Quarterly report pursuant to Section 13 or 15(d)

Discontinued Operations

v3.6.0.2
Discontinued Operations
6 Months Ended
Dec. 31, 2016
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
Discontinued Operations

On February 8, 2016, the Company completed the sale of assets related to the Company’s rewards business, including the Viggle App, in accordance with the Perk Agreement entered into on December 13, 2015. Management entered into this binding sales agreement following a strategic decision to divest the operations related to the Viggle App and place greater focus on its remaining businesses. The Company has classified the Viggle assets, liabilities and operations as discontinued operations in the accompanying Consolidated Financial Statements for all periods presented. In accordance with ASC No. 205, Presentation of Financial Statements, the inter-segment revenues and expenses related to services provided by Choose Digital to the Viggle rewards business (discontinued operations) are presented at cost in the Consolidated Statements of Operations.  

On December 13, 2015, the Parent entered into the Perk Agreement. Perk’s shares are currently traded on the Toronto Stock Exchange. On February 8, 2016, pursuant to the Perk Agreement, the Company completed the sale of the assets related to the Company’s rewards business, including Viggle’s application, to Perk. The total consideration received net of transaction fees was approximately $5,110,000, and consisted of the following:

1,370,000 shares of Perk common stock, a portion of which was placed in escrow to satisfy any potential indemnification claims;

2,000,000 shares of Perk common stock if Perk’s total revenues exceed USD $130,000,000 for the year ended December 31, 2016 or December 31, 2017;

a warrant entitling the Company to purchase 1,000,000 shares of Perk common stock at a strike price of CDN $6.25 per share in the event the volume weighted average price (“VWAP”) of shares of Perk common stock is greater than or equal to CDN $12.50 for 20 consecutive trading days in the two year period following the closing of the transaction;

a warrant entitling the Company to purchase 1,000,000 shares of Perk common stock at a strike price of CDN $6.25 per share in the event that the VWAP of Perk common stock is greater than or equal to CDN $18.75 for 20 consecutive trading days in the two year period following the closing of the transaction, and

Perk assumed certain liabilities of the Company, consisting of the Viggle points liability.

At the time the Company entered into the Perk Agreement, Perk provided the Company with a $1,000,000 secured line of credit, which the Company fully drew down. The Company had the option of repaying amounts outstanding under that line of credit by reducing the number of Initial Perk Shares by130,000. The Company exercised this option and received 1,370,000 shares of Perk common stock at closing, and the amounts outstanding under the Line of Credit were deemed paid in full.

At the closing, 37.5% (562,600) of the Initial Perk Shares were issued and delivered to an escrow agent to be used exclusively for the purpose of securing the Company's indemnification obligations under the Perk Agreement.

Additionally, after the closing, the Company delivered 357,032 of the Initial Perk Shares to Gracenote, Inc. and Tribune Media Services, Inc., former providers of technology services of the Company, as per the Settlement and Transfer Agreement dated February 5, 2016, to satisfy an obligation. The Company recognized a gain of $593,000 in the Consolidated Statements of Operations for the year ended June 30, 2016.

On September 30, 2016, the Company sold to Perk the remaining shares (1,013,068) of Perk common stock, the warrants for additional shares, and the right to the Earn-Out Shares received from Perk on the sale of the Viggle rewards business on February 8, 2016. The Company received $1,300,000 from Perk as consideration therefor. The execution of the Securities Purchase Agreement and closing were simultaneous. The escrowed shares were released as part of this transaction.

The Company recognized a gain of approximately $1,060,000 on this transaction, net of transaction fees associated with the sale of the Viggle rewards business.

Results of operations classified as discontinued operations (amounts in thousands):
 
Three Months Ended December 31,
 
Six Months Ended December 31,

2016
 
2015
 
2016
 
2015
Revenues
$

 
$
2,330

 
$

 
$
5,909

Cost of watchpoints and engagement points

 
(1,209
)
 

 
(3,231
)
Selling, general and administrative expenses

 
(6,224
)
 
(36
)
 
(12,408
)
Loss before income taxes

 
(5,103
)
 
(36
)
 
(9,730
)


 

 
 
 
 
Income taxes (see Note 13, Income Taxes)

 
(21
)
 

 
(43
)
Net loss
$

 
$
(5,124
)
 
$
(36
)
 
$
(9,773
)

Current assets and non-current assets used in discontinued operations (amounts in thousands):
 
December 31, 2016
 
June 30, 2016
Current assets:
 
 
 
   Accounts receivable, net
$
20

 
$
39

   Prepaid expenses

 

Current assets of discontinued operations
$
20


$
39

 
 
 
 
Non-current assets:
 
 
 
   Property and equipment, net
$

 
$

   Intangible assets, net

 

   Goodwill

 

   Other assets

 

Non-current assets of discontinued operations
$


$


Current liabilities and non-current liabilities used in discontinued operations (amounts in thousands):
 
December 31, 2016
 
June 30, 2016
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
2,703

 
$
2,634

Reward points payable

 

Current portion of loan payable

 
217

Current liabilities of discontinued operations
$
2,703

 
$
2,851

 
 
 
 
Non-current liabilities:
 
 
 
Other long-term liabilities
$

 
$

Non-current liabilities of discontinued operations
$

 
$