exploring strategic and financing alternatives including a sale of our company, securing and amending a term loan, securing a revolving loan facility, and implementing changes in management. During this period of transformation, we have continued to deliver value-added solutions and roll out new services to customers, and we have taken a number of proactive steps to evolve our strategy to rebuild the Company and lower operating expenses.


16


The competitive landscape continues to impact our business. In North America, our operations are continuing to experience downward pressures related to the mass adoption of smart phones at the expense of feature phones. While this transition has been underway for some time, our large carrier customers are reporting that this trend is accelerating faster than they expected and it is impacting revenues not just for Motricity, but for the industry. With the shift in our focus from large solution customization and implementation projects to mobile media and enterprise solutions, we have seen a downward trend in our professional service revenue on a sequential basis, and we believe that this trend will continue. We are broadening our solutions and services to North American carriers, but there are no assurances that we will be successful in doing so.

The continuing uncertainty surrounding worldwide financial markets and macroeconomic conditions has caused and may continue to cause our customers to decrease or delay their expansion and purchasing activities. Additionally, constrictions in world credit markets may cause our customers to experience difficulty securing the financing necessary to expand their operations and purchase our services. Economic uncertainty and unemployment have resulted in and may continue to result in cost-conscious consumers, which have adversely affected and may continue to adversely affect demand for our services. If the current adverse macroeconomic conditions continue, our business and prospects may continue to be negatively impacted.

Strategic Review. Since September 2011, with the assistance of GCA Savvian Advisors, LLC (“Savvian”), we have been exploring strategic options, including a spin-off, sale or other transaction involving our carrier business and mobile media and enterprise business. After considering the indications of interest and offers received in this process, we decided to end the process of actively pursuing a sale of our business. As such, we decided to focus our resources on other strategic paths, including increasing the focus on our mobile media and enterprise business, broadening our solutions and services to North American carriers, and pursuing financing alternatives such as the proposed rights offering. As a part of this process, on May 10, 2012, we entered into a $5M revolving loan facility with High River Limited Partnership. As part of our increased focus on our mobile media and enterprise opportunities, we are pursuing new product development opportunities designed to enhance and expand our existing services, seeking to develop new technology that addresses the increasingly sophisticated and varied needs of our customers, and responding 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. Simultaneously, we are focusing on broadening our solutions and services to North American carriers and other industries and building a mobile advertising and enterprise platform that could deliver those services.

The realignment of our strategic path and consideration of financing options will continue to require management time and resources, while we simultaneously focus on developing new product offerings and reducing costs. We cannot assure that we will be successful in our efforts in completing our contemplated financing options, realigning our strategic path, increasing our focus on our mobile media and enterprise business or broadening our carrier solutions. The uncertainty inherent in our strategic review can be difficult to manage, may cause concerns from current and potential customers, suppliers and other third parties with whom we do business, and may increase the likelihood of turnover of other key officers and employees.

Exit from International Operations and Cost Reductions Measures. Following the termination of our relationship with XL, we decided to exit our business in India and the Asia Pacific region. These decisions were based on the resources and cost associated with these operations, the intensified competition in the region and our decision to streamline our operations and focus on our mobile media and enterprise business, while at the same time recommitting some of our resources to our North American carrier operations. Additionally, as a part of our new strategic path and a reduction in the actual and anticipated performance of the subsidiaries, we decided to divest of our subsidiaries located in France and the Netherlands. The France subsidiary was acquired in 2011 as a part of our business combination with Adenyo. The Netherlands subsidiary was acquired as a part of our business combination with Infospace in 2007. We completed the divestitures of the France and Netherlands subsidiaries in May 2012. We may face administrative and regulatory hurdles as we exit these international operations, the process may be longer than anticipated, and we may incur significant unexpected expenses in connection with the wind down. While we believe that the exit from the international operations will have a positive effect on our profitability in the long term, there is no assurance that this will be the case or that we will be able to generate significant revenues from our other customers or from our mobile media and enterprise business. As of January 1, 2012, all of the operations related to India, the Asia Pacific region, our France subsidiary and our Netherlands subsidiary are reported as discontinued operations in the condensed consolidated financial statements. The prior period operations related to these entities have also been reclassified as discontinued operations retrospectively for all periods presented.

To address the challenges presented by the market conditions and the other risks and uncertainties facing our business and to realign our strategic path, we have continued to implement cost savings measures, including a reduction in our workforce, the cancellation of some hiring plans, and a restructuring of our facilities and data centers. We continue to review our cost structure and may implement further cost saving initiatives. These measures are designed to realign our strategic path, streamline our business, improve the quality of our product offerings and implement cost savings measures. We cannot guarantee that we will be able to execute on our realigned strategic path, realize cost savings and other anticipated benefits from our cost savings

17


efforts, or that such efforts will not interfere with our ability to achieve our business objectives. Moreover, the reduction in force and the realignment of our strategic path and other cost savings measures can be difficult to manage, may cause concerns from current and potential customers, suppliers and other third parties with whom we do business, may increase the likelihood of turnover of other key employees, and may have an adverse impact on our business. Our success will depend on our ability to successfully execute one or more financing alternatives (including the previously announced proposed rights offering), our ability to successfully develop and use new technologies and adapt our current and planned services to new customer requirements or emerging industry standards and expand our customer base and risks and uncertainties discussed in Risk Factors.
 
Liquidity and Capital Resources. On May 10, 2012, we further amended the terms of our existing term loan from High River Limited Partnership (“High River”) and High River agreed to provide us with a $5 million revolving loan facility. We originally entered into the term loan on September 16, 2011, and amended it on November 14, 2011 and on February 28, 2012. The February amendment extended the maturity date for the term loan to August 28, 2013. High River is beneficially owned by Mr. Carl C. Icahn, a beneficial holder, as of May 4, 2012, of approximately 16.5% of our outstanding shares. Mr. Brett C. Icahn, a director of the Company, is the son of Mr. Carl C. Icahn, and Mr. Hunter C. Gary, a director of the Company, is married to Mr. Carl C. Icahn's wife's daughter. The term loan, as amended, was approved by a committee comprised of disinterested directors of the Company's Board of Directors. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.

We believe that our future cash flow from operations and available cash and cash equivalents will be sufficient to meet our liquidity needs for the next 12 months. However, this may not be the case, our longer-term liquidity and ability to execute on our longer term business plan is contingent on our ability to raise additional capital, including in the proposed rights offering and on our not experiencing any events that may accelerate the payment of our term loan and amounts drawn under our revolving credit facility. We are required to use the proceeds from our proposed rights offering to repay our revolving loan facility, but not our term loan. Our ability to fund our capital needs also depends on our future operating performance, our ability to successfully realign our costs and strategic path, the effect of any financing alternatives we may pursue and our ability to meet financial covenants under any indebtedness we may incur. We may also need to raise additional capital to execute our longer term business plan.

We cannot assure that sufficient capital (including from the proposed rights offering) will be available on acceptable terms, if at all, or that we will generate sufficient funds from operations to repay our term loan when due or to adequately fund our longer term operating needs. If we are unable to raise sufficient funds, we may need to implement additional cost reduction measures and explore other sources to fund our longer term business needs and repay our term loan and amounts drawn under our revolving credit facility when due. Our failure to do so could result, among other things, in a default under our term loan and revolving credit facility, loss of our customers and a loss of our stockholders' entire investment. Our ability to meet our liquidity needs or raise additional funds may also be impacted by the legal proceedings we are subject to as described in more detail below. Our operating performance may also be affected by risks and uncertainties discussed in Risk Factors. These risks and uncertainties may also adversely affect our short and long-term liquidity.

Management Changes. In January 2012, we hired Richard Stalzer as President of our mobile marketing and advertising business and Charles P. Scullion, our Chief Strategy Officer and interim President of our mobile marketing and advertising business, resigned for good reason. We are considering our current interim Chief Executive Officer, James R. Smith, Jr., as a candidate for permanent Chief Executive Officer, as we continue our evaluation of our executive management team. We are searching for a permanent Chief Financial Officer. We cannot assure that our efforts to identify and recruit a permanent Chief Executive Officer or a permanent Chief Financial Officer will be successful. The uncertainty inherent in our ongoing leadership transition can be difficult to manage, may cause concerns from current and potential customers, suppliers and other third parties with whom we do business, and may increase the likelihood of turnover of other key officers and employees.

Sales Process. As a result of the exploration of a sale of all or a portion of our business, during September through December 2011 we received indications of interest to sell all or a portion of our business. At the end of 2011, after determining that none of the indications of interest received at that point were likely to result in a sale of the Company at a meaningful premium over the market price of our common stock and considering the uncertainty of consummating a transaction on favorable terms if at all, we ended the process led by Savvian. Nevertheless, we continued to receive and evaluate inquiries and offers from parties interested in acquiring our carrier business. These inquiries and offers included purchase prices of up to $40 million. These offers and inquiries were subject to due diligence, price adjustments, buyer contingencies and optionality, uncertainties and other proposed transaction terms that ultimately led us to conclude, after lengthy negotiations and based on a recommendation by disinterested directors, to elect to retain our carrier business and the current positive cash flows it provides, and forego the cost and expense of pursuing a transaction that we did not believe would be completed at the price initially proposed, if at all. The carrier business is subject to the risks and uncertainties discussed in Part II, Item 1A, Risk Factors.

18



Results of Operations
As we discussed in Management's Discussion and Analysis of Financial Conditions and Results of Operation - Business Overview, we have decided to exit our operations in India, the Asia Pacific region, France and the Netherlands. Beginning the during first quarter of 2012, all of the operations related to these regions, as well as any resulting gain or loss recognized from the exit activity is reported as discontinued operations in the condensed consolidated financial statements. We have also reported the prior period operations related to these entities as discontinued operations retrospectively for all periods presented. See Note 3 - Discontinued Operations to our condensed consolidated financial statements for more information.

Total revenues
 
Three Months Ended
 
 
 
 
 
March 31,
 
 
 
 
 
2012
 
2011
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
Managed services
$
21,887

 
$
21,842

  
$
45

  
0.2
 %
Professional services
899

 
2,451

  
(1,552
)
  
(63.3
)
Total revenues
$
22,786

  
$
24,293

  
$
(1,507
)
  
(6.2
)%

Total revenues for the three months ended March 31, 2012 decreased $1.5 million, or 6.2%, compared to the three months ended March 31, 2011. Managed services revenue accounted for 96.1% and 89.9% of our revenues for the three months ended March 31, 2012 and 2011, respectively, while professional services accounted for 3.9% and 10.1%, respectively.

Managed services revenue for the three months ended March 31, 2012 was consistent with the three months ended March 31, 2011. The three months ended March 31, 2012 included revenue from our mobile media and enterprise revenue streams related to our acquisition of Adenyo during the second quarter of 2011 and year over year growth from AT&T. These increases were offset by declines in revenues from and terminations of our relationships with other carrier customers.

Professional services revenue primarily reflects large solution customization and implementation projects for our carrier customers. Professional services revenue for the three months ended March 31, 2012 decreased $1.6 million or 63.3% compared to the corresponding 2011 period. This was primarily due to our focus shift from large solution customization and implementation projects to mobile media enterprise solutions. We have seen a downward trend in our professional service revenue on a sequential basis, and we believe that this trend will continue.

We generated 92.4% of our revenues in the U.S. for the three months ended March 31, 2012, as compared to 99.2% for the three months ended March 31, 2011. The fluctuation of international revenues is due to new international customers acquired with Adenyo offset by lower revenue from Virgin Mobile in the United Kingdom.

Significant customers as a percentage of total revenue:
 
Three Months Ended March 31,
 
 
2012
 
 
2011
 
AT&T
62
 
57
Verizon Wireless
19
 
24



19


Operating expenses
 
Three Months Ended
 
 
 
 
 
March 31,
 
 
 
 
 
2012
 
2011
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
Direct third-party expenses
$
5,154

 
$
2,930

  
$
2,224

 
75.9
 %
Datacenter and network operations*
3,441

 
6,083

  
(2,642
)
 
(43.4
)
Product development and sustainment*
5,032

 
4,038

  
994

 
24.6

Sales and marketing*
2,525

 
3,447

  
(922
)
 
(26.7
)
General and administrative*
6,298

 
6,063

  
235

 
3.9

Depreciation and amortization
1,754

 
4,284

  
(2,530
)
 
(59.1
)
Acquisition transaction and integration costs

 
4,072

  
(4,072
)
 
(100.0
)
Restructuring
2,037

 
246

  
1,791

 
728.0

Total operating expenses
$
26,241

  
$
31,163

  
$
(4,922
)
 
(15.8
)%
*     excluding depreciation
 
Direct third party expenses
Direct third party expenses increased $2.2 million, or 75.9%, for the three months ended March 31, 2012 compared to the corresponding 2011 period. This increase was primarily driven by:
higher usage-based fees of $0.5 million for customer specific third-party software, as user volume through the AT&T portal increased over the prior period;
$0.7 million related to assuming the various business operations of Adenyo, which includes $0.2 million of publisher costs related to the advertising business; and
$0.9 million penalty related to volume minimums in the messaging business that were not met in the first quarter of 2012.
Datacenter and network operations, excluding depreciation
Datacenter and network operations expense, excluding depreciation, decreased $2.6 million, or 43.4%, for the three months ended March 31, 2012 compared to the corresponding 2011 period. This decrease was primarily driven by:
$1.2 million attributable to decreased expenses related to headcount;
$0.8 million decrease in outsourced services to support data centers; and
$0.5 million decrease in bandwidth, hosting, software and maintenance costs.
Product development and sustainment, excluding depreciation
Product development and sustainment expense, excluding depreciation, increased $1.0 million, or 24.6%, for the three months ended March 31, 2012 compared to the corresponding 2011 period. This increase was primarily due to increased headcount associated with our acquisition of Adenyo that occurred in April 2011.
Sales and marketing, excluding depreciation
Sales and marketing expense, excluding depreciation, decreased $0.9 million, or 26.7%, for the three months ended March 31, 2012 compared to the corresponding 2011 period. This decrease was primarily driven by:
$0.6 million decrease in marketing activities; and
$0.3 million decrease attributable to reductions in personnel.
General and administrative, excluding depreciation
General and administrative expense, excluding depreciation, was fairly consistent between the three months ended March 31, 2012 and the three months ended March 31, 2011. The slight increase for the three months ended March 31, 2012 was due to the addition of Adenyo in April 2011, offset by cost reductions initiated during the second half of 2011.
Depreciation and amortization
Depreciation and amortization expense decreased $2.5 million, or 59.1%, for the three months ended March 31, 2012

20


compared to the corresponding 2011 period. The decrease was primarily due to amortization of intangible assets and capitalized software that was impaired in the last half of 2011.

Acquisition transaction and integration costs
Acquisition transaction and integration costs of $4.1 million incurred during the three months ended March 31, 2011 relate to the acquisition of Adenyo which was completed on April 14, 2011.
Restructuring
During the first quarter of 2012, as a part of the overall realignment of our strategic path, and following the termination of our agreement with XL on December 31, 2011, we initiated a restructuring plan related to our international operations. In connection with the implementation of the restructuring plan, we incurred $2.0 million of restructuring charges during the three months ended March 31, 2012 primarily associated with involuntary termination benefits, and retention bonuses.
Other income (expense), net  
 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(Dollars in thousands)
Other income
$
4

 
$
41

Interest expense
(461
)
 

Total other income (expense), net
$
(457
)
 
$
41

 
Interest expense of $0.5 million for the three months ended March 31, 2012 relates to the Term Loan we entered into on September 16, 2011. See Note 6—Debt Facilities to our condensed consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources for more information.
Provision for income taxes
 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(Dollars in thousands)
Provision for income taxes
$
92

 
$
542


The provision for income taxes for the three months ended March 31, 2012 and 2011 primarily consists of a deferred U.S. tax provision for the difference between book and tax treatment of goodwill associated with the acquisition of Adenyo and 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 historical lack of profitability 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 from continuing operations
 
Three Months Ended
 
 
 
 
 
March 31,
 
 
 
 
 
2012
 
2011
 
$ Change
 
% Change
 
(Dollars in thousands)
 
 
Loss from continuing operations
$
(4,004
)

$
(7,371
)
 
$
3,367

  
(45.7
)%
Loss from continuing operations for the three months ended March 31, 2012 was $4.0 million, compared to $7.4 million for the three months ended March 31, 2011. The $3.4 million change primarily reflects:
$4.1 million decrease in acquisition transaction and integration costs;

21


$2.6 million decrease in datacenter and network operation expenses; and
$2.5 million decrease in depreciation and amortization.
These decreases in expenses were partially offset by:
$1.5 million decrease in total revenues;
$2.2 million increase in direct third party expenses; and
$1.8 million increase in restructuring costs.


Liquidity and Capital Resources
General
Our principal needs for liquidity have been to fund operating losses, working capital requirements, restructuring expenses, capital expenditures, international expansion, acquisitions, integration and for debt service. Our principal sources of liquidity as of March 31, 2012 consisted of cash and cash equivalents of $10.4 million. We have implemented cost reduction measures and are continuing to review our liquidity needs. Over the near term, we expect that working capital requirements will continue to be our principal needs for liquidity. In the long term, working capital requirements are expected to increase if we succeed in executing our longer term business plan and growing our business.

We believe that our future cash flow from operations and available cash and cash equivalents will be sufficient to meet our liquidity needs for the next 12 months. However, this may not be the case, our longer-term liquidity and ability to execute on our longer term business plan is contingent on our ability to raise additional capital, including in the proposed rights offering and on our not experiencing any events that may accelerate the payment of our term loan and amounts drawn under our revolving credit facility. We are required to use the proceeds from our proposed rights offering to repay our revolving loan facility, but not our term loan. Our ability to fund our capital needs also depends on our future operating performance, our ability to successfully realign our costs and strategic path, the effect of any financing alternatives we may pursue and our ability to meet financial covenants under any indebtedness we may incur. We may also need to raise additional capital to execute our longer term business plan.

We cannot assure that sufficient capital (including from the proposed rights offering) will be available on acceptable terms, if at all, or that we will generate sufficient funds from operations to repay our term loan and amounts drawn under our revolving credit facility when due or to adequately fund our longer term operating needs. If we are unable to raise sufficient funds, we may need to implement additional cost reduction measures and explore other sources to fund our longer term business needs and repay our term loan and amounts drawn under our revolving credit facility when due. Our failure to do so could result, among other things, in a default under our term loan and revolving credit facility, loss of our customers and a loss of our stockholders' entire investment. Our ability to meet our liquidity needs or raise additional funds may also be impacted by the legal proceedings we are subject to as described in Item 1 - Legal Proceedings. Our operating performance may also be affected by risks and uncertainties discussed in Part II, Item 1A of this report. These risks and uncertainties may also adversely affect our short and long-term liquidity.

If we are unable to meet the performance commitments under our revenue contracts or effectively enforce or accurately and timely bill and collect for contracts with our customers, it may have an adverse impact on our cash flow and liquidity. As of March 31, 2012, $8.7 million of accounts receivable related to our messaging business, of which $7.6 million will be used to pay outstanding accounts payable balances. Independent of the messaging business, $3.8 million was included in accounts receivable but was not billed until April 2012.

On April 14, 2011, we acquired substantially all of the assets of Adenyo and its subsidiaries and assumed certain of Adenyo's liabilities (including those of its subsidiaries). We paid $48.9 million in cash and issued 3,277,002 shares of common stock, with a fair market value of $43.4 million, as consideration for the asset acquisition. The cash consideration included $1.0 million placed in escrow, which we believe is refundable to us, based on our working capital calculation made pursuant to the Arrangement Agreement. Adenyo is disputing our working capital calculation completed since the closing of the transaction. In addition to these amounts paid, the Arrangement Agreement provided that Adenyo would be entitled to receive up to an additional $50 million pursuant to a contingent earn-out based on performance targets, at our discretion payable in cash, shares of our common stock, or a mix of both. The earn-out period expired on April 30, 2012. Based on Adenyo's performance against the non-GAAP based revenue and EBITDA defined in and calculated pursuant to the Arrangement Agreement during

22


the earn out period, we determined that the earn out targets had not been met and that no earn out payment is due to Adenyo. We are required to provide Adenyo with an earn out report detailing our conclusions and such report is subject to Adenyo's review before we can finally resolve this matter.

Term Loan. We entered into a $20 million term loan with High River as evidenced by a promissory note (the “Note”) dated September 16, 2011 as amended on November 14, 2011 and February 28, 2012. The term loan accrues interest at 9% per year, which is paid-in-kind quarterly through capitalizing interest and adding it to the principal balance, is secured by a first lien on substantially all of our assets and is guaranteed by two of our subsidiaries, mCore International and Motricity Canada. The principal and interest are due and payable at maturity on August 28, 2013. The term loan provides High River with a right to accelerate the payment of the term loan if, among other things, we experience an ownership change (within the meaning of Section 382 of the Internal Revenue Code of 1986 as amended) that results in a substantial limitation on our ability to use our net operating losses and related tax benefits or if the shares of any preferred stock that we may issue become redeemable at the option of the holders or if we are required to pay the liquidation preference for such shares.

At our request, High River agreed to provide us with a $5 million revolving loan facility and in connection therewith, we further amended the Note on May 10, 2012. Under the revolving facility, we may request amounts in $2.5 million increments, unless High River in its sole discretion agrees to lend amounts in smaller increments. We are required to repay any amounts drawn under the revolving credit facility at the earliest to occur of: (i) 60 days of such advance; (ii) August 28, 2013; (iii) a Corporate Transaction (as defined in the Note) with net cash proceeds in excess of $5 million; (iv) a Qualifying Rights Offering (as defined in the Note, which would include our proposed rights offering); or (v) all of our other obligations under the Note towards High River becoming due and payable (whether by acceleration or otherwise). The annual interest rate on the amounts borrowed pursuant to the revolving loan is 15%.

High River is beneficially owned by Mr. Carl C. Icahn, a beneficial holder, as of May 4, 2012, of approximately 16.5% of our outstanding shares. Mr. Brett C. Icahn, a director of the Company, is the son of Mr. Carl C. Icahn, and Mr. Hunter C. Gary, a director of the Company, is married to Mr. Carl C. Icahn's wife's daughter. The Note as amended with High River was unanimously approved by a committee comprised of disinterested directors of the Company's Board of Directors.

Cash Flows
As of March 31, 2012 and December 31, 2011, we had cash and cash equivalents of $10.4 million and $13.1 million, respectively. The $2.7 million decrease reflects $0.9 million used in operating activities, $0.9 million used in investing activities, $0.6 million used in financing activities and $0.3 million relates to the foreign currency impact of cash included in assets held for sale.

Net Cash Used in Operating Activities
During the three months ended March 31, 2012, we used $0.9 million in operating activities. Our operating activities from continuing operations provided $4.0 million of cash primarily related to the $5.3 million net change in our operating assets and liabilities. This change was driven by the decrease in accounts receivable related to terminated international carrier contracts, which was offset by the decrease in accounts payable and accrued expenses. Operating activities from discontinued operations used $4.9 million of cash.

Net Cash Used in Investing Activities
Net cash of $0.9 million was used in investing activities for the three months ended March 31, 2012, and related to property and equipment purchased for our network operations.

Net Cash Used in Financing Activities
Net cash of $0.6 million was used in financing activities for the three months ended March 31, 2012, and related to prepaid offering costs related to our proposed rights offering.

Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or other financing activities with special-purpose entities.

Critical Accounting Policies and Estimates
Our condensed 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

23


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 and in certain cases the difference may be material. Any differences may have a material impact on our financial condition and results of operations. For a discussion of how these and other factors may affect our business, see the “Cautionary Statement” and “Recent Developments” above and “Risk Factors” in Part II, Item 1A of this report, as well as other cautionary statements set forth in this report.
Our critical accounting policies are available in Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2011. There have not been any material changes with respect to these policies or estimates during the period covered by this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

We have evaluated all of the recent accounting pronouncements and believe that none of them will have a material effect on our financial condition, results of operations or cash flows.


Item 3.
Qualitative and Quantitative Disclosures about Market Risk.

There have been no material changes from the qualitative and quantitative disclosures about market risk, including interest rate risk, foreign currency risk and risk of inflation, previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.


Item 4.
Controls and Procedures.

Evaluation of Disclosure Controls and Procedures
Our management evaluated, with the participation of our interim Chief Executive Officer and our interim Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our interim Chief Executive Officer and our interim Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Company's management, including its interim Chief Executive Officer and interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls
There has been no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
 
Item 1.
Legal Proceedings.

Putative Securities Class Action.  We previously announced that Joe Callan filed a putative securities class action complaint in the U.S. District Court, Western District of Washington at Seattle on behalf of all persons who purchased or otherwise acquired common stock of Motricity between June 18, 2010 and August 9, 2011 or in our IPO. The defendants in the case are Motricity, certain of our current and former directors and officers, including Ryan K. Wuerch, James R. Smith, Jr., Allyn P. Hebner, James N. Ryan, Jeffrey A. Bowden, Hunter C. Gary, Brett Icahn, Lady Barbara Judge CBE, Suzanne H. King, Brian V. Turner; and the underwriters in our IPO, including J.P. Morgan Securities, Inc., Goldman, Sachs & Co., Deutsche Bank Securities Inc., RBC Capital Markets Corporation, Robert W. Baird & Co Incorporated, Needham & Company, LLC and Pacific Crest Securities LLC. The complaint alleges violations under Sections 11 and 15 of the Securities Act of 1933, as amended, (the "Securities Act") and Section 20(a) of the Securities Exchange Act (the "Exchange Act") by all defendants and under Section 10(b) of the Exchange Act by Motricity and those of our former and current officers who are named as defendants. The complaint seeks, inter alia, damages, including interest and plaintiff's costs and rescission. A second putative securities class action complaint was filed by Mark Couch in October 2011 in the same court, also related to alleged violations under Sections 11 and 15 of the Securities Act, and Sections 10(b) and 20(a) of the Exchange Act. On November 7, 2011, the class actions were consolidated,

24


and lead plaintiffs were appointed pursuant to the Private Securities Litigation Reform Act. On December 16, 2011, plaintiffs filed a consolidated complaint which added a claim under Section 12 of the Securities Act to its allegations of violations of the securities laws and extended the putative class period from August 9, 2011 to November 14, 2011.  On February 14, 2012, we filed a motion to dismiss the consolidated class actions, which the plaintiffs opposed by filing opposition briefs on April 4, 2012. The plaintiffs are expected to file an amended complaint by May 11, 2012.

Derivative Actions.  In addition, during September and October 2011, three shareholder derivative complaints were filed against us and certain of our current and former directors and officers (including Ryan K. Wuerch, James R. Smith, Jr., Allyn P. Hebner, James N. Ryan, Jay A. Bowden, Hunter C. Gary, Brett Icahn, Lady Barbara Judge CBE, Suzanne H. King, Brian V. Turner, James L. Nelson and Jay Firestone) in the U.S. District Court, Western District of Washington at Seattle. The complaints allege various violations of state law, including breaches of fiduciary duties and unjust enrichment based on alleged false and misleading statements in press releases and other SEC filings disseminated to shareholders. The derivative complaints seek, inter alia, a monetary judgment, restitution, disgorgement and a variety of purported corporate governance reforms. Two of the derivative actions were consolidated on October 27, 2011.  On November 8, 2011, the parties filed a stipulation to stay completely the consolidated derivative action until the Court rules on the forthcoming dismissal motion in the consolidated class action.  The court granted the parties' stipulation on November 10, 2011, thereby staying the consolidated derivative action.  On November 14, 2011, the third derivative action was transferred to the consolidated derivative proceeding, thereby subjecting it to the proceeding's litigation stay.

We intend to vigorously defend against these claims.

Item 1A.
Risk Factors.
The following risk factors should be considered carefully in addition to the other information contained in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. See "Cautionary Statement Regarding Forward-Looking Statements," in Management's Discussion and Analysis of Financial Condition and Results of Operations. Our actual results could differ materially from those contained in the forward-looking statements. Factors that may cause such differences include, but are not limited to, those discussed below as well as those discussed elsewhere in this Quarterly Report on Form 10-Q. Additional risks and uncertainties that management is not aware of or that are currently deemed immaterial may also adversely affect our business operations. If any of the following risks materialize, our business, financial condition or operating results could be materially adversely affected.

Our failure to raise additional capital, including in the proposed rights offering, or generate the cash flows necessary to repay any amounts outstanding under our term loan and revolving loan facility when due and to maintain and expand our operations and invest in our services could result in a default under our term loan and revolving loan facility and reduce our ability to continue normal operations. We may not have sufficient capital to pay amounts outstanding under our term loan and revolving loan facility when due. This could impact our ability to continue normal operations and could result in the loss of your entire investment.
We believe that our future cash flow from operations and available cash and cash equivalents will be sufficient to meet our liquidity needs for the next twelve months. However, this may not be the case, our longer-term liquidity and ability to execute on our longer term business plan is contingent on our ability to raise additional capital, including in the proposed rights offering and on our not experiencing any events that may accelerate the payment of our term loan and revolving credit facility. We are required to use the proceeds from our proposed rights offering to repay our revolving loan facility, but not our term loan. Our ability to fund our capital needs also depends on our future operating performance, our ability to successfully realign our costs and strategic path, the effect of any financing alternatives we may pursue and our ability to meet financial covenants under any indebtedness we may incur. We may also need to raise additional capital to execute our longer term business plan, including 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, and make strategic acquisitions if attractive opportunities become available. Our future capital requirements will depend on many factors, including our future operating performance, our ability to successfully realign our costs and strategic path, the time and cost of our service enhancements, the rate of growth of the mobile media and enterprise business, 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.
If we raise additional capital in an 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

25


ratios. We may not be able to raise any additional capital that we may require on terms acceptable to us or at all. Our failure to do so could result, among other things, in a default under our term loan and revolving credit facility, loss of our customers and a loss of your entire investment.
We may not have sufficient capital to pay any amounts outstanding under our term loan and revolving credit facility when due. This could impact our ability to continue normal operations and could result in the loss of your entire investment.
Events outside our control, such as ownership changes impacting our ability to use our net operating losses and related tax benefits may result in the acceleration of our term loan and revolving loan facility. If this were the case, we may not have sufficient capital to repay amounts outstanding under our term loan or revolving loan facility or to continue normal operations, and you could lose your entire investment.
Our term loan and revolving loan facility may be accelerated under certain circumstances, including if we experience an ownership change (within the meaning of Section 382 of the U.S. Internal Revenue Code of 1986 as amended), which results in a substantial limitation on our ability to use our net operating losses and related tax benefits or undergo a change in control. We do not have control over some of these triggering events, and if any of these events were to occur and we were required to repay any amounts outstanding under our term loan and revolving credit facility, we may not have sufficient capital to do so or to continue normal operations and you could lose your entire investment. See Part II, Item 1A, Risk Factors - Our ability to use net operating losses 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 future limitation as a result of the proposed rights offering and future transactions.
We depend on a limited number of customers for a substantial portion of our revenues. XL, one of our three largest customers, recently terminated its relationship with us, which may adversely impact our revenues. The loss of any other key customer or any significant adverse change in the size or terms of a contract with any other key customer could significantly further reduce our revenues.
We depend, and expect to continue to depend, on a limited number of significant wireless carriers for a substantial portion of our revenues. Currently, a number of the top U.S. 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 professional services project 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 in part 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 2010, we generated approximately 44%, 24% and 13% of our total revenue from contracts with AT&T, Verizon and XL, respectively. For the year ended December 31, 2011, we generated approximately 47%, 17% and 10% of our total revenue from contracts with AT&T, Verizon and XL, respectively. XL recently terminated its relationship with us and this may adversely impact our revenues going forward. Certain of our other customers, including AT&T and Verizon may terminate our agreements by giving advance notice. Our ability to continue the terms of our agreements may be impacted by constraints in liquidity and capital resources, the exploration of financing alternatives and the realignment of our strategic path, including our decision not to pursue a sale of our carrier business. Failure to renew or maintain our agreements with AT&T, Verizon or our other large customers and to obtain new customers would materially reduce our revenue and have a material adverse effect on our business, operating results and financial condition.
We are increasing our focus on our mobile media and enterprise business and broadening our solutions and services to North American carriers and have deemphasized our international carrier business. As a part of this, we are completing the process of exiting our business in India and the Asia Pacific region, beginning with the termination of our relationship with XL and the divestitures of our subsidiaries in France and the Netherlands. If we are unable to successfully realign our business to focus on our mobile media and enterprise business and obtain new customers for that business, or to broaden our solutions and services to North American carriers our business, financial condition, results of operations and cash flows could be materially and adversely affected.
Following the termination of our relationship with XL, we decided to exit our business in India and the Asia Pacific region. These decisions were based on the resources and costs associated with these operations, the intensified competition in the region and our decision to streamline our operations and focus on our mobile media and enterprise business, while at the same time recommitting some of our resources to our North American carrier operations. Additionally, as a part of our new strategic

26


path and a reduction in the actual and anticipated performance of the subsidiaries, we decided to divest of our subsidiaries located in France and the Netherlands. We expect to complete the exit during the second quarter of 2012. We may face administrative and regulatory hurdles as we exit our international operations, the wind down process may be longer than anticipated and we may incur significant unexpected expenses in connection with the wind down of our operations. While we believe that the exit will have a positive effect on our profitability in the long term, there is no assurance that this will be the case and we expect that the exit from our India and Asia Pacific business will impact our revenues and cause us to incur costs. There are no assurances that we will be able to generate sufficient revenues from our other customers or from our mobile media and enterprise business or successfully operate our carrier business. If we are not successful in our efforts to realign our strategy to focus on our mobile media and enterprise business, to develop our product offering in that market and to obtain new customers for that business, in broadening our solutions and services to North American carriers, or in exiting our international operations in a cost effective manner, our revenues, results of operations and financial condition may be adversely impacted.
The mobile data services industry is, and likely will continue to be, characterized by rapid technological changes, which will require us to develop new products and 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, 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. Since we offer our customers a range of solutions, we face competition from many sources. 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. Many of our current and potential competitors may have advantages over us, including:
longer operating histories and market presence;
greater name recognition;
access to larger customer bases;
single source solutions that deliver mobile devices, hardware, services and infrastructure;
economies of scale and cost structure advantages;
greater sales and marketing, manufacturing, distribution, technical, financial and other resources; and
government support.

Additionally, 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 carrier enterprises and agencies and may devote substantially greater resources to system development than we do. These relationships may affect customers' decisions to purchase services from us.
Competition for our employees is intense and failure to retain and recruit skilled personnel could negatively affect our financial results as well as our ability to maintain relationships with clients, service existing and new contracts, and drive future growth.
We provide sophisticated mobile data delivery platforms and services to our customers. To attract and retain customers and service our existing and new contracts, we believe we need to demonstrate professional acumen and build trust and strong relationships, and that we must retain, identify, recruit, 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 retain and/or recruit 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

27


professionals as, among other reasons, other companies in the technology sector may offer more compensation, particularly in the form of equity awards. Recent business challenges, the realignment of our strategic path, including our decision to end the process of selling our carrier business, reductions in force and changes in our executive management team have also increased turnover of our skilled personnel and we may continue to experience such turn over in the future. Our business and growth may suffer if we are unable to retain current personnel and hire other skilled personnel.
We are exploring various financing alternatives for the Company and considering the strategic direction of the Company as a whole. We may experience difficulties in consummating financing alternatives and realigning our strategic path, and any such alternatives and realignment of our strategic path may not lead to the achievement of desired results and this may cause concern among customers and adversely impact our business, our liquidity, and our ability to retain employees.
We cannot assure that we will be successful in exploring, pursuing or consummating any financing alternatives, including the previously announced rights offering or in realigning our strategic path. Furthermore, additional capital may be needed to pursue such strategies, including developing our mobile media and enterprise business and broadening our solutions and services to North American carriers and there are no assurances that additional capital is available on favorable terms or at all. Moreover, the process of exploring financing, realigning our strategic path, effecting cost reductions may be disruptive to our business. The inability to effectively manage the process could materially and adversely affect our business, financial condition or results of operations. If we are not able to consummate financing or to successfully realign our strategic path and manage the reduction of our costs, our liquidity, capital resources and our business may be adversely impacted.
We recently elected to end the process we had been pursuing for the sale of all or a portion of our business and elected to retain our carrier business. This may negatively impact our business, relations with our customers and make it more difficult for us to retain employees and we may not be able to successfully operate our carrier business going forward.
After lengthy considerations and negotiations and based on a recommendation by disinterested directors, we recently elected to end the process we had been pursuing for the sale of all or a portion of our business. The inquiries and offers we received were subject to due diligence, price adjustments, buyer contingencies and optionality, uncertainties and other proposed transaction terms that ultimately led us to conclude that we should retain our carrier business and the current positive cash flows it provides, and forego the cost and expense of pursuing a transaction which we did not believe would be completed at the price initially proposed, if at all. Our decision to end the process may be disruptive to our business, subject us to risk of litigation, negatively impact our business and our relations with our customers and make it more difficult for us to retain employees and the carrier business is subject to risks and uncertainties described elsewhere in these risk factors.
Our ongoing leadership transition could have a material adverse impact on our business, operating results or financial condition.
In January 2012, we hired Richard Stalzer as President of our mobile marketing and advertising business and, Charles P. Scullion, our Chief Strategy Officer and interim President of our mobile marketing and advertising business, resigned for good reason. In August 2011, James R. Smith, Jr., our former President and Chief Operating Officer, assumed the role of interim Chief Executive Officer and we appointed C. Stephen Cordial, a partner at Tatum, a division of SFN Professional Services LLC, a consulting and executive services firm, to the position of interim Chief Financial Officer. We are considering Mr. Smith as a candidate for permanent Chief Executive Officer, as we continue our evaluation of our executive management team, and we are searching for a permanent Chief Financial Officer. We cannot assure that our efforts to identify and recruit a permanent Chief Executive Officer or a permanent Chief Financial Officer will be successful. Moreover, the uncertainty inherent in our ongoing leadership transition can be difficult to manage, may cause concerns from current and potential customers, suppliers and other third parties with whom we do business, and may increase the likelihood of turnover of other key officers and employees. Our ongoing leadership transition could have a material adverse impact on our business, operating results or financial condition.
We have implemented cost saving measures in the third and fourth quarter of 2011 and into 2012 and may implement additional cost saving in the future. If we are not successful in implementing future cost savings initiatives, our operating results and financial conditions could be adversely affected.  We may also experience an adverse impact on our business as a result of the reduction in force.
In the third and fourth quarters of 2011 and into 2012, we implemented a reduction in our global workforce, canceled hiring plans and implemented other cost savings measures. These measures were designed to realign our strategic path, streamline our business, improve quality and integrate our acquisition of Adenyo. We continue to review our cost structure and may implement further cost saving initiatives. We cannot guarantee that we will be successful in implementing such initiatives, or that such efforts will not interfere with our ability to achieve our business objectives. Moreover, the reduction in force can be difficult to manage, may cause concerns from current and potential customers, suppliers and other third parties with whom we

28


do business, may increase the likelihood of turnover of other key employees, and may have an adverse impact on our business.
Any material weaknesses in our internal controls over financial reporting or failure to maintain proper and effective internal controls could impair our ability to produce accurate and timely financial statements 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 manage our business and 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 statements in accordance with generally accepted accounting principles in the U.S. Beginning with fiscal year 2011, we are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessment of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing this assessment. Our compliance with Section 404 has required and will continue to require that we incur additional expense and expend management time on compliance-related issues.
As of September 30, 2011, we found material weaknesses in our internal control over financial reporting and concluded that our disclosure controls and procedures were not effective. These material weaknesses were properly remediated as of December 31, 2011 and our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2011. If we fail to maintain proper internal controls our ability to predict our cash needs, our business could be adversely affected and the market's confidence in our financial statements could decline and the market price of our common stock could be adversely impacted.
Our product development investments may not lead to successful new services or enhancements.
We expect to continue to invest in research and development for the introduction of new products and enhancements to existing services designed to improve the capacity, data processing rates and features of our services. Particularly with our increased emphasis on the mobile enterprise and marketing business, we must also continue to develop new products and services while we continue to develop existing 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 are not able to expend sufficient capital on such research and development or if 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 business is susceptible to risks associated with international sales and operations.
In addition to the U.S., we currently operate in the U.K. and Canada. We are exiting our business in India, the Asia Pacific region, France and the Netherlands and are generally evaluating our business outside North America. As a result, we are subject to the additional risks of conducting business outside the U.S., which may include:
increased costs and resources related to any discontinuation or divestitures of operation in such jurisdictions;
longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
difficulties managing and staffing international operations;
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;
compliance with anti-corruption and bribery laws, including the Foreign Corrupt Practices Act of 1977;
changes in diplomatic, trade or business relationships;
foreign currency fluctuations that may substantially affect the dollar value of our revenue and costs in foreign markets; and
increased financial accounting and reporting burdens.
 
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 in the carrier business.
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 carrier 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

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value-added carrier-branded experience as part of their solution set. These so-called “open operating systems” include Symbian, BlackBerry, Android, Windows Mobile and iOS (iPhone). 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 average revenue per user. 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.
We have a history of net operating losses and may continue to suffer losses in the future.
For the years ended December 31, 2007, 2008, 2009, 2010 and 2011, we had net losses of approximately $77.9 million, $78.0 million, $16.3 million, $7.0 million, and $195.4 million, respectively. If we cannot become profitable, our financial condition will deteriorate, and we may be unable to achieve our business objectives.
We face intense competition including through 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 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. We also face intense competition in the mobile media and enterprise space through, among others, traditional digital players and major mobile ecosystem producers. An increase in the use of in-house solutions by wireless carriers and the traditional digital players and major mobile ecosystem producers could have an adverse effect on our business, operating results and financial condition.
Demand for our managed and professional services depends on 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 include 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 continue to use mobile data services and mobile devices to access the mobile Internet and to obtain products and services as quickly as our business model contemplates or using our services. If consumers do not use mobile data services through our 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 through our services might not increase if there is limited availability or market acceptance of mobile devices designed for such services; if we are not able to adapt our services to smartphones; 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.
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

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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 may choose to expand our international presence. 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.
We expect that our revenue will fluctuate, which could cause our stock price to decline.
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. Further, much of our revenue is based on managed services, which include a variable component that can fluctuate on a quarterly basis based on subscriber usage and acceptance of our media-based products.
If we cannot meet NASDAQ's continued listing requirements, NASDAQ may delist our common stock, which could have an adverse impact on the liquidity and market price of our common stock.
Our common stock is currently listed on the NASDAQ Global Select Market. We are and will be required to meet certain qualitative and financial tests to maintain the listing of our common stock on the NASDAQ Global Select Market. Under NASDAQ rules, a stock can be delisted and not allowed to trade on NASDAQ if the closing bid price of the stock over a 30 consecutive trading-day period is less than $1.00 per share. There is a risk that the share price of our common stock could decline to levels over a period of time so that we could no longer meet these listing requirements, and thus may be delisted from NASDAQ. A delisting of our common stock could negatively impact us by reducing the liquidity and market price of our capital stock and the number of investors willing to hold or acquire our capital stock. This could also negatively impact our ability to raise capital in an equity financing, including in the previously announced rights offering. It is also possible that we would otherwise fail to satisfy another NASDAQ requirement for continued listing of our capital stock. Within the last twelve months, our common stock traded below the $1.00 per share level on 31 days. The closing price on May 9, 2012 was $0.82 per share.
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-by-customer 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.
Some of 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

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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 in 2010 and less than 1% of total revenue in 2011. 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 various datacenter facilities located around the U.S. Several of our datacenter facilities are operated by third parties. 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 other than in the customer-owned facility.
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 service delivery platforms. If we are successful in growing the size and scope of our operations, 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 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. 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.
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 the proposed rights offering and future transactions.
Sections 382 and 383 of the Code 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. If we experience a change in control, including as a result of the proposed rights offering, 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 the proposed rights offering and future transactions (including issuances of new shares of our common stock if such interest is treated as “stock” for tax purposes and sales of shares of our common stock if such interest is treated as “stock” for tax purposes) 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

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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.
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 marketplaces 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 compelling, our sales would decline, and that would have a significant 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, a software research and development company providing software development services primarily from its offices in India and Ukraine. 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.
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.
If we are successful in realigning our strategic path and grow our business and fail to manage such future growth effectively, our business could be harmed.
In the past, such as from 2006 to 2010, our revenue from continuing operations has grown. This growth placed significant demands on our management, operational and financial infrastructure. If we are to be able to grow effectively in the future and to manage such growth, if achieved, we must succeed in the realignment of our strategic path and improve and continue to enhance our managerial, operational and financial controls, and train and manage our employees. 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 during periods of growth, our profit margins may decrease, and we may be unable to achieve our business objectives.
In the third quarter of 2011, we recognized significant impairment losses related to our goodwill and intangible assets. We may also recognize impairment losses for subsequent periods which would adversely affect our financial results.
We are required under Generally Accepted Accounting Principles to test goodwill for impairment annually and to assess our amortizable intangible assets, including capitalized software costs, and long-lived assets, as well as goodwill, for impairment when events or changes in circumstance indicate the carrying value may not be recoverable. In the third quarter of 2011, we recorded impairment charges of $162.7 million and in the years ended December 31, 2009 and December 31, 2008 we recorded impairment charges of $5.8 million and $29.1 million, respectively. Factors which have led to impairments include significant

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decline of our market capitalization below the book value of our net assets, 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. Based on the continued decline in our market capitalization since the fourth quarter of 2011 we may recognize additional impairment for subsequent periods. In addition, we may 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 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 and privacy concerns related to mobile device technology 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 protect their data privacy and 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.
Lawsuits have been filed against us and certain of our current and former directors and officers, which could divert management's attention and adversely affect our business, results of operations and cash flows.
Lawsuits have been filed against us and certain of our current and former directors and officers in the U.S. District Court, Western District of Washington at Seattle alleging various violations of federal securities laws and of state law, including breaches of fiduciary duties and unjust enrichment, relating to alleged false and misleading statements and omissions made by us in our registration statement for our initial public offering, subsequent reports filed with the SEC and other press releases and public statements. As these cases are at a very early stage, at this time, we are not able to predict the probability of the outcome or estimate of loss, if any, related to these matters. However, these types of litigation often are expensive and divert management's attention and resources. As a result, any of such claims, whether or not ultimately successful, could adversely

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affect our business, results of operations and cash flows.
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's 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.
We may engage in acquisitions, dispositions and exits that could disrupt our business, cause dilution to our stockholders and harm our business, operating results or financial condition.
We may make selective domestic and international acquisitions of, and investments in, businesses that offer new products, services and technologies, augment our market coverage, and/or enhance our technological capabilities. 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. We are in the process of exiting our business in India, the Asia Pacific region, France and the Netherlands and continue to re-evaluate our overall international operations and may also dispose of certain businesses or assets or close existing businesses; such dispositions or closures may have an adverse effect on our business.
Acquisitions, dispositions and exits in the high-technology sector are inherently risky and subject to many factors outside of our control, and no assurance can be given that our previous or future acquisitions, dispositions or exits will be successful and will not materially adversely affect our business and operations. In addition, the integration of any business we acquire may require that we incur significant restructuring charges. Acquisitions involve numerous risks, including difficulties in integrating the operations, management information systems and internal controls, technologies, products, and personnel of the acquired companies, particularly companies with overlapping business segments and widespread operations and/or complex products, such as Adenyo. Integration may be a difficult, drawn out process 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 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 operations.
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

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profitability at acquired operations or realize other anticipated benefits of an acquisition or disposition, and could adversely affect 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 and other mobile marketing regulations could affect our and our customers' ability to use and share data, potentially reducing our ability to utilize this information for the purpose of 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.
The market price of our common stock may be highly volatile or may decline regardless of our operating performance.
Broad market and industry factors 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:
actual or anticipated variations in our financial condition and operating results;
overall conditions or trends in our industry;
addition or loss of significant customers;
competition from existing or new products;
changes in the market valuations of companies perceived by investors to be comparable to us;
announcements by us or our competitors of technological innovations, new services or service enhancements;
announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures or capital commitments;
announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;
additions or departures of key personnel;
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
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. Our common stock price has declined significantly since our IPO in 2010 and may continue to do so as a result of the above described factors 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. 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 are subject to this type of litigation and may be the target of additional litigation of this nature. Such securities litigation could result in substantial costs and a diversion of our management's attention and resources, whether or not we are successful in such litigation.
Mr. Carl C. Icahn indirectly owns a significant amount of our common stock and the note issued under our term loan and revolving loan facility, he has a relationship with two of our directors, our charter waives the corporate opportunity doctrine

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as it relates to funds affiliated with him and he may have interests that diverge from those of other stockholders.
Mr. Carl C. Icahn controls approximately 16.5% of the voting power of our common stock as of May 4, 2012. Transactions could be difficult to complete without the support of Mr. Carl C. Icahn. It is possible that Mr. Carl C. Icahn may not support transactions, director appointments and other corporate actions that other stockholders would support. In addition, Mr. Brett C. Icahn, one of our directors, is the son of Mr. Carl C. Icahn, and Mr. Hunter C. Gary, another of our directors, is married to Mr. Carl C. Icahn's wife's daughter.
In our restated certificate of incorporation, we renounce and provide for a waiver of the corporate opportunity doctrine as it relates to the funds affiliated with Koala Holding LP, an affiliate of Mr. Carl C. Icahn, Technology Crossover Ventures, and any person or entity affiliated with these investors. As a result, Mr. Carl C. Icahn and entities controlled by him will have no fiduciary duty to present corporate opportunities to us. These exempted persons are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. They may also pursue, for their own accounts, acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are directed by the exempted persons to themselves or their other affiliates instead of to us.
In addition, on September 16, 2011, we entered into, and on November 14, 2011 and February 28, 2012, we amended, a $20 million term loan with High River, which is secured by substantially all of our assets and is guaranteed by two of our subsidiaries, mCore International and Motricity Canada. High River Limited Partnership is beneficially owned by Mr. Carl C. Icahn. The principal and interest are due and payable at maturity on August 28, 2013. The term loan provides High River Limited Partnership with a right to accelerate the payment of the term loan if, among others, we experience an ownership change (within the meaning of Section 382 of the Internal Revenue Code of 1986 as amended) that results in a substantial limitation on our ability to use our net operating losses and related tax benefits or if the shares of any preferred stock we may issue become redeemable at the option of the holders or if we are required to pay the liquidation preference for such shares. On May 10, 2012, we further amended the terms of our existing term loan from High River and High River agreed to provide us with a $5 million revolving loan facility.
Our historical financial statements may not be indicative of future performance.
In light of our acquisitions of the mobile division of InfoSpace in December 2007 and of Adenyo in April 2011, our operating results only reflect the impact of those acquisitions from the acquisition 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 and the Adenyo business 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 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, the recent significant changes in our Company, our exploration of financing and strategic alternatives, the termination of the XL Agreements, the exit from our business in India, Asia Pacific and France and the realignment of the strategic plan for our Company, including our decision to reevaluate our international carrier operations, 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 have not paid or declared dividends in the past, and do not plan to pay or declare dividends in the future, other than in connection with the proposed rights offering and, as a result, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.

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We have never declared or paid any dividends on our common stock and currently, other than the distribution of subscription rights pursuant to the proposed rights offering described in our registration statement on file with the SEC, 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 on our common stock 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 term loan and revolving loan 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.


Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.
Defaults Upon Senior Securities.

None.

Item 4.
Mine Safety Disclosure

None.

Item 5.
Other Information.

On May 10, 2012, the Company and High River agreed to amend the term loan in the original principal amount of $20 million from High River as evidenced by a promissory note (the “Note”) dated September 16, 2011 as amended on November 14, 2011 and February 28, 2012 by entering into an amendment to such Note (the “May Amendment”). Pursuant to the May Amendment, High River agreed to provide us with a $5 million revolving loan facility.   Under the revolving facility, we may request amounts in $2.5 million increments, unless High River in its sole discretion agrees to lend amounts in smaller increments, through but not including the earliest to occur of: (i) August 28, 2013; (ii) a Corporate Transaction with Cash Net Proceeds in excess of $5 million; or (iii) a Qualifying Rights Offering (which would include our proposed rights offering).  We are required to repay any advance thereunder within 60 days of such advance or, if earlier, when the term loan becomes due pursuant to its terms.  The annual interest rate on the amounts borrowed pursuant to the revolving loan is 15%, which amount will increase by 2% at the time of any event of default under our term loan.

The term loan accrues interest at 9% per year, which is paid-in-kind quarterly through capitalizing interest and adding it to the principal balance, is secured by a first lien on substantially all of our assets and is guaranteed by two of our subsidiaries, mCore International and Motricity Canada. The principal and interest are due and payable at maturity on August 28, 2013.  The term loan provides High River with a right to accelerate the payment of the term loan if we experience an ownership change (within the meaning of Section 382 of the Internal Revenue Code of 1986 as amended) that results in a substantial limitation on our ability to use our net operating losses and related tax benefits or if the shares of any preferred stock that we may issue become redeemable at the option of the holders or if we are required to pay the liquidation preference for such shares. 




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Item 6.
Exhibits.

EXHIBIT NO.
 
Incorporated by Reference
 
Description of Documents
 
 
 
 
 
10.1
 
A
 
Release Agreement, dated as of January 22, 2012 between Motricity, Inc. and Charles Scullion
 
 
 
 
 
10.2
 
A
 
Employment Offer Letter, between Motricity, Inc. and Richard Stalzer
 
 
 
 
 
10.3
 
B
 
Amended and Restated Promissory Note issued by Motricity, Inc. in favor of High River Limited Partnership, dated February 28, 2012.
 
 
 
 
 
10.4
 
B
 
Amended and Restated Security Agreement by and between Motricity, Inc. and mCore International, Inc. with and in favor of High River Limited Partnership dated February 28, 2012.
 
 
 
 
 
10.5
 
 
 
First Amendment to Amended and Restated Promissory Note by and between High River Limited Partnership and Motricity, Inc., dated May 10, 2012*
 
 
 
 
 
31.1
 
 
 
Certification of James R. Smith, Jr. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
 
 
 
 
 
31.2
 
 
 
Certification of C. Stephen Cordial pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
 
 
 
 
 
32.1
 
 
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Executive Officer.**
 
 
 
 
 
32.2
 
 
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.**
 
 
 
 
 
101.INS
 
 
 
XBRL Instance Document***
101.SCH
 
 
 
XBRL Taxonomy Extension Schema Document***
 
 
 
 
 
101.CAL
 
 
 
XBRL Taxonomy Extension Calculation Linkbase Document***
 
 
 
 
 
101.LAB
 
 
 
XBRL Taxonomy Extension Label Linkbase Document***
 
 
 
 
 
101.PRE
 
 
 
XBRL Taxonomy Extension Presentation Linkbase Document***
 
 
 
 
 
101.DEF
 
 
 
XBRL Taxonomy Extension Definition Linkbase Document***

 
*
Filed herewith.
 
 
 
**
Furnished herewith.
 
 
 
***
Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934, and are otherwise not subject to liability under these sections.
 
 
 
(1)
If not filed herewith, filed as an exhibit to the document referred to by letter as follows:
 
 
 
 
A
Current Report on Form 8-K, filed on January 23, 2012
 
 
 
 
B
Annual Report on Form 10-K for the year ended December 31, 2011, filed on March 13, 2012
 
 
 


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.

 
 
 
MOTRICITY, INC.
 
 
 
 
Date:
May 10, 2012
By:
/s/ C. Stephen Cordial
 
 
 
C. Stephen Cordial

 
 
 
Interim Chief Financial Officer




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