Glu Mobile, Inc.
Annual Report 2015

Plain-text annual report

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K (Mark One)☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 OR ☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-33368 Glu Mobile Inc.(Exact name of registrant as specified in its charter) Delaware91-2143667(State or Other Jurisdiction of(IRS EmployerIncorporation or Organization)Identification No.) 500 Howard Street Suite 30094105San Francisco, California(Zip Code)(Address of Principal Executive Offices) (415) 800-6100 (Registrant’s Telephone Number, Including Area Code)Securities registered pursuant to Section 12(b) of the Act: Title of Each ClassName of Each Exchange on Which RegisteredCommon Stock, par value $0.0001 per shareNASDAQ Global Market Securities registered pursuant to Section 12(g) of the Act:None(Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch 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. Yes ☑ 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 pursuantto Rule 405 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 suchfiles). Yes ☑ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐ 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 acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ☐ Accelerated filer ☑ Non-accelerated filer ☐ Smaller reporting company ☐(Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2015, the last business day of the registrant’s most recently completed second fiscalquarter, based upon the closing price of such stock on such date as reported by The NASDAQ Global Market, was approximately $665,689,774. Shares of common stock held by each executiveofficer and director of the registrant and by each person who owns 10% or more of the registrant’s outstanding common stock have been excluded in that such persons may be deemed to beaffiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the registrant’s common stock as of February 29, 2016 was 132,202,705. DOCUMENTS INCORPORATED BY REFERENCEPortions of the definitive proxy statement for registrant’s 2016 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days afterregistrant’s fiscal year ended December 31, 2015 are incorporated by reference into Part III of this Annual Report on Form 10-K. Table of ContentsTABLE OF CONTENTS Page PART I Item 1. Business 3 Item 1A. Risk Factors 17 Item 1B. Unresolved Staff Comments 42 Item 2. Properties 42 Item 3. Legal Proceedings 42 Item 4. Mine Safety Disclosures 43 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities 43 Item 6. Selected Financial Data 46 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 47 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 69 Item 8. Financial Statements and Supplementary Data 71 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 112 Item 9A. Controls and Procedures 112 Item 9B. Other Information 112 PART III Item 10. Directors, Executive Officers and Corporate Governance 113 Item 11. Executive Compensation 113 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters 113 Item 13. Certain Relationships and Related Transactions, and Director Independence 114 Item 14. Principal Accountant Fees and Services 114 PART IV Item 15. Exhibits and Financial Statement Schedules 114 Signatures 115 2 Table of Contents Forward-Looking Statements The information in this Annual Report on Form 10-K contains forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Actof 1934, as amended (the “Exchange Act”). Such statements are based upon current expectations that involve risks anduncertainties. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,”“strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ significantly from the results discussed inthe forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to,those discussed elsewhere in this report, particularly in the section titled “Risk Factors,” and the risks discussed in our otherSecurities and Exchange Commission (“SEC”) filings. We undertake no obligation to update the forward-looking statementsafter the date of this report, except as required by law. PART I Item 1. Business General Glu Mobile develops, publishes and markets a portfolio of games designed to appeal to a broad cross section of theusers of smartphones and tablet devices who download and make purchases within our games through direct-to-consumerdigital storefronts, such as the Apple App Store, Google Play Store, Amazon Appstore and others. We occupy leadershippositions in four gaming genres: action, celebrity, sports, and simulation. We create games in these genres based on our ownbrands, including Contract Killer, Cooking Dash, Deer Hunter, Diner Dash, Eternity Warriors, Frontline Commando, GunBros, and Heroes of Destiny. We also create games based on third-party licensed brands, including Kim Kardashian:Hollywood, Kendall and Kylie, Katy Perry Pop, James Bond: World of Espionage, Mission Impossible: Rogue Nation andSniper X With Jason Statham, as well as our own branded games that incorporate third-party licensed brands, properties andother content, such as Racing Rivals, Tap Sports Baseball, and Tap Sports Football. We are headquartered in San Francisco,California, with major U.S. offices outside of Seattle, Washington and in Long Beach, California and international locations inCanada, China, India, Japan, Korea and Russia. We were incorporated in Nevada in May 2001 as Cyent Studios, Inc. and changed our name to Sorrent, Inc. later thatyear. In November 2001, we incorporated a wholly owned subsidiary in California, and, in December 2001, we merged theNevada corporation into this California subsidiary to form Sorrent, Inc., a California corporation. In May 2005, we changedour name to Glu Mobile Inc. In March 2007, we completed our initial public offering and our common stock is traded on theNASDAQ Global Market under the symbol “GLUU.” Except where the context requires otherwise, in this Annual Report onForm 10-K, references to “Company,” “Glu,” “Glu Mobile,” “we,” “us” and “our” refer to Glu Mobile Inc., and whereappropriate, its subsidiaries. Available Information We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statementsand other reports, and amendments to these reports, required of public companies with the SEC. The public can read and copythe materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549 and canobtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC alsomaintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regardingissuers that file electronically with the SEC. We make available free of charge on the Investor Relations section of ourcorporate website all of the reports we file with the SEC as soon as reasonably practicable after they are filed. Our internetwebsite is located at www.glu.com and our Investor Relations website is located at www.glu.com/investors. The informationon our website is not incorporated into this report, unless otherwise expressly stated. Copies of our Annual Report on Form10-K for the year ended December 31, 2015 may also be obtained, without charge, by contacting Investor Relations, GluMobile Inc., 500 Howard Street, Suite 300,3 Table of Contents San Francisco, California 94105 or by emailing IR@glu.com. Business Developments and Strategy Since January 1, 2015, we have taken the following actions to support our business:·We continued to focus our efforts on developing and publishing games for smartphones and tablet devices, suchas Apple’s iPhone and iPad and mobile devices utilizing Google’s Android operating system, such as Samsung’sGalaxy product line and Amazon’s Kindle Fire. Our significant achievements related to these efforts include thefollowing:·We generated total revenue of $249.9 million for the year ended December 31, 2015, a 12.0% increasecompared to total revenue of $223.1 million for the year ended December 31, 2014. ·In December 2015, we had approximately 5.1 million daily active users and 49.4 million monthly activeusers of our games on our primary distribution platforms, including Apple’s App Store, the Google PlayStore, Amazon’s Appstore, Facebook, and the Mac App Store. ·As of December 31, 2015, we had approximately 1.3 billion cumulative installs of our games on our primarydistribution platforms, including approximately 82.2 million installs during the fourth quarter of 2015.·We continued to execute on our strategy to become the leading developer and publisher of free-to-play games forsmartphones, tablets and other platforms. Free-to-play games are games that a player can download and play forfree, but which allow players to access a variety of additional content and features for a fee and to engage withvarious advertisements and offers that generate revenue for us. We globally released 13 free-to-play games thatwe developed during 2015.·We have undertaken a number of measures to diversify our product portfolio and strengthen our portfolio ofgame franchises, which we believe positions us for growth in 2016. As a result of these efforts, we now occupyleadership positions in four gaming genres: action, celebrity, sports, and simulation. Some of the key actions wehave taken to solidify our leadership position in each of these genres include:oAction §In November 2015, we announced that we had entered into a strategic partnership with an entityaffiliated with Tencent Holdings Limited (“Tencent”) to bring Tencent’s highly successful shootertitle in China, WeFire, to North America, Australia, New Zealand, EMEA and South America in2016.§We released Deer Hunter 2016 and Frontline Commando WW2, the latest and most advancediterations of our Deer Hunter and Frontline Commando franchises. §We released our first action title featuring a celebrity partner, Sniper X With Jason Statham.§We released action titles based on well-known Hollywood film franchises, with Mission Impossible:Rogue Nation and Terminator Genisys: Revolution.§In September 2015, we announced a premium title, Deer Hunter VR, our first title developedexclusively for the Oculus virtual reality platform, initially made available on the Samsung GearVR, powered by Oculus.4 Table of Contents oCelebrity§Our Kim Kardashian: Hollywood game released in June 2014 was our largest revenue-generatingtitle for 2015, demonstrating our potential to extend the success of our top games. This titleremained a top 30 grossing game on the Apple App Store’s U.S. iPhone games rankings throughout2015 on a monthly basis.§In March 2015, we announced a five year exclusive mobile gaming partnership with realitytelevision stars Kendall and Kylie Jenner, and we released our Kendall and Kylie game in February2016.§In April 2015, we announced our exclusive mobile gaming partnership with pop icon BritneySpears, and we plan to release our Britney Spears: American Dream game in mid-2016.§In August 2015, we announced our exclusive mobile gaming partnership with hip-hop superstarNicki Minaj, and we plan to release our game featuring Ms. Minaj later in 2016.§In February 2016, we announced our exclusive mobile gaming partnership with global musicsuperstar, Taylor Swift, and we plan to release our game featuring Ms. Swift in December 2016.§We have exclusive gaming partnerships with celebrities whose combined social media audienceexceeds 1.3 billion followers based on the combined Facebook, Twitter, Instagram, and Vevo,audiences of those celebrities. There is some fan overlap among these social channels andcelebrities.oSports§In April 2015, we launched Tap Sports Baseball 2015, the second installment in our popular TapSports Baseball franchise in which we partnered with the Major League Baseball PlayersAssociation to include the names and numbers of real-world baseball stars from each of the MLB’s30 teams. Tap Sports Baseball 2015 was the highest ranked baseball title in the Apple App Store’sU.S. iPhone top grossing games rankings during 2015.§Our Racing Rivals game, originally released in the summer of 2013, was our second largestrevenue–generating title for 2015 and remained the highest ranked racing title in the Apple AppStore’s U.S. iPhone top grossing games rankings during 2015, further demonstrating our potential toextend the success of our top games.§In August 2015, we launched Tap Sports Football, an extension of our Tap Sports franchise,allowing football fans to build and manage a team of professional players, make strategic decisionsand compete against friends.oSimulation§In June 2015, we released Cooking Dash 2016, the first free-to-play version in the Cooking Dashfranchise’s eight-year history. Cooking Dash 2016 provided further evidence of our potential toextend the success of our top games, as this title generated more revenue in the fourth quarter of2015 than the third quarter of 2015.§In 2015, we also recruited a team of industry experts in the invest-express resource managementgenre to open a new studio in Portland, Oregon.5 Table of Contents §In January 2016, we announced our exclusive mobile gaming partnership with award-winning chef,Gordon Ramsay, and we plan to release a simulation game featuring Chef Ramsay later in 2016.·We continued to improve monetization and retention of players in our games, with our most popular gamesremaining successful for longer periods of time. The longevity of our most successful games derives from strongcore gameplay, regular content updates and social and community features, such as tournaments, player-versus-player gameplay and live events. ·In April 2015, we announced that Red River Investments Limited (an affiliate of Tencent) had agreed to purchase21,000,000 shares of our common stock at a price of $6.00 per share for total consideration of $126.0 million. Inconnection with the investment, Steven Ma, SVP and Head of Tencent’s Interactive Entertainment Group, joinedour Board of Directors.·In May 2015, we launched our first ever television commercial. The commercial, in support of our KimKardashian: Hollywood title and starring Mrs. Kardashian West, was released in major metropolitan marketsacross the United States. We also launched an online marketing campaign through Maker Studios, pitting aroster of top YouTube influencers against one another in a competition to achieve the highest status in KimKardashian: Hollywood.·In Fall 2015, we bolstered our technology and product leadership team with the following additions:oIn September 2015, we appointed former Walt Disney Animation Studios CTO and Pixar Animation StudiosSVP of Technology, Greg Brandeau, to our Board of Directors;oIn October 2015, we hired Electronic Arts (“EA”) veteran Tim Wilson as our Global Chief TechnologyOfficer and Rackable, SGI and Juniper Networks veteran Dominic Martinelli as our VP of IT; andoIn November 2015, we hired former SVP of EA Mobile and Kabam President of Worldwide Studios, NickEarl, as our President of Global Studios.·In January 2016, we announced that we will invest up to $7.5 million in promissory notes convertible into aminority equity stake in Plain Vanilla Corp., the Icelandic developer behind the globally popular gameQuizUp. As part of this investment, our Chief Executive Officer, Niccolo de Masi, joined the Board of PlainVanilla and Glu has a call option to acquire Plain Vanilla Corp. for 15 months from the closing of the initialinvestment at a pre-agreed price. In 2015, we continued to execute on our strategy of becoming the leading developer and publisher of free-to-playgames for smartphones and tablets, and we worked to position ourselves to be a leader in developing games for other next-generation platforms, such as smart TVs, wearables, virtual reality and augmented reality devices. In order for us to achievethese goals, we must develop and publish mobile games that are widely accepted and commercially successful on digitalstorefronts that distribute games for these devices and platforms. These include Apple’s App Store and Mac App Store, theGoogle Play Store, Facebook, and Amazon’s Appstore. We are dedicated to extending our leadership positions in the action, celebrity, sports and simulation gaming genres. Our leadership in the action category remains strong with our Deer Hunter and Contract Killer franchises, and we hope toexpand that leadership in 2016 with the launch of Frontline Commando Rivals, which is the title under development throughour strategic partnership to bring Tencent’s highly successful shooter in China, WeFire, to North America, Australia, NewZealand, EMEA and South America in 2016. We established our leadership in the celebrity gaming genre with KimKardashian: Hollywood, and we extended that leadership with the launch of our Kendall and Kylie game and withannouncements of games to be developed with several additional celebrities, including Taylor Swift. Our sports label isheadlined by our Tap Sports Baseball and Racing Rivals franchises, which we hope to maintain as the6 Table of Contents top baseball and racing franchises, respectively, on mobile in 2016. The simulation category includes our Cooking Dash andDiner Dash franchises, and we look to bolster our position in this category in 2016 through a game featuring Gordon Ramsayand eventually through an invest-express resource management title developed out of our Portland, Oregon studio.We believe that our games consistently have high production values, are visually appealing and have engaging coregameplay. These characteristics have typically helped to drive installs and awareness of our games and resulted in highlypositive consumer reviews. We also believe that we have been a consistently good partner of both Apple and Google, whichhas contributed to the majority of our games being featured on their storefronts when they are commercially released. We work closely with our celebrity licensors to engage their social media audiences and build games that willresonate with their unique fan bases. Our celebrity games utilize transmedia storytelling, leveraging the celebrity’s built-insocial media fan base to drive installs and awareness of the game, and then attempting to surprise and delight those fans withreal-world events and other game content based on the celebrity’s life. Our goal is for the game content to become entwinedwith the celebrity’s persona and social media presence, and to otherwise enhance interaction with the celebrity’s fans. We alsoplan to build and nurture social communities in and around the games themselves, creating a new vehicle for strong, personalengagement with the celebrity’s fan base. In order to capitalize on the impact of our celebrity licensors, we need todifferentiate each game we release and space out our launch dates in order to avoid cannibalization of revenue from ourexisting games and to ensure that each game resonates with our players. However, for us to continue driving installs and awareness of our games and to improve monetization and retention ofour players, we must first ensure that each game we develop is built with strong core gameplay and a core monetization loopthat incentivizes players to make in-app purchases. In addition, we must regularly update our games with compelling newcontent, deliver socio-competitive features like tournaments, player-versus-player gameplay and live events and build andnurture social media communities around our franchises both in-game and holistically via community features such asdedicated social channels. We have also made significant investments in our proprietary analytics and monetizationinfrastructure. With our enhanced analytics capabilities, we intend to devote resources towards segmenting and learning moreabout players of each of our franchises. We aim to connect our analytics and monetization infrastructure to every element ofour business – from marketing to merchandising. We also plan to continue monitoring the successful aspects of our games to drive downloads and enhancemonetization and retention, whether by optimizing advertising revenue within each title, securing additional compellinglicensing arrangements, building enhanced and more complex core gameplay, adding additional social features, tournamentsand events or otherwise. Optimizing advertising revenue within our games requires us to continue taking advantage ofpositive trends in the mobile advertising space, particularly as brands continue to migrate budgets from web to mobile. Continuing to drive installs and awareness of our games through licensing efforts requires that we continue to partner withcelebrities, social influencers, organizations and brands that resonate with potential players of our games. Partnering withdesirable licensing partners and renewing our existing licenses requires that we continue to develop successful games basedon licensed content and are able to compete with other mobile gaming companies on financial and other terms in signing suchpartners. We also plan to continue introducing third-party licensed brands, properties and personalities into our games asadditional licensed content, for cameo appearances or for limited time events in order to drive awareness and monetization.Across the globe our industry is evidencing that hit titles generally remain higher in the top grossing charts forlonger. We believe this is due to the continued specialization and investment of teams and companies in their hit titles, andthe live, social nature of certain games. Our business developments and strategy position us to take advantage of these trends,as evidenced by the longevity of our Kim Kardashian: Hollywood and Racing Rivals titles and the continued strength of ourCooking Dash 2016 title. We plan to focus on regularly updating and otherwise supporting our most successful games inorder to ensure that those games monetize and retain users for even longer periods of time.7 Table of Contents Our Products We develop and publish a portfolio of mobile games designed to appeal to a broad cross section of the users ofsmartphones and tablet devices. We are a leader in free-to-play action, celebrity, sports, and simulation genre mobile gaming,and intend to focus on developing games in these genres during 2016. We plan to continue developing games based on ourown intellectual property, including certain of our core franchises, such as Contract Killer, Cooking Dash, Deer Hunter, Diner Dash, and Frontline Commando, as well as our original branded games that incorporate third-party licensed content,such as Racing Rivals and Tap Sports Baseball. In addition, we intend to continue building the premier Hollywood and othercelebrity gaming platform. As part of these efforts, in 2016 we have released our Kendall and Kylie game and plan to releasegames featuring pop icon Britney Spears, hip hop artist Nicki Minaj, celebrity chef Gordon Ramsay and singer and songwriterTaylor Swift. Although users can download and play our free-to-play games free of charge, they can purchase virtual currency orvirtual items to enhance their gameplay experience – we refer to these as “in-app purchases” or “micro-transactions.” Some ofthe benefits that players receive from their in-app purchases include:·Play Longer Through Better Equipment – We generally design our games to become significantly morechallenging as the player advances through the game. For a game like Frontline Commando 2, players can usetheir virtual currency to purchase more powerful weapons, stronger armor and healing med kits to increase theirodds of continued survival.·Play Longer Through Energy Replenishment – We design some of our games, such as Deer Hunter 2016 and KimKardashian: Hollywood, to have short playing sessions, the duration of which are limited by the energyavailable for each session. Players of Kim Kardashian: Hollywood and Deer Hunter 2016 can use their virtualcurrency to purchase items that will replenish their energy and enable them to extend their gameplay session.·Accelerate Game Progress – Although some players are content to slowly “grind” their way through progressingin a game, others are willing to purchase items to accelerate their progression. For example, Tap Sports Baseballand Tap Sports Football each enable players to spend their virtual currency to upgrade their roster of players andboost the effectiveness of such players, thus allowing the player to more quickly assemble a winning team.·Customization – Our games generally enable players to express themselves by customizing their character or theworld the character inhabits. For example, Kendall and Kylie allows users to personalize their characters’appearance, clothing and living environment, as well as purchase special items available for a limited time, suchas for holidays. We sell virtual currency to consumers at various prices ranging from $0.99 to $99.99 (adjusted for local currencies forsales to players in foreign countries), which is consistent with storefront pricing guidelines, with the significant majority ofplayer purchases occurring at the lower price points. The digital storefronts generally share with us 70% of the consumers’payments for in-app purchases, although these rates are generally lower for Android-based platforms in China; we do not haveany special agreement or arrangement with respect to pricing or terms with any of the digital storefronts. Consumers may alsoacquire virtual currency and other virtual items through gameplay or by completing offers, as described below. In addition to in-app purchases of virtual currency, we also monetize our games through offers and in-gameadvertising. Offers enable users to acquire virtual currency without paying cash but by instead taking specified actions, suchas downloading another application, watching a short video, subscribing to a service or completing a survey. We work withthird parties to provide these offers to players of our free-to-play games, and we receive a payment from the third party offerprovider based on consumer response to these offers. We also work with third party advertising aggregators who embedadvertising, such as ads appearing within the game between content transitions and as pop-up ads; the aggregators typicallypay us based on the number of impressions, which is the number of times an advertisement is shown to a player. In addition,from time to time we work directly with other application developers to include advertising for their applications in ourgames, and the developers pay us based on either the number of impressions in8 Table of Contents our games or the number of users who download the developer’s application. We have generally designed our games to incorporate social features that enhance the user’s gameplay experience,and we intend to continue to introduce more social and community-based features into many of our new titles by leveragingour Games as a Service, or GaaS, technology platform. For example, Eternity Warriors 4 includes live chat functionality andenables users to create alliances with other players, Racing Rivals enables players across Apple’s iOS and Google’s Androidplatforms to compete against each other in real-time, synchronous racing, Kim Kardashian: Hollywood allows users toincorporate their friends into the game by sending them gifts and going on dates with them and Tap Sports Baseball allowsplayers to challenge their friends to head-to-head matchups. Many of our games also leverage technologies such as Apple’sGame Center or Facebook Connect, which enables players to compare their high scores and achievements with their friendsand against the global leaderboard. We intend to analyze each particular game release to determine the appropriate level ofGaaS technology to be incorporated. Our smartphone games historically have had “thick clients” due to their high production values and, in some cases, 3-D graphics. A thick client game means that our games have a large file size, often 100 megabytes or more, that resides on theplayer’s device. Because of the inherent limitations of the digital platforms and telecommunications networks, which, at best,only allow applications that are less than 100 megabytes to be downloaded over a carrier’s wireless network, users generallymust download one of our games either via a wireless Internet (wifi) connection or initially to their computer and then load thegame to their device. 9 Table of Contents The table below sets forth the title, release date, and genre for each of the games we developed and launchedworldwide in 2015: Title Release Date Genre Blood & Glory: Immortals March 2015 Action Tap Sports Baseball 2015 April 2015 Sports Frontline Commando WW2 April 2015 Action Terminator Genisys: Revolution June 2015 Action Cooking Dash 2016 June 2015 Simulation Mission Impossible: Rogue Nation July 2015 Action Tap Sports Football August 2015 Sports Eternity Warriors 4 September 2015 Action Deer Hunter 2016 September 2015 Action Deer Hunter VR September 2015 Action James Bond: World of Espionage October 2015 Real-Time-Strategy Sniper X With Jason Statham October 2015 Action Katy Perry Pop December 2015 Celebrity Following the success of Kim Kardashian: Hollywood and games incorporating licensed third-party brands andproperties, like Racing Rivals, we increased our licensing efforts, both in terms of securing licenses to develop games basedupon or significantly featuring specific licensed third-party intellectual property and for cameo appearances or to otherwiseincorporate third-party intellectual property into our games. In 2015, 2014, and 2013, games based on our own intellectualproperty accounted for approximately 42.1%, 62.7%, and 93.3% of our revenues, respectively. The decrease from 2014 to2015 was due to a full year of revenue from our Kim Kardashian: Hollywood and Racing Rivals titles, and lower revenue fromcertain of our titles based on our own intellectual property, including Deer Hunter, Dino Hunter: Deadly Shores andFrontline Commando. The significant drop in revenue from original intellectual property titles from 2013 to 2014 wasprimarily related to the success of our Kim Kardashian: Hollywood game, partial year contribution from Racing Rivals and toa lesser extent our Robocop and Hercules titles. We expect that each of our new titles launched in 2016 will include third-party licensed brands, properties or other content.For games based on or significantly incorporating licensed brands, properties or other content, we share a portion ofour revenues with the respective licensors. The average royalty rate that we paid on games based on licensed content (such asKim Kardashian: Hollywood, Mission Impossible: Rogue Nation and Sniper X With Jason Statham) or significantlyincorporating licensed content (such as Racing Rivals, Tap Sports Baseball 2015, and Tap Sports Football) wasapproximately 21.9% in 2015, 21.3% in 2014, and 44.8% in 2013 of gross revenues. However, the individual royalty ratesthat we pay can be significantly above or below the average based on a variety of factors, such as the strength of the licensedbrand, our development and porting obligations, and the platforms for which we are permitted to distribute the licensedcontent.Although since 2010 we have focused our efforts on developing free-to-play games, we may create additionalsoftware applications and games that are sold for a fee. For example, in 2015 we launched Deer Hunter VR on the Oculus storeat a price to download of $4.99. We have typically sold our premium games at prices ranging between $0.99 and $6.99, whichis consistent with storefront pricing guidelines. For our premium games, we generally receive 70% of the consumers’payments from the digital storefront owner, as we do with sales of virtual currency. Sales, Marketing and Distribution We market, sell and distribute our games primarily through direct-to-consumer digital storefronts, such as Apple’sApp Store, the Google Play Store and Amazon’s Appstore. In addition to publishing our smartphone games on direct-to-consumer digital storefronts, we also publish some of our titles on other platforms, such as the Mac App Store andFacebook. The significant majority of our smartphone revenues have historically been derived from Apple’s iOS platform,which accounted for approximately 60.5%, 61.8%, and 59.6% of our total revenues in 2015, 2014 and 2013, respectively. Wegenerated the majority of these iOS-related revenues from the Apple App Store, which represented 51.7%, 52.2%, and 50.1%of our total revenues in 2015, 2014 and 2013, respectively, with the significant majority of such10 Table of Contents revenues derived from in-app purchases. We generated the balance of our iOS-related revenues from offers and advertisementsin games distributed on the Apple App Store and, to a far lesser extent, sales of premium games. In addition, we generatedapproximately 38.1%, 35.4%, and 30.5% of our total revenues in 2015, 2014 and 2013, respectively, from the Androidplatform. We generated the majority of our Android-related revenues from in-app purchases and sales of premium games madethrough the Google Play Store, which represented 27.4%, 24.8%, and 19.2% of our total revenues in 2015, 2014 and 2013,respectively. No other customer or digital storefront accounted for more than 10% of our total revenues in 2015, 2014 or2013. Because of the fragmentation inherent in the Android platform, we need to “port” – or convert into separate versions– our games for a significant percentage of the thousands of Android-based devices that are currently commercially available,many of which have different technical requirements. Since the number and variety of Android-based smartphones and tabletsshipped worldwide continues to grow, we must maintain and enhance our porting capabilities, which require, and will likelycontinue to require, us to invest considerable resources in this area. As part of our efforts to successfully market our games on the direct-to-consumer digital storefronts, we attempt toeducate the storefront owners about our title roadmap and seek to have our games featured or otherwise prominently placedwithin the storefront. We believe that the featuring or prominent placement of our games facilitates organic user discoveryand is likely to result in our games achieving a greater degree of commercial success. We believe that a number of factors mayinfluence the featuring or placement of a game, including: ·the perceived attractiveness of the title or brand; ·the quality of the game; ·the level of critical or commercial success of the game or of other games previously introduced by a publisher; ·incorporation of the storefront owner’s latest technology in the publisher’s title; ·how strong the consumer experience is on all of the devices that discover titles using any given digital storefront;·the publisher’s relationship with the applicable storefront owner and future pipeline of quality titles for it; and·the current market share of the publisher. In addition to our efforts to secure prominent featuring or placement for our games, we have also undertaken a numberof marketing initiatives designed to acquire players and increase downloads of our games and increase sales of virtualcurrency, including: ·using social networking websites, such as Facebook and Twitter, to build a base of fans and followers to whomwe can quickly and easily provide information about our games;·paying third parties, including advertising networks, social media channels and social influencers, to advertise orincentivize consumers to download our games through offers or recommendations;·using “push” notifications to alert users of sales on virtual currency or items in our games;·cross-promoting our games through banner advertisements in our other games, as well as advertising our games inour competitors’ games;·having our celebrity partners market their games to their fans through their social media channels; and11 Table of Contents ·undertaking extensive outreach efforts with video game websites and related media outlets, such as providingreviewers with access to our games prior to launch. In addition, certain of our games featuring celebrities or other licensed content like Kim Kardashian: Hollywoodgenerate significant attention through word of mouth, particularly through social media channels. We look to leverageexisting social media presences in order to increase the virality and commercial success of our games. In addition, in gameslike Racing Rivals, we are able to build and maintain a highly engaged community of players around the title. Social-basedmethods for promoting our games include in-game events where players compete with and against each other, in-game socialpromotions and regular content updates, including in-game content that leverages real world events, such as holidaypromotions or current events in the life of our celebrity partners. Development StudiosThe internal studios that develop our games are located across the globe, including studio teams in San Francisco,San Mateo and Long Beach, California; Bellevue, Washington; Portland, Oregon; Toronto, Canada; Beijing, China; andMoscow, Russia. In addition, as part of our central studio reorganization in 2016, we moved certain of our catalog titles to ourHyderabad, India location to run live operations and produce content updates for such games. Our President of Global Studios has primary responsibility for overseeing game development and monetizationefforts across all of our first-party titles. Under his leadership, we have reorganized our global studios utilizing a labelstructure. We have appointed one leader for each of these four labels – action, celebrity, sports, and simulation – with eachleader responsible for the long-term planning of his or her genre. Our studios are generally supported by central services personnel in our San Francisco, California headquarters whoprovide expertise with respect to areas such as game design, monetization, production, user experience, data analytics and liveoperations, with each studio leveraging such central services to varying degrees. During 2016, we plan to continue to growcertain of our studios to support new title launches scheduled for later in 2016 and 2017. Our game development process involves a significant amount of creativity, particularly with respect to developingoriginal intellectual property franchises or games in which we license intellectual property from celebrities, Hollywoodstudios or other owners of brands, properties and other content. Creative and technical studio expertise is necessary to designgames that appeal to players who typically play in short bursts and to develop games that work well on mobile phones andtablets with their inherent limitations, such as small screen sizes and control buttons.Our development personnel are located in five different countries across three continents, which results in certaininherent complexities. To address these issues, we instituted our Glu University training program. Glu University is designedto increase interaction among our studio teams, including having international studio team members regularly spend time inour U.S. studios. The goal of this program is to ensure that we increase the uniformity, quality and commercial success of ourgames. In addition, we believe that our new label structure, focusing our development efforts on action, celebrity, sports, andsimulation games with each studio team specializing in one of these genres, will help ensure more efficient use of resourcesacross our studios and further promote the sharing of expertise and best practices. Product Development We have developed proprietary technologies and product development processes that are designed to enable us torapidly and cost effectively develop and publish games that meet the expectations and preferences of consumers and the needsof our distributors. These technologies and processes include: · core development platforms; · porting tools and processes; · broad development capabilities;12 Table of Contents · application hosting; · provisioning and billing capabilities; · localization capabilities, including supporting multiple languages and customization for specific markets, such asChina; · capabilities for integrating and configuring third-party advertising plug-ins, including for maximization ofadvertising revenue through placements that complement game flow; · networking technologies for supporting game saves, guilds, matchmaking, leaderboards, and in-game messaging;and · merchandising, monetization tools and marketing platforms. Since the markets for our products are characterized by rapid technological change, particularly in the technicalcapabilities of mobile phones and tablets, and changing end-user preferences, continuous investment is required to innovateand publish new games, regularly update our games, and modify existing games for distribution on new platforms. Our GlobalChief Technology Officer has primary responsibility for ensuring our development studios have the technology they need tobuild high-quality games in a timely and efficient manner. We have recently instituted a number of new measures designed to ensure that we publish and launch games thathave a greater likelihood of being commercially successful, while identifying earlier in the development process gameconcepts and designs that are unlikely to produce hits. Central technical and product oversight now comes via threemechanisms: · A rigorous greenlight process that includes a review of complex engineering modules, detailed plans for long-termretention features and a thorough understanding of the target demographic for each game. · A rigorous six-gate milestone review system in which confidential feedback and voting from various executives isconsidered as part of the decision to allow a game to proceed in development. · A Pixar-inspired “brain-trust” to provide critical and unbiased peer input. In addition, we plan to continue holding detailed post-mortems for all products to review and analyze the positiveand negative results from each new game launch. These are in addition to our regular Glu University training sessions wherewe formally share best practices and learnings amongst the leadership of all functions of our global studios. We use third-party development tools to create many of our games, including a game development engine licensedfrom Unity Technologies to create most of our newest games. In addition, we rely on our own servers and third-partyinfrastructure to operate our games and to maintain and provide our analytics data. In particular, a significant portion of gametraffic is hosted by Amazon Web Services, which provides us server redundancy by using multiple locations on variousdistinct power grids, and we expect to continue utilizing Amazon for a significant portion of our hosting services for theforeseeable future. Research and development expenses were $72.9 million, $64.3 million, and $46.9 million for 2015, 2014 and 2013,respectively. Seasonality Many new smartphones and tablets are released in or shortly before the fourth calendar quarter to coincide with theholiday shopping season. Because many players download our games soon after they purchase or receive their new13 Table of Contents devices, we generally experience seasonal sales increases based on the holiday selling period. Although we believe that themajority of this holiday impact occurs during the fourth quarter, some of this seasonality also occurs for us in our first calendarquarter due to some lag between device purchases and game purchases. However, the impact of this seasonality on ouroperating results is significantly affected by our title release schedule. In addition, companies’ advertising budgets aregenerally highest during the fourth quarter and decline significantly in the first quarter of the following year, which affects therevenues we derive from advertisements and offers in our games. Conversely, our marketing expenses also increase in thefourth quarter, since demand for marketing is higher during the holiday season and this increased demand drives up marketingcosts. Competition Developing, distributing and selling mobile games is a highly competitive business, characterized by frequent productintroductions and rapidly emerging new platforms, technologies and storefronts. For players, we compete primarily on thebasis of game quality, brand and customer reviews. We also compete more generally for the time and attention of users ofsmartphones and tablet devices who are spending ever-increasing amounts of time on social media applications. We competefor promotional and digital storefront placement based on our relationship with the digital storefront owner, historicalperformance, game quality, perception of sales potential, customer reviews, and relationships with celebrities and otherlicensors of brands and other content. For celebrities, brands and other content licensors, we compete based on royalty andother economic terms, historical financial performance of celebrity and other third-party licensed brand and property games,perceptions of development quality, porting abilities, speed of execution, distribution breadth and relationships withstorefront owners. We also compete for experienced and talented employees.We compete with a continually increasing number of companies, including Activision, DeNA, Disney, Electronic Arts (EAMobile), Gameloft, Gamevil, GREE, GungHo Online Entertainment, King Digital Entertainment (which recently agreed to beacquired by Activision), Nexon, Warner Brothers, and Zynga and many well-funded private companies, including Kabam,Machine Zone, Pocket Gems, Rovio, SGN Games, Storm 8/Team Lava, and Supercell. In addition, we face competition fromonline game developers and distributors who are primarily focused on specific international markets. We could also faceincreased competition if those companies choose to compete more directly in the United States or the other markets that aresignificant to us or if large companies with significant online presences such as Apple, Google, Amazon, Facebook or Yahoo,choose to enter or expand in the games space or develop competing games. We also compete for downloads and time spent onmobile devices with companies that develop popular social media and messaging applications, such as Facebook (with itsFacebook, Facebook Messenger, Instagram, WhatsApp and other applications), Pinterest, Snapchat, Twitter, Vevo andYouTube and with companies that create non-gaming related software applications for celebrities. In addition, given the open nature of the development and distribution for smartphones and tablets and the relatively lowbarriers to entry, we also compete or will compete with a vast number of small companies and individuals who are able tocreate and launch games and other content for these devices using relatively limited resources and with relatively limited start-up time or expertise. As an example of the competition that we face, it has been estimated that more than 2.1 millionapplications, including more than 500,000 active games, were available on Apple’s U.S. App Store as of February 29,2016. The proliferation of titles in these open developer channels makes it difficult for us to differentiate ourselves from otherdevelopers and to compete for players without substantially increasing our marketing expenses and development costs.Some of our competitors and our potential competitors have one or more advantages over us, either globally or inparticular geographic markets, which include: ·significantly greater financial resources;·greater experience with free-to-play games, GaaS business models, and building social and communityfeatures into mobile games, as well as more effective game monetization;·stronger brand and consumer recognition regionally or worldwide;14 Table of Contents ·the capacity to leverage their marketing expenditures across a broader portfolio of mobile and non-mobileproducts;·larger installed user bases from their existing mobile games;·larger installed user bases from related platforms, such as console gaming or social networking websites, towhich they can market and sell mobile games;·more substantial intellectual property of their own from which they can develop games without having to payroyalties;·lower labor and development costs and better overall economies of scale;·greater platform-specific focus, experience and expertise; and·broader global distribution and presence. Intellectual Property Our intellectual property is an essential element of our business. We use a combination of trademark, copyright, tradesecret and other intellectual property laws, confidentiality agreements and license agreements to protect our intellectualproperty. Our employees and independent contractors are required to sign agreements acknowledging that all inventions,trade secrets, works of authorship, developments and other processes generated by them on our behalf are our property, andassigning to us any ownership that they may claim in those works. We also vigorously defend our intellectual property. Forexample, in November 2014, we filed a complaint against Hothead Games, Inc. (“Hothead”) in the United States District Courtfor the Northern District of California alleging that Hothead had willfully infringed certain of our copyrights and trade dresscontained in our Deer Hunter 2014 game through Hothead’s release of its game, Kill Shot. On August 3, 2015, we entered intoa settlement agreement with Hothead in which Hothead agreed to make payments to us, including ongoing payments and weagreed to allow Hothead to continue to publish the Kill Shot game. Despite our precautions, it may be possible for thirdparties to obtain and use without our consent intellectual property that we own or license. Unauthorized use of ourintellectual property by third parties, including piracy, and the expenses incurred in protecting our intellectual property rights,may adversely affect our business. In addition, some of our competitors have in the past released games that are nearlyidentical to successful games released by their competitors in an effort to confuse the market and divert users from thecompetitor’s game to the copycat game. To the extent that these tactics are employed with respect to any of our games, itcould reduce our revenues. Our trademarks that have been registered with the U.S. Patent and Trademark Office include Glu, our 2-D ‘g’ characterlogo, our 3-D ‘g’ character logo and several of our game titles, including Blood & Glory, Contract Killer, Cooking Dash, DeerHunter, Diner Dash, Eternity Warriors, Frontline Commando, Gun Bros, Heroes of Destiny, Racing Rivals and Tap Sports. Inaddition, we have trademark applications pending with the U.S. Patent and Trademark Office for other of our game titles. Forcertain titles we do not yet have, and do not intend to seek, trademark registration. We also own, or have applied to own, oneor more registered trademarks in certain foreign countries, depending on the relevance of each brand to other markets.Registrations of both U.S. and foreign trademarks are renewable every ten years. We have one patent issued by the U.S. Patent and Trademark Office and have eight patent applications pending,including two that we inherited through acquisitions. In addition, we have an international patent issued through the PatentCooperation Treaty (PCT), which corresponds to our issued U.S. patent, and we have four international patent applicationspending with the PCT, which correspond to four of our U.S. patent applications.We also use third-party development tools to create many of our games, including a game development enginelicensed from Unity Technologies to create most of our newest games. 15 Table of Contents From time to time, we encounter disputes over rights and obligations concerning intellectual property. If we do notprevail in these disputes, we may lose some or all of our intellectual property protection, be enjoined from further sales of ourgames or other applications determined to infringe the rights of others, and/or be forced to pay substantial royalties to a thirdparty, any of which would have a material adverse effect on our business, financial condition and results of operations. Government Regulation We are subject to various federal, state and international laws and regulations that affect our business, including thoserelating to the privacy and security of customer and employee personal information and those relating to the Internet,behavioral tracking, mobile applications, advertising and marketing activities, sweepstakes and contests, andgambling. Additional laws in all of these areas are likely to be passed in the future, which could result in significantlimitations on or changes to the ways in which we can collect, use, host, store or transmit the personal information and data ofour customers or employees, communicate with our customers, and deliver products and services, or may significantly increaseour compliance costs. As our business expands to include new uses or collection of data that are subject to privacy or securityregulations, our compliance requirements and costs will increase and we may be subject to increased regulatory scrutiny.Financial Information about Segments and Geographic Areas We manage our operations and allocate resources as a single reporting segment. Financial information about oursegment and geographic areas is incorporated into this section by reference to Note 11 of Notes to Consolidated FinancialStatements contained in Item 8 of this report. In addition, financial information regarding our operations, assets and liabilities,including our total net revenue and net income / (loss) for the years ended December 31, 2015, 2014 and 2013 and our totalassets as of December 31, 2015 and 2014, is included in our Consolidated Financial Statements contained in Item 8 of thisreport.Employees As of December 31, 2015, we had 750 employees, of which 491 were based in the United States and Canada, 130 werebased in Europe and 129 were based in Asia. Our employees in China are represented by a labor union. We have notexperienced any employment-related work stoppages and consider relations with our employees to be good. We believe thatour future success depends in part on our continued ability to hire, assimilate and retain qualified employees.Executive Officers The following table shows Glu’s executive officers as of March 1, 2016 and their areas of responsibility. Theirbiographies follow the table. Name Age Position Niccolo M. de Masi 35 President, Chief Executive Officer and Chairman Eric R. Ludwig 46 Executive Vice President, Chief Operating Officer and ChiefFinancial Officer Nick Earl 50 President of Global Studios Chris Akhavan 33 President of Publishing Scott J. Leichtner 45 Vice President, General Counsel and Corporate Secretary Niccolo M. de Masi has served as our President and Chief Executive Officer and as one of our directors since January2010, as interim Chairman of our board of directors from July 2014 to December 2014 and as the Chairman of our board ofdirectors since December 2014. Prior to joining Glu, Mr. de Masi was the Chief Executive Officer and President of Hands-OnMobile, a mobile technology company and developer and publisher of mobile entertainment, from October 2009 to December2009, and previously served as the President of Hands-On Mobile from March 2008 to16 Table of Contents October 2009. Prior to joining Hands-On Mobile, Mr. de Masi was the Chief Executive Officer of Monstermob Group PLC, amobile entertainment company, from June 2006 to February 2007. Mr. de Masi joined Monstermob in 2004 and, prior tobecoming its Chief Executive Officer, held positions as its Managing Director and as its Chief Operating Officer, where he wasresponsible for formulating and implementing Monstermob’s growth and product strategy. Prior to joining Monstermob, Mr.de Masi worked in a variety of corporate finance and operational roles within the technology, media and telecommunications(TMT) sector, beginning his career with JP Morgan on both the TMT debt capital markets and mergers and acquisitions teamsin London. He has also worked as a physicist with Siemens Solar and within the Strategic Planning and Developmentdivisions of Technicolor. Mr. de Masi has served as a director of Xura, Inc. since November 2015. Mr. de Masi holds an M.A.degree in Physics and an MSci. degree in Electronic Engineering—both from Cambridge University. Eric R. Ludwig has served as our Chief Operating Officer since October 2014, as our Executive Vice President, ChiefFinancial Officer since October 2011 and as our Chief Financial Officer since August 2008. Mr. Ludwig previously held theposition of Senior Vice President, Chief Financial Officer and Chief Administrative Officer from September 2010 to October2011. Prior to becoming our Chief Financial Officer, Mr. Ludwig served as our Vice President, Finance, Interim ChiefFinancial Officer from May 2008 to August 2008, served as our Vice President, Finance from April 2005 to May 2008 andserved as our Director of Finance from January 2005 to April 2005. In addition, Mr. Ludwig has served as our AssistantSecretary since July 2006. Prior to joining us, from January 1996 to January 2005, Mr. Ludwig held various positions at InstillCorporation, an on-demand supply chain software company, most recently as Chief Financial Officer, Vice President, Financeand Corporate Secretary. Prior to Instill, Mr. Ludwig was Corporate Controller at Camstar Systems, Inc., an enterprisemanufacturing execution and quality systems software company, from May 1994 to January 1996. He also worked at PriceWaterhouse L.L.P. from May 1989 to May 1994. Mr. Ludwig holds a B.S. in Commerce from Santa Clara University and is aCertified Public Accountant (inactive). Nick Earl has served as our President of Global Studios since November 2015. Before joining us, from November2014 to September 2015, Mr. Earl served as President of Worldwide Studios at Kabam. From September 2001 to October2014, Mr. Earl served in several management positions at Electronic Arts, including most recently as Senior Vice President &General Manager of EA Mobile. From 1999 to 2001, Mr. Earl served as VP Product Development at Eidos. From April 1993to March 1999, Mr. Earl served as an executive producer / GM at The 3DO Company. Mr. Earl holds a B.A. in Economicsfrom the University of California at Berkeley. Chris Akhavan has served as our President of Publishing since April 2013. Before joining us, from January 2010 toApril 2013, Mr. Akhavan served in several management positions at Tapjoy, Inc., a provider of incentivized offers, mostrecently as Senior Vice President, Partnerships. From April 2009 to January 2010, Mr. Akhavan was a Manager, PublisherNetwork at RockYou!, a social gaming company, and from October 2007 to November 2008, he served as a Strategic PartnerManager at VideoEgg (now SAY Media), an advertising inventory and platform provider. Mr. Akhavan holds a B.A. inEconomics from the University of California at Santa Cruz. Scott J. Leichtner has served as our Vice President, General Counsel and Corporate Secretary since September2010. Mr. Leichtner joined Glu in June 2009 as our Senior Corporate Counsel. Prior to joining us, Mr. Leichtner was acorporate attorney at Fenwick & West LLP, a law firm focused on serving technology clients, from October 1997 to May2009. Mr. Leichtner holds an A.B. in Political Science from Duke University and a J.D. from the University of Michigan. Item 1A. Risk FactorsOur business is subject to many risks and uncertainties, which may affect our future financial performance. If any of theevents or circumstances described below occurs, our business and financial performance could be harmed, our actual resultscould differ materially from our expectations and the market value of our stock could decline. The risks and uncertaintiesdiscussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us orthat we currently do not believe are material that may harm our business and financial performance. Because of the risks anduncertainties discussed below, as well as other variables affecting our operating results, past financial performance shouldnot be considered as a reliable indicator of future performance and investors should not use historical trends to anticipateresults or trends in future periods.17 Table of Contents We have a history of net losses, may incur substantial net losses in the future and may not achieve and sustain profitabilityor growth in future periods. We have incurred significant losses since inception, including a net loss of $7.2 million in 2015. As of December 31,2015, we had an accumulated deficit of $251.2 million. We expect our costs to continue to rise as we implement additionalinitiatives designed to increase revenue, including developing new games with greater complexity, higher production valuesand deeper social features, running live operations on our games, and increasing headcount at our studios to staff new productdevelopment teams (particularly with respect to the new celebrity titles we plan to launch in 2016 and 2017, which we believemay require differentiated game engines to be successful and avoid cannibalization of revenue from our other celebritygames). Our costs are also rising as we increase the amount we spend in acquiring new players and otherwise marketing ournew titles (particularly since advertising costs in our industry have generally been rising and downloads of our games aredecreasing as users spend more time on alternative software applications, such as social media and messaging applications),and increase the amount we pay for licenses to third-party intellectual property (particularly with regards to celebritylicensors). If our revenue does not increase at a rate sufficient to offset these additional expenses (including revenue on a pertitle basis since we anticipate launching fewer games in 2016 than we have in recent years), if the launch dates for our gamesare delayed, if we experience unexpected significant increases in operating expenses or if we are required to take additionalcharges related to impairments or restructurings, we will continue to incur losses. Given the declines in overall downloads ofmobile gaming applications as compared to non-gaming applications, and the significant amount of time and attention usersare dedicating to social media and other non-gaming applications, increasing revenue has been, and may continue to be,challenging. This industry trend has been negatively impacting us, as the number of downloads of sequels to certain of ourmost successful franchises, including the launches of Deer Hunter 2016 and Eternity Warriors 4 have downloaded atsignificantly lower rates as compared to predecessor versions.If we fail to develop and publish new mobile games that achieve market acceptance, as well as continue to enhance ourexisting games, particularly our most successful games, our revenue would suffer.Our business depends on developing and publishing mobile games that consumers will download and spend time andmoney playing. We must continue to invest significant resources in research and development, technology, analytics andmarketing to introduce new games and continue to update our successful free-to-play games, and we often must makedecisions about these matters well in advance of a product release to timely implement them. Our success depends, in part, onunpredictable and volatile factors beyond our control, including consumer preferences, competing gaming and non-gamingrelated applications, new mobile platforms and the availability of other entertainment activities. If our games do not meetconsumer expectations, or they are not brought to market in a timely and effective manner, our business, operating results andfinancial condition would be harmed. Historically, we have focused on developing and publishing shooters and other actiongames primarily directed at male audiences. While our Kim Kardashian: Hollywood, Cooking Dash 2016, and recentlylaunched Kendall and Kylie games have been commercially successful, our Katy Perry Pop game was not commerciallysuccessful and meeting consumer expectations could prove more challenging for us in the future as we release a greaternumber of games that are primarily targeted toward female audiences (such as other games under development in the celebrityand resource management genres). Even if our games are successfully introduced and initially adopted, a failure to continueto update them with compelling content or a subsequent shift in the entertainment preferences of consumers could cause adecline in our games’ popularity that could materially reduce our revenue and harm our business, operating results andfinancial condition, which effect would be magnified for our most successful games. It is difficult to predict when and howquickly one of our games will decline. As a result of the life cycle of our games, our business depends on our ability toconsistently and timely launch new games or versions of games that achieve significant popularity and have the potential tobecome franchise games, and if, as we anticipate, we launch fewer titles in 2016 than in prior years, we may be less likely tolaunch a game that achieves significant commercial success. If rates of decline are higher than expected in a particularquarterly period and/or we experience delays in the launch of new games that we expect to offset these declines or the newgames we launch fail to download and/or monetize as we anticipate, we may not meet our expectations or the expectations ofsecurities analysts or investors for a given quarter. In addition, our Kim Kardashian: Hollywood game benefitted significantlyfrom awareness of the game through media coverage and social media channels, and such viral success can be difficult topredict or to repeat in the future. For example, even18 Table of Contents though Katy Perry has more social media followers than Kim Kardashian West, Katy Perry Pop generated far fewer downloadsthan Kim Kardashian: Hollywood. Furthermore, we compete for the discretionary spending of consumers, who face a vastarray of entertainment choices, including social media and other non-gaming related apps, games played on personalcomputers and consoles, television, movies, sports and the Internet. If we are unable to sustain sufficient interest in our gamescompared to other forms of entertainment, our business and financial results would be seriously harmed. Successfully developing and monetizing free-to-play games is a challenging business model.In early 2010, we changed our business model to focus on becoming a leading developer and publisher of “free-to-play”games for smartphone and tablet devices. Free-to-play games are games that a player can download and play for free, butwhich allow players to access a variety of additional content and features for a fee and to engage with various advertisementsand offers that generate revenue for us. The most successful recent launches of free-to-play games tend to include socio-competitive gameplay, player versus player activities, regularly updated content and other complex technological andcreative attributes associated with Games-as-a-Service, or GaaS, offerings. While we are working to include such features inour games, many of our historical games did not include some or all of these GaaS features, and we may not successfullyexecute this transition. In addition, following the success of our Kim Kardashian: Hollywood game, we expanded our effortsto build the premier celebrity gaming platform. We are partnering with A-list celebrities to selectively collaborate on futuregames, and if those games fail to perform to expected levels, such as occurred with our Katy Perry Pop title, our revenue couldbe limited and our business and operating results would suffer. Our efforts to develop free-to-play games, celebrity and otherlicensed property games and our transition towards becoming a GaaS company may prove unsuccessful or, even if successful,it may take more time than we anticipate to achieve significant revenue because, among other reasons:·our free-to-play strategy assumes that a large number of players will download our games because they are freeand that we will then be able to effectively monetize the games; however, players may not widely download ourgames for a variety of reasons, including competition for downloads with social media and other non-gamingrelated applications, poor consumer reviews or other negative publicity, ineffective or insufficient marketingefforts, lack of sufficient social and community features, lack of prominent storefront featuring, failure to reachand maintain Top Free App Store rankings, and the relatively large file size of some of our games—our gamesoften utilize a significant amount of the available memory on a user’s device, and due to the inherent limitationsof the smartphone platforms and telecommunications networks, which at most only allow applications that areless than 100 megabytes to be downloaded over a carrier’s wireless network, players must download our gamesthat exceed 100 megabytes either via a wireless Internet (wifi) connection or initially to their computer and thenside-loaded to their device, and Apple’s requirement that games released on the Apple App Store include 64-bitsupport has resulted in an increase to the file sizes of our games, potentially making our games more difficult forour players to download;·even if our games are widely downloaded, we may fail to retain users or optimize the monetization of thesegames for a variety of reasons, including poor game design or quality, lack of GaaS features, gameplay issuessuch as game unavailability, long load times or an unexpected termination of the game due to data server orother technical issues, lack of differentiation from predecessor games or other competitive games or our failureto effectively respond and adapt to changing user preferences through game updates;·future celebrity and other licensed property games that we release may fail to resonate with consumers, maycannibalize revenue from our existing games, and may cost more to build than other titles due to the need todifferentiate gameplay among titles. It is unclear whether future celebrity-based games have the potential togenerate revenue at levels similar to our Kim Kardashian: Hollywood title or whether these games can besuccessful at all, including that the number of social media followers for a particular celebrity may have limitedimpact on the financial success of a title, as occurred with our Katy Perry Pop title;·we intend to continue to develop a significant number of games based upon our own intellectual property,19 Table of Contents rather than celebrities or well-known licensed brands and properties, and we may encounter difficulties in generating sufficientconsumer interest in and downloads of our games, particularly considering we have experienced significantly fewerdownloads of recent launches of game sequels as compared to their predecessors;·many well-funded public and private companies have released, or plan to release, free-to-play games, includingthose provided under the GaaS model and those partnering with celebrities or other well-known licensed brandsor properties, and this competition will make it more difficult for us to differentiate our games and derivesignificant revenue from them;·competitors have released, and may release in the future, other mobile software applications featuring celebrities(including our own celebrity partners), and this competition may make it more difficult for us to derivesignificant revenue from our celebrity games;·free-to-play games, including those delivered as a service, and particularly those featuring celebrities, have arelatively limited history, and it is unclear how popular this style of game will become or remain or its revenuepotential;·we may have difficulty hiring the experienced monetization, live operations, server technology, user experienceand product management personnel that we require to support our continued transition to becoming a GaaScompany and to building the premier celebrity gaming platform, or may face difficulties in developing our GaaStechnology platform and incorporating it into our products or developing unique gameplay;·we will depend on the proper and continued functioning of our own servers and third-party infrastructure tooperate our connected games that are delivered as a service; and·the Federal Trade Commission has indicated that it intends to review issues related to in-app purchases,particularly with respect to games that are marketed primarily to minors (for example, the FTC reached asettlement with Apple in January 2014 and with Google in September 2014, and is currently engaged inlitigation with Amazon, on this issue), and the commission might issue rules significantly restricting or evenprohibiting in-app purchases or name us as a defendant in a future class-action lawsuit.If we do not achieve a sufficient return on our investment with respect to our free-to-play business model, it will negativelyaffect our operating results and may require us to formulate a new business strategy.We rely on a very small portion of our total players for nearly all of our revenue that we derive from in-app purchases. We rely on a very small portion of our total players for nearly all of our revenue derived from in-app purchases (as opposedto advertisements and incentivized offers) and installation rates and user-growth have declined for us with many of our recentproduct launches. Since the launch of our first free-to-play titles in the fourth quarter of 2010, the percentage of uniquepaying players for our largest revenue-generating free-to-play games has typically been less than 2%, when measured as thenumber of unique paying users on a given day divided by the number of unique users on that day, though this percentagefluctuates, and it may be higher than 2% for some of our games during specific, relatively short time periods, such asimmediately following worldwide launch or the week following content updates, marketing campaigns or certain otherevents. To significantly increase our revenue, we must increase the number of downloads of our games, increase the number ofplayers who convert into paying players by making in-app purchases, increase the amount that our paying players spend inour games and/or increase the length of time our players generally play our games. We might not succeed in our efforts toincrease the monetization rates of our users, particularly if we do not increase the amount of social features in our games orotherwise succeed in our transition to becoming a GaaS company. If we are unable to convert non-paying players into payingplayers, or if we are unable to retain our paying players or if the average amount of revenue that we generate from our playersdoes not increase or declines, our business may not grow, our financial results will suffer, and our stock price may decline.20 Table of Contents We derive the majority of our revenue from Apple’s App Store and the Google Play Store, and if we are unable to maintain agood relationship with each of Apple and Google or if either of these storefronts were unavailable for any prolonged periodof time, our business will suffer.The majority of our smartphone revenue has historically been derived from Apple’s iOS platform, which accounted for60.5% of our total revenue for 2015 compared with 61.8% and 59.6% of our total revenue for 2014 and 2013, respectively. We generated the majority of this iOS-related revenue from the Apple App Store, which represented 51.7 %, 52.2%, and50.1% of our total revenue in 2015, 2014, and 2013, respectively, with the significant majority of such revenue derived fromin-app purchases. We generated the balance of our iOS-related revenue from offers and advertisements in games distributed onthe Apple App Store and, to a far lesser extent, sales of premium games. In addition, we derived approximately 38.1 %, 35.4%,and 30.5% of our total revenue for 2015, 2014, and 2013, respectively, from the Android platform. We generated the majorityof our Android-related revenue from the Google Play Store, which represented 27.4%, 24.8%, and 19.2% of our total revenuefor 2015, 2014, and 2013, respectively, with the significant majority of such revenue derived from in-app purchases. Webelieve that we have good relationships with each of Apple and Google, which have contributed to the majority of our gamesreleased in the last several years being featured on their storefronts when they were commercially released. If we do notcontinue to receive prominent featuring, users may find it more difficult to discover our games and we may not generatesignificant revenue from them. We may also be required to spend significantly more on marketing campaigns to generatesubstantial revenue on these platforms. In addition, currently neither Apple nor Google charges a publisher when it featuresone of their apps. If either Apple or Google were to charge publishers to feature an app, it could cause our marketing expensesto increase considerably. Accordingly, any change or deterioration in our relationship with Apple or Google could materiallyharm our business and likely cause our stock price to decline. We also rely on the continued functioning of the Apple App Store and the Google Play Store. In the past these digitalstorefronts have been unavailable for short periods of time or experienced issues with their in-app purchasingfunctionality. For example, on March 11, 2015, the Apple App Store experienced an approximately 12-hour global outage,which resulted in players and potential players of our games being unable to download our games and unable to make in-apppurchases within our games during such outage. If such events recur on a prolonged basis or other similar issues arise thatimpact our ability to generate revenue from these storefronts, it would have a material adverse effect on our revenue andoperating results. In addition, if these storefront operators fail to provide high levels of service, our players’ ability to accessour games may be interrupted or players may not receive the virtual currency or goods for which they have paid, which mayadversely affect our brand.The operators of digital storefronts on which we publish our free-to-play games and the advertising channels through whichwe acquire some of our players in many cases have the unilateral ability to change and interpret the terms of our and others’contracts with them.We distribute our free-to-play games through direct-to-consumer digital storefronts, for which the distribution terms andconditions are often “click through” agreements that we are not able to negotiate with the storefront operator. For example, weare subject to each of Apple’s and Google’s standard click-through terms and conditions for application developers, whichgovern the promotion, distribution and operation of apps, including our games, on their storefronts. Each of Apple andGoogle can unilaterally change its standard terms and conditions with no prior notice to us. In addition, the agreement termscan be vague and subject to changing interpretations by the storefront operator. Further, these storefront operators typicallyhave the right to prohibit a developer from distributing its applications on its storefront if the developer violates its standardterms and conditions. For example, in the second quarter of 2011, Apple began prohibiting virtual currency-incentedadvertising offers in games that directed users to download other applications from the Apple App Store in order to completethe offer. These offers accounted for approximately one-third of our smartphone revenue during the three months ended June30, 2011, and our inability to subsequently use such offers negatively impacted our smartphone revenue thereafter. Inaddition, Apple informed us early in the fourth quarter of 2012 that we could no longer include links to Tapjoy’s HTML5website in our games, which negatively impacted our ability to generate revenue through incented offers. Apple hasimplemented restrictions related to games that include guns, including changing its game rating methodology, which hasresulted in all of our games that include gun violence21 Table of Contents receiving a 17+ rating, and prohibiting some depictions of guns in game icons and other storefront art; these restrictions, couldpotentially negatively impact the number of people playing these “shooter” games and the revenue we generate from thesegames. During the second quarter of 2014, there were reports that Apple was considering prohibiting some types of virtualcurrency-incented video advertising in games that promoted other applications available on the Apple App Store. Theseincented video advertisements generate a meaningful percentage of our overall revenue, and any prohibition of theseadvertisements would have had a negative impact on our revenue. In the fourth quarter of 2014, Apple informed developersthat beginning on February 1, 2015 all new applications, and beginning June 1, 2015 all updates to existing applications,submitted to the Apple App Store must include 64-bit support. We did not previously build our games to include 64-bitsupport nor did the Unity development engine that we utilize to create many of our games support 64-bit development;however, we worked with Unity to ensure that we met Apple’s requirement. Building our games to support 64-bitdevelopment has increased the file sizes of our games making it more difficult for players to download our games andpotentially negatively impacting the number of downloads and active users of our titles, particularly for those games where weare unable to keep file sizes below 100 megabytes, which is the maximum file size that can currently be downloaded over anycarrier’s wireless network (requiring download over wifi networks). In addition, we believe that Apple may have madechanges to its algorithms that determine the App Store’s Top Free application rankings, as games currently have a moredifficult time achieving and maintaining Top Free rankings than was the case 12 to 18 months ago. The Top Free rankings areone of the primary means for consumers to discover our games, and to the extent that algorithm changes have occurred thatmake it more difficult for mobile games to reach and maintain Top Free spots, it would contribute to fewer installs of ourgames. If Apple or Google, or any other key storefront operator, determines that we or one of our key vendors are violating itsstandard terms and conditions, by a new interpretation or otherwise, or prohibits us from distributing our games on itsstorefront, it would materially harm our business and likely cause our stock price to significantly decline.In addition, in the first quarter of 2014, Facebook prohibited HasOffers, whose software development kit we hadincorporated into our games to track advertising metrics, from participating in Facebook’s mobile measurement programbecause Facebook asserted that HasOffers had violated its agreement with Facebook. As a result, we removed HasOffers’software development kit from our games and replaced it with software from a new vendor. While this change did notadversely impact our revenue or operations, any similar changes or prohibitions in the future could negatively impact ourrevenue or otherwise materially harm our business, and we may not receive significant or any advance warning of suchchanges.The markets in which we operate are highly competitive, and many of our competitors have significantly greater resourcesthan we do. Developing, distributing and selling mobile games is a highly competitive business, characterized by frequent productintroductions and rapidly emerging new platforms, technologies and storefronts. For players, we compete primarily on thebasis of game quality, brand and customer reviews. We also compete more generally for the time and attention of users ofsmartphones and tablet devices who are spending ever-increasing amounts of time on social media and messagingapplications. We compete for promotional and digital storefront placement based on our relationship with the digitalstorefront owner, historical performance, game quality, perception of sales potential, customer reviews and relationships withcelebrities and other licensors of brands and other content. For celebrities, brands and other content licensors, we competebased on royalty and other economic terms, historical financial performance of celebrity and other third-party licensed brandand property games, perceptions of development quality, porting abilities, speed of execution, distribution breadth andrelationships with storefront owners. We also compete for experienced and talented employees.We compete with a continually increasing number of companies, including Activision, DeNA, Disney, Electronic Arts (EAMobile), Gameloft, Gamevil, GREE, GungHo Online Entertainment, King Digital Entertainment (which has recently agreed tobe acquired by Activision), Nexon, Warner Brothers, and Zynga and many well-funded private companies, including Kabam,Machine Zone, Pocket Gems, Rovio, SGN Games, Storm 8/Team Lava, and Supercell. In addition, we face competition fromonline game developers and distributors who are primarily focused on specific international markets. We could also faceincreased competition if those companies choose to compete more directly in the United States or the other markets that aresignificant to us or if large companies with significant online presences such as Apple, Google, Amazon, Facebook or Yahoo,choose to enter or expand in the games space or develop competing games. We22 Table of Contents also compete for downloads and time spent on mobile devices with companies that develop popular social media andmessaging applications, such as Facebook (with its Facebook, Facebook Messenger, Instagram, WhatsApp and otherapplications), Pinterest, Snapchat, Twitter, Vevo and YouTube and with companies that create non-gaming related softwareapplications for celebrities. In addition, given the open nature of the development and distribution for smartphones and tablets and the relatively lowbarriers to entry, we also compete or will compete with a vast number of small companies and individuals who are able tocreate and launch games and other content for these devices using relatively limited resources and with relatively limited start-up time or expertise. As an example of the competition that we face, it has been estimated that more than 2.1 millionapplications, including more than 500,000 active games, were available on Apple’s U.S. App Store as of February 29,2016. The proliferation of titles in these open developer channels makes it difficult for us to differentiate ourselves from otherdevelopers and to compete for players without substantially increasing our marketing expenses and development costs.Some of our competitors and our potential competitors have one or more advantages over us, either globally or inparticular geographic markets, which include: ·significantly greater financial resources;·greater experience with free-to-play games, GaaS business models, and building social and communityfeatures into mobile games, as well as more effective game monetization;·stronger brand and consumer recognition regionally or worldwide;·the capacity to leverage their marketing expenditures across a broader portfolio of mobile and non-mobileproducts;·larger installed user bases from their existing mobile games;·larger installed user bases from related platforms, such as console gaming or social networking websites, towhich they can market and sell mobile games;·more substantial intellectual property of their own from which they can develop games without having to payroyalties;·lower labor and development costs and better overall economies of scale;·greater platform-specific focus, experience and expertise; and·broader global distribution and presence.If we are unable to compete effectively or we are not as successful as our competitors in our target markets, our sales coulddecline, our margins could decline and we could lose market share, any of which would materially harm our business,operating results and financial condition.23 Table of Contents Our players may decide to select competing forms of entertainment instead of playing our games.We also face competition for the leisure time, attention and discretionary spending of our players. Other forms of leisuretime activities, such as social media and messaging applications, personal computer and console games, television, movies,sports, and the Internet, are generally much larger and more well-established options for consumers. In addition, competitionfor the attention of players on their mobile devices is intense, as the number of apps on mobile devices is increasingdramatically. In particular, non-gaming applications for mobile devices, such as social media and messaging, music anddating applications, have become increasingly popular, making it more difficult for mobile games to generate the same levelof consumer interest and number of downloads as in prior periods. In addition, celebrities like Kim Kardashian West, KylieJenner and Kendall Jenner, have launched their own personal media applications, and those applications, or similarapplications launched by other of our celebrity partners could compete with our celebrity games for the time, attention andspending of our players. If our players do not find our games to be compelling or if other leisure time activities are perceivedby our players to offer greater variety, affordability, interactivity and overall enjoyment, our business could be materially andadversely affected.Our financial results could vary significantly from quarter to quarter and are difficult to predict, which in turn could causevolatility in our stock price.Our revenue and operating results could vary significantly from quarter to quarter due to a variety of factors, many of whichare outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Inaddition, we may not be able to accurately predict our future revenue or results of operations. This unpredictability maybecome more pronounced in future quarters as we anticipate releasing fewer games in 2016 as compared to recent years. Webase our current and future expense levels on our internal operating plans and sales forecasts, and our operating costs are to alarge extent fixed. As a result, we may not be able to reduce our costs sufficiently to compensate for an unexpected shortfall inrevenue, and even a small shortfall in revenue could disproportionately and adversely affect financial results for that quarter.In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterlyresults include:·our ability to increase the number of our paying players and the amount that each paying player spends in our games; ·the popularity and monetization rates of our new games released during the quarter and the ability of games released inprior periods to sustain their popularity and monetization rates;·the number and timing of new games released by us and our competitors, particularly those games that may represent asignificant portion of revenue in a quarter, which timing can be impacted by internal development delays, shifts inproduct strategy and how quickly digital storefront operators review and approve our games for commercial release;·changes in the prominence of storefront featuring for our games and those of our competitors;·the loss of, or changes to, one of our distribution platforms;·changes to the Apple iOS platform or the Google Android platform that we are not able to adapt to our game offerings;·fluctuations in the size and rate of growth of overall consumer demand for smartphones, tablets, games and relatedcontent;·changes in the mix of revenue derived from games based on original intellectual property versus licensed24 Table of Contents intellectual property (including that we currently anticipate that a majority of our title launches for the remainder of 2015 andthroughout 2016 will be based on or will significantly incorporate licensed intellectual property rather than being whollyoriginal Glu intellectual property games);·changes in the mix of revenue derived from in-app purchases, advertisements and offers, which mix often depends on thenature of new titles launched during the quarter;·changes in the mix of revenue derived from first-party titles and third-party titles;·changes in the amount of money we spend marketing our titles in a particular quarter, including the average amount wepay to acquire each new user, as well as changes in the timing of these marketing expenses within the quarter;·decisions by us to incur additional expenses, such as increases in research and development, or unanticipated increasesin vendor-related costs, such as hosting fees;·the timing of successful mobile device launches;·the seasonality of our industry;·changes in accounting rules, such as those governing recognition of revenue, including the period of time over whichwe recognize revenue for in-app purchases of virtual currency and goods within some of our games;·the amount and timing of charges related to any future impairments of goodwill, intangible assets, prepaid royalties andguarantees; for example, in 2013, 2014, and 2015, we impaired $435,000, $257,000, and $2.5 million, respectively,related to contractual minimum guarantee commitments and other prepaid royalties; and·macro-economic fluctuations in the United States and global economies, including those that impact discretionaryconsumer spending.If we do not successfully establish and maintain awareness of our brand and games, if we fail to develop high-quality,engaging games that are differentiated from our prior games, if we incur excessive expenses promoting and maintaining ourbrand or our games or if our games contain defects or objectionable content, our operating results and financial conditioncould be harmed. We believe that establishing and maintaining our brand is critical to establishing a direct relationship with players whopurchase our products from direct-to-consumer channels and to maintaining our existing relationships with distributors andcontent licensors, as well as potentially developing new such relationships. Increasing awareness of our brand and recognitionof our games is particularly important in connection with our strategic focus of developing games based on our ownintellectual property, games based on our celebrity partners and our other game franchises that incorporate third-party brandsand properties. Our ability to promote the Glu brand and increase recognition of our games depends on our ability to develophigh-quality, engaging games, including integrating the level of social and community features appropriate for a game’s targetaudience and partnering with celebrities with fan bases that can support successful mobile games. If consumers, digitalstorefront owners and branded content owners do not perceive our existing games as high-quality or if we introduce newgames that are not favorably received by them, then we may not succeed in building brand recognition and brand loyalty inthe marketplace. In addition, globalizing and extending our brand and recognition of our games is costly and involvesextensive management time to execute successfully, particularly as we expand our efforts to increase awareness of our brandand games among international consumers. Although we make significant sales and marketing expenditures in connectionwith the launch of our games, these efforts may not succeed in increasing awareness of our brand or the new games. If we failto increase and maintain brand awareness and consumer recognition of our25 Table of Contents games, our potential revenue could be limited, our costs could increase and our business, operating results and financialcondition could suffer.In addition, if a game contains objectionable content, we could experience damage to our reputation and brand. Our gamesmay contain violence or other content that some consumers may find objectionable. For example, Apple has assigned each ofour shooter games a 17-and-older rating due to its violence. In addition, Google required us to submit two versions of ourBlood & Glory and Contract Killer: Zombies games, one of which did not depict blood. Despite these ratings andprecautions, consumers may be offended by some of our game content and children to whom these games are not targeted maychoose to play them without parental permission nonetheless. In addition, our employees or employees of outside developerscould include hidden features in one our games without our knowledge, which might contain profanity, graphic violence,sexually explicit or otherwise objectionable material. If consumers believe that a game we published contains objectionablecontent, it could harm our brand, consumers could refuse to download it or demand a refund for any in-app purchases, andcould pressure the digital storefront operators to no longer allow us to publish the game on their platforms. Similarly, if any ofour games are introduced with defects or have playability issues, we may receive negative user reviews and our brand may bedamaged. These issues could be exacerbated if our customer service department does not timely and adequately address issuesthat our players have encountered with our games.We have depended on a small number of games for a significant portion of our revenue in recent fiscal periods. If thesegames do not succeed or we do not release highly successful new games, our revenue would decline. In the mobile gaming industry, new games are frequently introduced, but a relatively small number of games account for asignificant portion of industry sales. Similarly, a significant portion of our revenue comes from a limited number of games,although the games in that group have shifted over time. Our top five titles for 2015 (Kim Kardashian: Hollywood, RacingRivals, Deer Hunter 2014, Contract Killer: Sniper and Cooking Dash 2016) generated approximately 71.6% of our revenuesfor 2015, while our top five titles for 2014 (Kim Kardashian: Hollywood, Deer Hunter 2014, Eternity Warriors 3, RacingRivals and Dino Hunter: Deadly Shores) generated approximately 71.4% of our revenues for 2014. In particular, KimKardashian: Hollywood which was launched in June 2014, remains our largest revenue generating title, having generated30.7% and 27.5% of our revenues in 2015 and 2014, respectively. In addition, Racing Rivals and Deer Hunter 2014 eachaccounted for more than 10% of our revenue in 2015. However, we expect revenue from each of our top five titles from 2015to decline in 2016. In addition, revenue from Kim Kardashian: Hollywood is in part tied to the continued popularity of KimKardashian West and her marketing efforts though social media and other channels, and we have little to no control over thesematters and they are hard for us to predict. Accordingly, we must continue to launch new games that generate significantrevenue to continue to grow revenue in the future, which we have sometimes failed to do. For example, the Katy Perry Poptitle we launched in the fourth quarter of 2015 failed to generate meaningful revenue. In addition, sequels to some of our mostsuccessful game franchises have failed to download and monetize at the levels of predecessor versions, and we haveexperienced disappointing results from several recent games based on film franchises, including our James Bond: World ofEspionage game. Failure to differentiate, innovate and otherwise improve our game franchises would lead to revenuedeclines. We expect a significant percentage of our product launches in the next 12 to 18 months to be in the celebrity genre,including three titles in 2016 featuring female musicians. If these games do not succeed, our operating results and financialcondition could be harmed and investors may question the viability of our celebrity product strategy.In addition to Kim Kardashian: Hollywood, we have launched or intend to launch within the next 12 months, gamesfeaturing Jason Statham, Katy Perry, Kendall and Kylie Jenner, Britney Spears, Nicki Minaj, Gordon Ramsay, and TaylorSwift, and have entered into agreements with additional celebrities to create games that we expect to launch by the end of2017. Games featuring celebrities will account for a significant percentage of our overall title releases in 2016, and will alsoaccount for a significant portion of our forecasted revenues. We face a number of risks in our ability to successfully developand monetize games featuring celebrities. For example, although Kim Kardashian: Hollywood has been by far the mostsuccessful mobile game featuring a celebrity and our Kendall and Kylie game has also achieved initial success following itsworldwide launch in February 2016, we and other game developers have failed to achieve success with games featuring othercelebrities, including our Katy Perry Pop title. Accordingly, it is possible that there is something unique about theKardashian and Jenner family and the nature of their celebrity that has led to the success of Kim26 Table of Contents Kardashian: Hollywood and Kendall and Kylie that will not be replicable in other games featuring other celebrities,particularly musicians. We plan to release three new games in 2016 featuring female musicians – Britney Spears, Nicki Minajand Taylor Swift – and it is possible that games featuring these celebrities will not be commercially successful in the samemanner as our only prior game featuring a female musician, Katy Perry Pop. In addition, some of the celebrities with whom wehave partnered may have similar fan bases, and any actual overlap in the audiences for our different celebrity games couldresult in market saturation or cannibalization of revenue of our own games. We must also differentiate our various celebritygames in order to ensure our games remain fresh and engaging and to satisfy our celebrity partners. However, differentiatingthe game engines for our various celebrity titles could lead to increased development costs and potential product launchdelays and may result in games that do not monetize as well as Kim Kardashian: Hollywood or Kendall and Kylie. If our newcelebrity games are not successful, our business and operating results would suffer and investors may question the viability ofour celebrity product strategy.We rely on a combination of our own servers and technology and third-party infrastructure to operate our games. If weexperience any system or network failures, unexpected technical problems, cyber attacks or any other interruption to ourgames, it could reduce our sales, increase costs, or result in a loss of revenue or loss of end users of our games.We rely on digital storefronts and other third-party networks to deliver games to our players and on their or other thirdparties’ billing systems to track and account for our game downloads. We also rely on our own servers and third-partyinfrastructure to operate our connected games, and our reliance on such third-party infrastructure and our GaaS technologyplatform will increase as we continue transitioning to becoming a GaaS company. In particular, a significant portion of ourgame traffic is hosted by Amazon Web Services, which service provides server redundancy and uses multiple locations onvarious distinct power grids. Amazon may terminate its agreement with us upon 30 days’ notice. Amazon experienced apower outage during the second quarter of 2012, which affected the playability of our games for approximately one day. Inaddition, Amazon effected a large scale maintenance reboot of a portion of its systems during September 2014 to remedy asecurity flaw, and in September 2015, there was an outage of AWS Dynamo DB that affected our Deer Hunter 2016game. While none of these events adversely impacted our business, a similar outage of a longer duration could. In addition,the operation of our online-only games that we began releasing in the fourth quarter of 2013 will depend on the continuedfunctionality of our GaaS technology platform. As a result, we could experience unexpected technical problems with regard tothe operation of our online-only games, particularly if the number of concurrent users playing our games is significantly morethan we anticipate. Any technical problem with, cyber attack on, or loss of access to these third parties’ or our systems, serversor other technologies, including the GaaS technology platform, could result in the inability of end users to download or playour games, cause interruption to gameplay, prevent the completion of billing for a game or result in the loss of users’ virtualcurrency or other in-app purchases, interfere with access to some aspects of our games or result in the theft of end-user personalinformation. For example, in July 2014, users could not play our Kim Kardashian: Hollywood game for about six hours due toa problem with one of our servers, and in November 2014, March 2015 and April 2015, we experienced similar outages withrespect to our Racing Rivals game. In addition, at launch in September 2015, our Eternity Warriors 4 title experiencedintermittent server issues that left the game temporarily inoperable. If users are unable to access and play our games for anyperiod of time, if virtual assets are lost, or if users do not receive their purchased virtual currency, we may receive negativepublicity and game ratings, we may lose players of our games, we may be required to issue refunds, and we may becomesubject to regulatory investigation or class action litigation, any of which would negatively affect our business. Any of theseproblems could require us to incur substantial repair costs, distract management from operating our business and result in aloss of revenue.Cyber attacks, security breaches, and computer viruses could harm our business, reputation, brand and operating results.Cyber attacks, security breaches, and computer viruses have occurred on our systems in the past and may occur on our systemsin the future. We store sensitive information, including personal information about our employees. In addition, our gamesinvolve the storage and transmission of players’ personal information in our facilities and on our equipment, networks andcorporate systems run by us or managed by third-parties including Apple, Google, and Facebook. Security breaches of oursystems or the systems of third-parties on which we rely could expose us to litigation, remediation costs, increased costs forsecurity measures, loss of revenue, damage to our reputation and potential liability. Our player data,27 Table of Contents corporate systems, third-party systems and security measures may be breached due to the actions of outside parties, employeeerror, malfeasance, a combination of these, or otherwise, and, as a result, an unauthorized party may obtain access to our data,our employees’ data, our players’ data or our advertisers’ data. We were the victim of a cyber attack in early November 2014,when an animal rights group took down our main website and user forums, and in January 2016 another cyber attack caused usto take down our user forums for nearly a week. In October 2013, we were also the victim of a “CryptoLocker” ransomwareattack that temporarily prevented our access to sensitive company files. Although these incidents did not result in a materialloss of revenue, any future incidents, particularly of longer duration, could damage our brand and reputation and result in amaterial loss of revenue. Maintaining an international presence in China and elsewhere, we may place ourselves at increasedrisk of cyber attacks, such as the denial of service attacks that affected Sony Pictures in the fourth quarter of 2014. In addition,as highlighted by recent reports that ISIS terrorists may have used Sony’s PlayStation 4 network to plan attacks, the chat andother social features in our games could potentially be used by terrorist organizations or other criminals to communicate or forother nefarious purposes, which could severely damage our brand and reputation. If an actual or perceived security breachoccurs, the market perception of the effectiveness of our security measures could be harmed, we could lose players andadvertisers, and we could suffer significant legal and financial harm due to such events or in connection with remediationefforts, investigation costs or penalties, changed security and system protection measures. Any of these actions could have amaterial and adverse effect on our business, reputation and operating results.If we fail to maintain and enhance our capabilities for porting games to a broad array of mobile devices, particularly thoserunning the Android operating system, our revenue and financial results could suffer. We derive the majority of our revenue from the sale of virtual goods within our games for smartphones and tablets that runApple’s iOS or Google’s Android operating system. Unlike the Apple ecosystem in which Apple controls both the device(iPhone, iPod Touch and iPad) and the storefront (Apple’s App Store), the Android ecosystem is highly fragmented since alarge number of OEMs manufacture and sell Android-based devices that run a variety of versions of the Android operatingsystem, and there are many Android-based storefronts in addition to the Google Play Store. For us to sell our games to thewidest possible audience of Android users, we must port our games to a significant portion of the more than 1,000 Android-based devices that are commercially available, many of which have different technical requirements. Since the number ofAndroid-based smartphones and tablets shipped worldwide is growing significantly, with more than one billion Android baseddevices sold worldwide in 2014, it is important that we maintain and enhance our porting capabilities, which could require usto invest considerable resources in this area. These additional costs could harm our business, operating results and financialcondition. In addition, we must continue to increase the efficiency of our porting processes or it may take us longer to portgames to an equivalent number of devices, which would negatively impact our margins. If we fail to maintain or enhance ourporting capabilities, our revenue and financial results could suffer.We use a game development engine licensed from Unity Technologies to create many of our games. If we experience anyprolonged technical issues with this engine or if we lose access to this engine for any reason, it could delay our gamedevelopment efforts and cause our financial results to fall below expectations for a quarterly or annual period, which wouldlikely cause our stock price to decline.We use a game development engine licensed from Unity Technologies to create many of our games, and we expect tocontinue to use this engine for the foreseeable future. Because we do not own this engine, we do not control its operation ormaintenance nor do we control how the engine is updated or upgraded. As a result, any prolonged technical issues with thisengine might not be resolved quickly, despite the fact that we have contractual service level commitments from Unity. Inaddition, to the extent that we require any functionality that is not offered by Unity, as was the case when Apple initiallyannounced its 64-bit requirement, we are dependent on Unity to update or upgrade its engine to offer suchfunctionality. Furthermore, although Unity cannot terminate our agreement absent an uncured material breach of theagreement by us, we could lose access to this engine under certain circumstances, such as a natural disaster that impacts Unityor a bankruptcy event. If we experience any prolonged issues with the operation of the Unity game development engine, if theUnity game development engine does not offer the functionality we require or if we lose access to this engine for any reason, itcould delay our game development efforts and cause us to not meet revenue expectations for a quarterly or annual period,which would likely cause our stock price to decline. For example, in the first quarter of 2016,28 Table of Contents we were unable to implement a significant update to our Racing Rivals title due to programming bugs in the Unity gamedevelopment engine, which update we believe could have helped to increase revenues for that title during thequarter. Further, if one of our competitors acquired Unity, the acquiring company would be less likely to renew our agreement,which could impact our game development efforts in the future, particularly with respect to sequels to games that were createdon the Unity engine.We derive a significant portion of our revenue from advertisements and offers that are incorporated into our free-to-playgames through relationships with third parties. If we lose the ability to provide these advertisements and offers for anyreason, or if any events occur that negatively impact the revenue we receive from these sources, it would negatively impactour operating results.We derive revenue from our free-to-play games through in-app purchases, advertisements and offers. We incorporateadvertisements and offers into our games by implementing third parties’ software development kits. We rely on these thirdparties to provide us with a sufficient inventory of advertisements and offers to meet the demand of our user base. If weexhaust the available inventory of these third parties, it will negatively impact our revenue. If our relationship with any ofthese third parties terminates for any reason, or if the commercial terms of our relationships do not continue to be renewed onfavorable terms, we would need to locate and implement other third-party solutions, which could negatively impact ourrevenue, at least in the short term. Furthermore, the revenue that we derive from advertisements and offers is subject toseasonality, as companies’ advertising budgets are generally highest during the fourth quarter and decline significantly in thefirst quarter of the following year, which negatively impacts our revenue in the first quarter (and conversely significantlyincreases our marketing expenses in the fourth quarter).In addition, the actions of the storefront operators can also negatively impact the revenue that we generate fromadvertisements and offers. For example, in the second quarter of 2011, Apple began prohibiting virtual currency-incentedadvertising offers in games that directed users to download other applications from the Apple App Store in order to completethe offer. These offers accounted for approximately one-third of our revenue during the three months ended September 30,2011, and our inability to use such offers has negatively impacted our revenue. In addition, during the second quarter of2014, there were reports that Apple was considering prohibiting certain types of virtual currency-incented video advertising ingames that promoted other applications available on the Apple App Store. These incented video advertisements generate ameaningful percentage of our overall revenue, and any prohibition of these advertisements would have had a negative impacton our revenue. Any similar changes in the future that impact our revenue that we generate from advertisements and offerscould materially harm our business.29 Table of Contents We may not, or may be unable to, renew our existing celebrity, brand and other content licenses when they expire and maynot choose to obtain additional licenses or be able to obtain new licenses on favorable terms, which could negatively impactour revenue if we fail to replace such revenue with revenue from games based on our own intellectual property.Although we generated 93.3% of our revenue from games based on our own intellectual property during 2013, thatpercentage declined to 62.7% in 2014 and 42.1% in 2015, largely due to the success of Kim Kardashian: Hollywood and, to alesser extent, Racing Rivals, Robocop: The Official Game, Tap Sports Baseball and Tap Sports Baseball 2015. We expect ourrevenue derived from games based on or substantially incorporating third-party intellectual property to increase further in2016, as we expect to continue to derive significant revenue from Kim Kardashian: Hollywood and Racing Rivals and as all ofthe titles we plan to release in 2016 will feature or otherwise leverage celebrities or other third-party licensed brands,properties or other content, including our successful Kendall and Kylie title. Certain of our licenses expire at various timesduring the next several years, and we may be unable to renew these licenses on terms favorable to us or at all, and we may havedifficulties obtaining licenses from new celebrities on terms acceptable to us, if at all. In addition, these licensors could decideto license to our competitors or develop and publish their own mobile games, competing with us in the marketplace. Failureto maintain or renew our existing licenses or to obtain additional licenses would prevent us from continuing to offer ourcurrent licensed games and introducing new mobile games based on such licensed content, which could harm our business,operating results and financial condition.Securing license agreements to develop, publish and market games based on or significantly incorporating celebrities, third-party licensed brands, properties, and other content typically requires that we make minimum guaranteed royalty and otherpayments to such licensors, and to the extent such payments become impaired, our operating results would be harmed.In connection with recently announced partnerships and other potential partnerships with celebrities and other licensors ofthird-party brands, properties and content, we have incurred and expect to continue to incur significant minimum guaranteedroyalty and other payments. As a result, we may incur increased levels of impairments on such payments if our forecasts forthese games are lower than we anticipated at the time we entered into the agreements. For example, in 2013, 2014, and 2015we impaired $435,000, $257,000, and $2.5 million respectively, related to contractual minimum guarantee and otherpayments. The increase in 2015 is primarily related to impairment of minimum guaranteed royalty payments and warrantsissued in connection with our James Bond: World of Espionage title. In 2016, we expect that all of the games we release willbe based on or otherwise incorporate celebrities and other third-party licensed brands, properties and other content as opposedto our original intellectual property games where we do not incur licensing fees and expenses, and as a result, our impairmentson prepaid royalty guarantees and other licensing expenses may continue to rise.We publish games developed by third parties, which exposes us to a number of potential operational and legal risks. Publishing games developed by third parties exposes us to a number of potential operational and legal risks. For example,we may be required to provide third party developers with upfront license fees or non-recoupable minimum guaranteedroyalties in order to obtain the rights to publish their games, and we may incur significant costs marketing these games afterthey have been commercially launched. For example, we agreed to pay a significant license fee and minimum guaranteedroyalty payment to an affiliate of Tencent Holdings Limited, or Tencent, to license and publish Tencent’s WeFire game in theUnited States and international markets outside of Asia. Third-party games that we license and publish may not becommercially successful, particularly if they fail to appeal to Western audiences. We and other mobile gaming companieshave failed in the past to achieve commercial success in bringing successful games developed and launched in Asia toWestern markets , and we may similarly fail to achieve commercial success with respect to our efforts relating to publishingWeFire. In addition, if any of the games created by third party developers with which we work infringe intellectual propertyowned by others, or otherwise violate any third party’s rights or any applicable laws and regulations, such as laws with respectto data collection and privacy, we would be exposed to potential legal risks by publishing these games. 30 Table of Contents Our business and growth may suffer if we are unable to hire and retain key personnel.Our future success will depend, to a significant extent, on our ability to retain and motivate our key personnel, namely ourmanagement team, particularly Niccolo de Masi, our President and Chief Executive Officer, as well as experienced gamedevelopment personnel. In addition, to grow our business, execute on our business strategy and replace departing employees,we must identify, hire and retain qualified personnel, particularly additional game development teams to support our newproduct launches and monetization, live operations, server technology, user experience and product management personnel tosupport our continued transition to becoming a GaaS company and building the premier celebrity gaming platform. Thegaming and technology industries are also traditionally male dominated, so it may be difficult for us to recruit and retaintalented female personnel who may be needed to help us optimize our games that are targeted to a more female-focusedaudience, including much of our celebrity gaming platform. Recent stock price declines and our failure to attain mostexecutive and employee performance-based bonus targets for 2015 may also make it more difficult for us to attract and retaintop talent. Competition for qualified management, game development and other staff is intense, particularly in the SanFrancisco Bay Area where we are headquartered. In addition, attracting and retaining qualified personnel may be particularlydifficult for us if our stock price continues to decline or remains at current levels, since individuals may elect to seekemployment with other companies that they believe have better long-term prospects or that present better opportunities forearning equity-based compensation. Competitors have in the past and may in the future attempt to recruit our employees, andour management and key employees are not bound by agreements that could prevent them from terminating their employmentat any time. As we continue to develop expertise in free-to-play mobile gaming, operating a GaaS company, monetization anddeveloping social and community features in particular, our competitors may increasingly seek to recruit our employees,particularly from our development studios. In addition, we do not maintain a key-person life insurance policy on any of ourofficers. Our business and growth may suffer if we are unable to hire and retain key personnel.Any restructuring actions and cost reduction initiatives that we undertake may not deliver the results we expect, and theseactions may adversely affect our business.We have implemented a number of restructurings during the last several years in which we implemented certainrestructuring actions and cost reduction initiatives to streamline operations and improve cost efficiencies. Our most recentrestructurings included reductions in personnel supporting our studios in Beijing, China, Bellevue, Washington, and LongBeach, California. We plan to continue to manage costs to better and more efficiently manage our business. This most recentrestructuring plan and other such efforts could result in disruptions to our operations and adversely affect our business. Inaddition, we cannot be sure that the cost reduction and streamlining initiatives will be as successful in reducing our overallexpenses as we expect or that additional costs will not offset any such reductions or streamlining. If our operating costs arehigher than we expect or if we do not maintain adequate control of our costs and expenses, our operating results will suffer.We may not realize the benefits expected through our strategic relationship with Tencent and other aspects of therelationship could have adverse effects on our business.In April 2015, we entered into a strategic relationship with Tencent Holdings Limited, or Tencent, a leading Internetcompany in China and arguably the world’s largest gaming company. Tencent, through a controlled affiliate, agreed to invest$126.0 million in exchange for approximately 16.3% of our total outstanding common stock on a post-transaction basis. InNovember 2015, we entered into an agreement with Tencent to license and publish its game, WeFire, in the United States andinternational markets outside of Asia. Our agreement to publish WeFire may not be successful, particularly given the licensefees and royalties we will be required to pay under the agreement. In addition, we may not succeed in entering into any otheragreements or operating partnerships with Tencent in the future. Even if we do enter into additional operational partnerships,it could take months to years to fully realize the benefits of such partnerships and, to the extent such agreements involvepublishing our games in China, some of our platform partners in China and other parts of Asia may view such a partnershipnegatively, and in fact, some partners in China may already view the fact that Tencent is a significant investor in usnegatively, and we may find it more difficult to obtain featuring of our games from such partners in China going forward. 31 Table of Contents Tencent, through its controlled affiliates, held approximately 21.5% of the aggregate voting power of our common stock asof February 29, 2016, and could acquire up to 25.0% of the voting power through open-market purchases of our commonstock. While Tencent has agreed to cause these shares to be voted with the majority recommendation of the independentmembers of our board of directors on most matters, Tencent could have considerable influence over matters such as approvinga potential acquisition of us. Tencent was also granted the right to designate a member of our board of directors, initiallyappointing Tencent Senior Vice President, Steven Ma, and Mr. Ma or any future Tencent designee could have an actual orapparent conflict of interest in such matters. Tencent’s investment in and position with us could also discourage others frompursuing any potential acquisition of us, which could have the effect of depriving the holders of our common stock of theopportunity to sell their shares at a premium over the prevailing market price.Our reported financial results could be adversely affected by changes in financial accounting standards or by theapplication of existing or future accounting standards to our business as it evolves.Our reported financial results are impacted by the accounting policies promulgated by the SEC and accounting standardsbodies and the methods, estimates and judgments that we use in applying our accounting policies. Due to recent economicevents, the frequency of accounting policy changes may accelerate, including conversion to unified international accountingstandards. Policies affecting revenue recognition have affected, and could further significantly affect, the way we account forrevenue. For example, the accounting for revenue derived from smartphone platforms and free-to-play games, particularlywith regard to revenue generated from online digital storefronts, is still evolving and, in some cases, uncertain. In particular,we were required to file an amendment to our Annual Report on Form 10-K for the year ended December 31, 2012 and ourQuarterly Report on Form 10-Q for the quarter ended March 31, 2013 to restate or revise the financial statements contained inthose reports (including for the year ended December 31, 2011) because we did not correctly apply the applicable revenuerecognition accounting guidance relating to our smartphone revenue. While we believe that we are now correctly accountingfor our smartphone revenue, this is an area that continues to involve significant discussion among accounting professionalsand which is not completely settled. It is possible that the relative application, interpretation and weighting of the factors thatrelate to whether we should be considered the principal in the sales transaction of games sold through digital storefronts mayevolve, and we may in the future conclude that our new accounting policy for smartphone revenue, as reflected in the restatedfinancial statements, is incorrect, which could result in another restatement of affected financial statements. In addition, wecurrently defer revenue related to virtual goods and currency over the average playing period of paying users, whichapproximates the estimated weighted average useful life of the transaction. While we believe our estimates are reasonablebased on available game player information, we may revise such estimates in the future as our games’ operation periodschange. Any adjustments arising from changes in the estimates of the lives of these virtual items would be applied to thecurrent quarter and prospectively on the basis that such changes are caused by new information indicating a change in thegame player behavior patterns of our paying users. Any changes in our estimates of useful lives of these virtual items mayresult in our revenue being recognized on a basis different from prior periods’ and may cause our operating results tofluctuate. As we enhance, expand and diversify our business and product offerings, the application of existing or futurefinancial accounting standards, particularly those relating to the way we account for our smartphone revenue, could have asignificant adverse effect on our reported results although not necessarily on our cash flows.If we are unable to maintain effective internal control over financial reporting, the accuracy and timeliness of our financialreporting may be adversely affected.Maintaining effective internal control over financial reporting is necessary for us to produce reliable financialstatements. In connection with the restatement of our financial statements in our Annual Report on Form 10-K for the yearended December 31, 2012 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, management,including our Chief Executive Officer and Chief Financial Officer, reassessed the effectiveness of our internal control overfinancial reporting as of December 31, 2012. Based on this reassessment using the guidelines established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 1992,management had concluded that we did not maintain effective internal control over financial reporting as of December 31,2012 because of a material weakness related to the application of revenue accounting guidance to our smartphone revenue forsales through digital storefronts. This control deficiency resulted in the misstatement of our revenue and cost of revenue,including gross margin percentages, and the related balance sheet32 Table of Contents accounts and financial disclosures for the years ended December 31, 2011 and 2012 (and the restatement of unaudited interimcondensed consolidated financial statements for the quarters ended March 31, June 30, and September 30 for suchyears). Although we have remediated this material weakness, if we are otherwise unable to maintain adequate internal controlsfor financial reporting, or if our independent registered public accounting firm is unable to express an opinion as to theeffectiveness of our internal controls as required pursuant to the Sarbanes-Oxley Act, it could result in another materialmisstatement of our financial statements that would require a restatement, investor confidence in the accuracy and timelinessof our financial reports may be impacted or the market price of our common stock could be negatively impacted.Our business will suffer if our acquisition and strategic investment activities are unsuccessful or disrupt our ongoingbusiness, which may involve increased expenses and may present risks not contemplated at the time of the transactions.We have acquired and invested in, and may continue to acquire and invest in, companies, products and technologies thatcomplement our strategic direction. Acquisitions and investments involve significant risks and uncertainties, including: ·diversion of management’s time and a shift of focus from operating the business to issues related to negotiation ofacquisition or investment terms, integration and administration;·our ability to successfully integrate acquired technologies and operations into our business and maintain uniformstandards, controls, policies and procedures;·significant competition from other acquirors and investors as the gaming industry consolidates and challenges inoffering attractive consideration given the volatility of our stock price and potential difficulties in obtaining alternativefinancing;·challenges retaining the key employees, customers and other business partners of the acquired or investee business;·our ability to realize synergies expected to result from an acquisition or strategic investment;·an impairment of acquired goodwill and other intangible assets or investments in future periods would result in a chargeto earnings in the period in which the write-down occurs;·the internal control environment of an acquired or investee entity may not be consistent with our standards and mayrequire significant time and resources to improve;·in the case of foreign acquisitions or strategic investments, the need to integrate operations across different cultures andlanguages and to address the particular economic, currency, political and regulatory risks associated with specificcountries; and·liability for activities of the acquired or investee companies before the acquisition or investment, including violations oflaws, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities. In addition, if we issue equity securities as consideration in an acquisition or strategic investment, as we did for ouracquisitions of Griptonite, Inc., Blammo Games Inc., GameSpy Industries, Inc., PlayFirst, Inc. and Cie Games, Inc., our currentstockholders’ percentage ownership and earnings per share would be diluted. Because acquisitions and strategic investmentsare inherently risky, our transactions may not be successful and may, in some cases, harm our operating results or financialcondition. 33 Table of Contents Changes in foreign exchange rates and limitations on the convertibility of foreign currencies could adversely affect ourbusiness and operating results.We currently transact business in more than 100 countries and in dozens of different currencies, with Pounds Sterling,Euros and Chinese Renminbi being the primary international currencies in which we transact business. Conducting businessin currencies other than U.S. Dollars subjects us to fluctuations in currency exchange rates that could have a negative impacton our reported operating results. We experienced significant fluctuations in currency exchange rates in 2013, 2014, and2015, and expect to experience continued significant fluctuations in the future. We incur expenses for employeecompensation and other operating expenses at our non-U.S. locations in the local currency, and an increasing percentage ofour international revenue is from customers who pay us in currencies other than the U.S. Dollar. Fluctuations in the exchangerates between the U.S. Dollar and those other currencies could result in the U.S. Dollar equivalent of these expenses beinghigher and/or the U.S. Dollar equivalent of the foreign-denominated revenue being lower than would be the case if exchangerates were stable. This could negatively impact our operating results. Conversely, the current economic crisis in Russia has ledto a significant devaluation of the Ruble compared to the U.S. Dollar, which has reduced the effective salaries of ouremployees in our Moscow studio. As a result, we may be at risk of losing key employees to competitors who are willing tooffer higher effective wages. To date, we have not engaged in exchange rate hedging activities, and we do not expect to do soin the foreseeable future.We face additional risk if a currency is not freely or actively traded. Some currencies, such as the Chinese Renminbi inwhich our Chinese operations principally transact business, are subject to limitations on conversion into other currencies,which can limit our ability to react to rapid foreign currency devaluations and to repatriate funds to the United States shouldwe require additional working capital.We face added business, political, regulatory, operational, financial and economic risks as a result of our internationaloperations and distribution, any of which could increase our costs and adversely affect our operating results.International sales represented approximately 31.3% and 40.6% and 53.9% of our revenue during 2015, 2014, and 2013,respectively. To target international markets, we develop games that are customized for consumers in those markets. We haveinternational offices located in a number of foreign countries including Canada, China, India, Japan, Korea and Russia. Weexpect to increase our international presence (including to the extent we elect to exercise our call option to acquire Icelandicgame developer, Plain Vanilla Corp.), and we expect international sales will continue to be an important component of ourrevenue, particularly in APAC markets. Risks affecting our international operations include:·our ability to develop games that appeal to the tastes and preferences of consumers in international markets;·difficulties developing, staffing, and simultaneously managing a large number of varying foreign operations asa result of distance, language, and cultural differences;·multiple and conflicting laws and regulations, including complications due to unexpected changes in theselaws and regulations;·our ability to develop, customize and localize games that appeal to the tastes and preferences of consumers ininternational markets;·competition from local game developers that have significant market share in certain foreign markets and abetter understanding of local consumer preferences;·potential violations of the Foreign Corrupt Practices Act and local laws prohibiting improper payments togovernment officials or representatives of commercial partners;·regulations that could potentially affect the content of our products and their distribution, particularly in34 Table of Contents China;·foreign exchange controls that might prevent us from repatriating income earned in countries outside theUnited States, particularly China;·potential adverse foreign tax consequences, since due to our international operations, we must pay income taxin numerous foreign jurisdictions with complex and evolving tax laws;·political, economic and social instability, including the ongoing hostilities in Syria and the Ukraine and, inparticular, the economic crisis in Russia, which could potentially negatively impact us given that we have adevelopment studio in Moscow;·restrictions on the export or import of technology;·trade and tariff restrictions and variations in tariffs, quotas, taxes and other market barriers; and·difficulties in enforcing intellectual property rights in certain countries.These risks could harm our international operations, which, in turn, could materially and adversely affect our business,operating results and financial condition. In particular, we have over 100 employees located at our development studio inMoscow, Russia. The current economic crisis in Russia, including the destabilization of the Ruble, could lead to unstablepolitical conditions, civil unrest or other developments that could materially affect our business, including throughdistractions and potential hardships to our Russian employees, restrictions on our ability to fund our Russian operations, andother difficulties that could cause delays to our game launches or even the cancellation of a game release and otherwise affectour ability to update and maintain games previously released from our Moscow studio. If we fail to deliver our games at the same time as new mobile devices are commercially introduced, our revenue may suffer.Our business depends, in part, on the commercial introduction of new mobile devices with enhanced features, includinglarger, higher resolution color screens, improved audio quality, and greater processing power, memory, battery life andstorage. For example, the introduction of new and more powerful versions of Apple’s iPhone and iPad and devices based onGoogle’s Android operating system, have helped drive the growth of the mobile games market. In addition, consumersgenerally purchase the majority of content, such as our games, for a new device within a few months of purchasing it. We donot control the timing of these device launches. The mobile games market could also be disrupted by new technologies, suchas the introduction of next generation virtual reality devices. Some manufacturers give us access to their new devices prior tocommercial release. If one or more major manufacturers were to stop providing us access to new device models prior tocommercial release, we might be unable to introduce games that are compatible with the new device when the device is firstcommercially released, and we might be unable to make compatible games for a substantial period following the devicerelease. If we do not adequately build into our title plan the demand for games for a particular mobile device or experiencegame launch delays, we miss the opportunity to sell games when new mobile devices are shipped or our end users upgrade to anew mobile device, our revenue would likely decline and our business, operating results and financial condition would likelysuffer.35 Table of Contents If the use of smartphones and tablet devices as game platforms and the proliferation of mobile devices generally do notincrease, our business could be adversely affected.While the number of people using mobile Internet-enabled devices, such as smartphones and tablet devices, has increaseddramatically in the past few years, the mobile market, particularly the market for mobile games, is still emerging, and it maynot grow as we anticipate. Our future success is substantially dependent upon the continued growth of use of mobile devicesfor games, as opposed to social media applications or other uses. The proliferation of mobile devices may not continue todevelop at historical rates and consumers may not continue to use mobile Internet-enabled devices as platforms for games. Inaddition, new and emerging technologies could make the mobile devices on which our games are currently released obsolete,requiring us to transition our business model to develop games for other next-generation platforms. Our business is subject to increasing governmental regulation. If we do not successfully respond to these regulations, ourbusiness may suffer.We are subject to a number of domestic and foreign laws and regulations that affect our business. Not only are these lawsconstantly evolving, which could result in their being interpreted in ways that could harm our business, but legislation is alsocontinually being introduced that may affect both the content of our products and their distribution. In the United States, forexample, numerous federal and state laws have been introduced which attempt to restrict the content or distribution ofgames. Legislation has been adopted in several states, and proposed at the federal level, that prohibits the sale of certaingames to minors. If such legislation is adopted, it could harm our business by limiting the games we are able to offer to ourcustomers or by limiting the size of the potential market for our games. We may also be required to modify certain games oralter our marketing strategies to comply with new and possibly inconsistent regulations, which could be costly or delay therelease of our games. For example, the United Kingdom’s Office of Fair Trading issued new principles in January 2014relating to in-app purchases in free-to-play games that are directed towards children 16 and under, which principles becameeffective in April 2014. In addition, in response to a request made by the European Commission, Google no longer labels free-to-play games as free in European Union countries. Similarly, in the fourth quarter of 2014, Apple changed its label for free-to-download applications from “FREE” to “GET” in the Apple App Store. The Federal Trade Commission has also indicatedthat it intends to review issues related to in-app purchases, particularly with respect to games that are marketed primarily tominors; the Federal Trade Commission recently reached settlement agreements with Apple and Google on this subject. If theFederal Trade Commission issues rules significantly restricting or even prohibiting in-app purchases, it would significantlyimpact our business strategy. In addition, two self-regulatory bodies in the United States (the Entertainment Software RatingBoard) and in the European Union (Pan European Game Information (PEGI)) provide consumers with rating information onvarious products such as entertainment software similar to our products based on the content (for example, violence, sexuallyexplicit content, language). Furthermore, the Chinese government has adopted measures designed to eliminate violent orobscene content in games. In response to these measures, some Chinese telecommunications operators have suspended billingtheir customers for certain mobile gaming platform services, including those services that do not contain offensive orunauthorized content, which could negatively impact our revenue in China. Any one or more of these factors could harm ourbusiness by limiting the products we are able to offer to our customers, by limiting the size of the potential market for ourproducts, or by requiring costly additional differentiation between products for different territories to address varyingregulations.Furthermore, the growth and development of free-to-play gaming and the sale of virtual goods may prompt calls for morestringent consumer protection laws that may impose additional burdens on companies such as ours. We anticipate thatscrutiny and regulation of our industry will increase and that we will be required to devote legal and other resources toaddressing such regulation. For example, existing laws or new laws regarding the regulation of currency and bankinginstitutions may be interpreted to cover virtual currency or goods. If that were to occur we may be required to seek licenses,authorizations or approvals from relevant regulators, the granting of which may depend on us meeting certain capital andother requirements and we may be subject to additional regulation and oversight, all of which could significantly increase ouroperating costs. Changes in current laws or regulations or the imposition of new laws and regulations in the United States orelsewhere regarding these activities may dampen the growth of free-to-play gaming and impair our business.36 Table of Contents We sometimes offer our players various types of sweepstakes, giveaways and promotional opportunities, and launched aversion of our Frontline Commando: D-Day game utilizing the Skillz technology platform that allows players to competeagainst each other in tournaments for cash prizes. We have also in the past through a partnership with Probability PLC offereda suite of Glu branded mobile slots games in the United Kingdom and might continue to explore opportunities with respect toreal money gambling. We are subject to laws in a number of jurisdictions concerning the operation and offering of suchactivities and games, many of which are still evolving and could be interpreted in ways that could harm our business. Anycourt ruling or other governmental action that imposes liability on providers of online services could result in criminal or civilliability and could harm our business.In addition, because our services are available worldwide, certain foreign jurisdictions and others may claim that we arerequired to comply with their laws, including in jurisdictions where we have no local entity, employees or infrastructure.The laws and regulations concerning data privacy and data security are continually evolving, and our actual or perceivedfailure to comply with these laws and regulations could harm our business.We are subject to federal, state and foreign laws regarding privacy and the protection of the information that we collectregarding our users, which laws are currently in a state of flux and likely to remain so for the foreseeable future. The U.S.government, including the Federal Trade Commission and the Department of Commerce, is continuing to review the need forgreater regulation over collecting information concerning consumer behavior on the Internet and on mobile devices. Forexample, in December 2012, the Federal Trade Commission adopted amendments to the Children’s Online Privacy ProtectionAct to strengthen privacy protections for children under age 13, which amendments became effective in July 2013. Inaddition, the European Union has proposed reforms to its existing data protection legal framework. In addition, in October2015, the Court of Justice of the European Union issued a ruling striking down the longstanding Safe Harbor agreementbetween the United States and the European Union, which raises uncertainty regarding the ability of companies to transfer thepersonal data of European citizens to the United States. Various government and consumer agencies have also called for newregulation and changes in industry practices. For example, in February 2012, the California Attorney General announced adeal with Amazon, Apple, Google, Hewlett-Packard, Microsoft and Research in Motion to strengthen privacy protection forusers that download third-party apps to smartphones and tablet devices. Additionally, in January 2014, the Federal TradeCommission announced a settlement with Apple related to in-app purchases made by minors. In response to developments inthe interpretation and understanding of regulations such as these and guidance and inquiries from the California AttorneyGeneral, we released updates to our My Dragon and Deer Hunter Reloaded games and made changes to our games indevelopment to make our privacy policy readily accessible to players of these games as required by the California OnlinePrivacy Protection Act. If we do not follow existing laws and regulations, as well as the rules of the smartphone platformoperators, with respect to privacy-related matters, or if consumers raise any concerns about our privacy practices, even ifunfounded, it could damage our reputation and operating results.All of our games are subject to our privacy policy and our terms of service located on our corporate website. If we fail tocomply with our posted privacy policy, terms of service or privacy-related laws and regulations, including with respect to theinformation we collect from users of our games, it could result in proceedings against us by governmental authorities or others,which could harm our business. In addition, interpreting and applying data protection laws to the mobile gaming industry isoften unclear. These laws may be interpreted and applied in conflicting ways from state to state, country to country, or regionto region, and in a manner that is not consistent with our current data protection practices. Complying with these varyingrequirements could cause us to incur additional costs and change our business practices. Further, if we fail to adequatelyprotect our users’ privacy and data, it could result in a loss of player confidence in our services and ultimately in a loss ofusers, which could adversely affect our business.In the area of information security and data protection, many states have passed laws requiring notification to users whenthere is a security breach for personal data, such as the 2002 amendment to California’s Information Practices Act, or requiringthe adoption of minimum information security standards that are often vaguely defined and difficult to implement. Costs tocomply with these laws may increase as a result of changes in interpretation. Furthermore, any failure on our part to complywith these laws may subject us to significant liabilities. The security measures we have in place to protect our data and thepersonal information of our employees, customers and partners could be breached due to37 Table of Contents cyber-attacks initiated by third party hackers, employee error or malfeasance, or otherwise. Because the techniques used toobtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognizeduntil launched against a target, we may be unable to anticipate these techniques or to implement adequate preventativemeasures. Any breach or unauthorized access could materially interfere with our operations or our ability to offer our servicesor result in significant legal and financial exposure, damage to our reputation and a loss of confidence in the security of ourdata, which could have an adverse effect on our business and operating results.Our stock price has fluctuated and declined significantly since our initial public offering in March 2007, and may continueto fluctuate, may not rise and may decline further. The trading price of our common stock has fluctuated in the past and is expected to continue to fluctuate in the future, as aresult of a number of factors, many of which are outside our control, such as changes in the operating performance and stockmarket valuations of other technology companies generally, or those in our industry in particular, such as Electronic Arts andZynga. We also experience stock price volatility as investors monitor the performance of our games through third-party tools,such as App Annie, the Apple App Store’s “Top Grossing” rankings and other measurements of the performance of our games. In addition, The NASDAQ Global Market on which our common stock is listed has recently and in the past experiencedextreme price and volume fluctuations that have affected the market prices of many companies, some of which appear to beunrelated or disproportionate to their operating performance. These broad market fluctuations could adversely affect themarket price of our common stock. In the past, following periods of volatility in the market price of a particular company’ssecurities, securities class action litigation has often been brought against that company. Securities class action litigationagainst us could result in substantial costs and divert our management’s attention and resources.If we do not adequately protect our intellectual property rights, it may be possible for third parties to obtain and improperlyuse our intellectual property and our business and operating results may be harmed. Our intellectual property is essential to our business. We rely on a combination of patent, copyright, trademark, tradesecret and other intellectual property laws and contractual restrictions on disclosure to protect our intellectual propertyrights. To date, we have only one issued U.S. patent (including a corresponding Patent Cooperation Treaty (PCT)international patent) and only eight U.S. patent applications currently outstanding, including two that we inherited throughacquisitions (and we have four corresponding PCT international patent applications), so we will not be able to protect the vastmajority of our technologies from independent invention by third parties. In addition, we have filed foreign patentapplications on four of our eight U.S. patent applications, and an additional foregin patent application for our one U.S.patent. Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy or otherwise toobtain and use our technology and games, and some parties have distributed “jail broken” versions of our games where all ofthe content has been unlocked and made available for free. Further, some of our competitors have released games that arenearly identical to successful games released by their competitors in an effort to confuse the market and divert users from thecompetitor’s game to the copycat game. We believe that these tactics were employed by Hothead Games in their game KillShot, which we believed infringed certain Glu copyrights and trade dress contained in our Deer Hunter 2014 game. Weinitiated litigation against Hothead Games in November 2014, and we entered into a settlement agreement with Hothead inAugust 2015 in which Hothead agreed to make payments to us, including ongoing payments, and we agreed to allow Hotheadto continue to publish the Kill Shot game. To the extent competitors continue to copy our games, it could reduce the amountof revenue we are able to generate from any infringed games. Monitoring unauthorized use of our games is difficult andcostly, and we cannot be certain that the steps we have taken will prevent piracy and other unauthorized distribution and useof our technology and games, particularly in certain international jurisdictions, such as China, where the laws may not protectour intellectual property rights as fully as in the United States. In the future, we may institute additional litigation to enforceour intellectual property rights, which could result in substantial costs and divert our management’s attention and ourresources. In addition, although we require our third party developers to sign agreements not to disclose or improperly use our tradesecrets, to acknowledge that all inventions, trade secrets, works of authorship, developments and other processes generated bythem on our behalf are our property and to assign to us any ownership they may have in those works, it may38 Table of Contents still be possible for third parties to obtain and improperly use our intellectual properties without our consent. This could harmour brand, business, operating results and financial condition.We may become involved in intellectual property disputes, which may disrupt our business and require us to pay significantdamage awards.Third parties may sue us for intellectual property infringement, or initiate proceedings to invalidate our intellectualproperty, which, if successful, could disrupt our business, cause us to pay significant damage awards or require us to paylicensing fees. For example, on August 20, 2014, Inventor Holdings, LLC, a Delaware limited liability company, filed acomplaint in the U.S. District Court for the District of Delaware alleging that we were infringing one of its patents and seekingunspecified damages, including interest, costs, expenses and an accounting of all infringing acts, attorneys’ fees and suchother costs as the Court deems just and proper. In September 2015, the Court granted our motion to dismiss the case broughtby Inventor Holdings. In addition, in November 2014, Telinit Technologies, LLC, a Texas company, filed a complaint in theU.S. District Court for the Eastern District of Texas, Marshall Division, alleging that we were infringing one of its patents andseeking unspecified damages, attorneys’ fees and costs. We settled the dispute with Telinit for an immaterial amount inJanuary 2015. Finally, in November 2015, Just Games Interactive LLC (d/b/a Kung Fu Factory, f/k/a Tiny Fun Studios)(“Just Games”) filed a complaint against us and Kristen Jenner (f/k/a Kris Kardashian) in the U.S. District Court for the CentralDistrict of California. The complaint alleged direct copyright infringement against us and seeking at least $10.0 million indamages as well as other relief, including costs, permanent and temporary injunctive relief, an accounting of profits, aconstructive trust and such other costs the Court deemed just and proper. We filed a motion to dismiss the complaint onJanuary 27, 2016. On February 1, 2016, Just Games filed a voluntary motion to dismiss their case against us withoutprejudice. Despite our prior successes in defending against such claims, claims against us in the future could result in ourbeing enjoined from using our intellectual property or licensed intellectual property, and we might incur significant licensingfees and could be forced to develop alternative technologies. We may also be required to pay penalties, judgments, royaltiesor significant settlement costs. If we fail or are unable to develop non-infringing technology or games or to license theinfringed or similar technology or games on a timely basis, we may be forced to withdraw games from the market or beprevented from introducing new games. We might also incur substantial expenses in defending against third-party claims,regardless of their merit.In addition, we use open source software in some of our games and expect to continue to use open source software in thefuture. We may face claims from companies that incorporate open source software into their products, claiming ownership of,or demanding release of, the source code, the open source software and/or derivative works that were developed using suchsoftware, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result inlitigation, require us to purchase a costly license or require us to devote additional research and development resources tochange our games, any of which would have a negative effect on our business and operating results. We may become a party to litigation and regulatory inquiries, which could result in an unfavorable outcome and have anadverse effect on our business, financial condition, results of operation and cash flows. We may become subject to various legal proceedings, claims and regulatory inquiries that arise out of the ordinary conductof our business and are not yet resolved and additional claims and inquiries may arise in the future. In addition, events mayoccur that give rise to a potential risk of litigation. The number and significance of regulatory inquiries have increased as ourbusiness has grown and evolved. Any proceedings, claims or inquiries initiated by or against us, whether successful or not,may be time consuming; result in costly litigation, damage awards, consent decrees, injunctive relief or increased costs ofdoing business, require us to change our business practices or products, require significant amounts of management time,result in diversion of significant operations resources or otherwise harm our business and future financial results.39 Table of Contents “Cheating” programs, scam offers, black-markets and other offerings or actions by unrelated third parties that seek toexploit our games and players affect the game-playing experience and may lead players to stop playing our games or divertrevenue to unrelated third parties. Unrelated third parties have developed, and may continue to develop, “cheating” programs, scam offers, black-markets andother offerings that may decrease our revenue generated from our virtual economies, divert our players from our games orotherwise harm us. Cheating programs enable players to exploit vulnerabilities in our games to obtain virtual currency orother items that would otherwise generate in-app purchases for us, play the games in automated ways or obtain unfairadvantages over other players who do play fairly. Unrelated third parties attempt to scam our players with fake offers forvirtual goods or other game benefits. We devote resources to discover and disable these programs and activities, but if we areunable to do so in a prompt and timely manner, our operations may be disrupted, our reputation damaged and players mayplay our games less frequently or stop playing our games altogether. This may lead to lost revenue from paying players,increased cost of developing technological measures to combat these programs and activities, legal claims relating to thediminution in value of our virtual currency and goods, and increased customer service costs needed to respond to disgruntledplayers.Unanticipated changes in our income tax rates or exposure to additional tax liabilities may affect our future financialresults. Our future effective income tax rates may be favorably or unfavorably affected by unanticipated changes in the valuationof our deferred tax assets and liabilities, or by changes in tax laws or their interpretation. Determining our worldwide provisionfor income taxes requires significant judgments. The estimation process and applicable laws are inherently uncertain, and ourestimates are not binding on tax authorities. Our effective tax rate could also be adversely affected by a variety of factors,many of which are beyond our control. Recent and contemplated changes to U.S. tax laws, including limitations on ataxpayer’s ability to claim and utilize foreign tax credits and defer certain tax deductions until earnings outside of the U.S. arerepatriated to the U.S., could impact the tax treatment of our foreign earnings. Further, the taxing authorities of thejurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompanyarrangements, including our transfer pricing, or determine that the manner in which we operate our business is not consistentwith the manner in which we report our income to the jurisdictions, which could increase our worldwide effective tax rate andharm our financial position and results of operations. In addition, we are subject to the continuous examination of our incometax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomesresulting from these examinations to determine if our provision for income taxes is adequate. These continuous examinationsmay result in unforeseen tax-related liabilities, which may harm our future financial results.We must charge, collect and/or pay taxes other than income taxes, such as payroll, value-added, sales and use, net worth,property and goods and services taxes, in both the U.S. and foreign jurisdiction. If tax authorities assert that we have taxablenexus in a jurisdiction, they may seek to impose past as well as future tax liability and/or penalties. Any such impositionscould also cause significant administrative burdens and decrease our future sales. Moreover, state and federal legislatureshave been considering various initiatives that could change our tax position regarding sales and use taxes. Finally, as we change our international operations, adopt new products and new distribution models, implement changes toour operating structure or undertake intercompany transactions in light of changing tax laws, our tax expense could increase.Our facilities are located near known earthquake fault zones, and the occurrence of an earthquake or other natural disastercould damage our facilities and equipment, which could require us to curtail or cease operations. Our principal offices are located in the San Francisco Bay Area, an area known for earthquakes. We are also vulnerable todamage from other types of disasters, including power loss, fires, explosions, floods, communications failures, terrorist attacksand similar events. If any natural or other disaster were to occur, our ability to operate our40 Table of Contents business could be impaired.If securities or industry analysts do not publish research about our business, or publish negative or misinformed reportsabout our business, our share price and trading volume could decline and/or become more volatile. The trading market for our common stock is affected by the research and reports that securities or industry analysts publishabout our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgradeour shares or lower their opinion of our shares, our share price would likely decline. If one or more of these analysts ceasecoverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which inturn could cause our share price or trading volume to decline. In addition, our share price and the volatility of our shares canbe affected by misinformed or mistaken research reports on our business.Our common stock price may be affected by third-party data regarding our games.Third parties publish daily data about us and other mobile gaming companies with respect to downloads of our games,daily and monthly active users and estimated revenue generated by our games. These metrics can be volatile, particularly forspecific games, and in many cases do not accurately reflect the actual levels of usage of our games across all platforms or therevenue generated by our games. To the extent that securities analysts or investors base their views of our business orprospects on such third-party data, the price of our common stock may be affected by such third-party data and may not reflectthe actual performance of our business.Sales of substantial amounts of our common stock in the public markets, or the perception that such sales might occur, couldreduce the price that our common stock might otherwise attain and may dilute your voting power and your ownershipinterest in us. The market price of shares of our common stock could decline as a result of substantial sales of our common stock,particularly sales by our directors and their affiliates, executive officers, employees and significant stockholders, under ourcurrent shelf registration statements, through a large number of shares of our common stock becoming available for sale, or theperception in the market that holders of a large number of shares intend to sell their shares. For example, we issued 9,982,886shares in connection with our acquisition of Cie Games, Inc. in August 2014. We filed a Registration Statement on Form S-3covering the resale of such shares. Accordingly, the shares issued in the Cie Games acquisition are subject to only limited re-sale restrictions and sales of substantial amounts of such shares may occur. Also, while Tencent is prohibited from selling theshares it acquired from us for 18-months from April 29, 2015, following expiration of such lock-up period, Tencent would befree to sell those shares on the open-market, subject only to our black-out periods and other limitations under our insidertrading policy.Some provisions in our certificate of incorporation and bylaws, as well as Delaware law, may deter third parties fromseeking to acquire us.Our certificate of incorporation and bylaws contain provisions that may make the acquisition of our company moredifficult without the approval of our board of directors, including the following:·our board of directors is classified into three classes of directors with staggered three-year terms;·only our chairman of the board, our lead independent director, our Chief Executive Officer, our president or amajority of our board of directors is authorized to call a special meeting of stockholders;·our stockholders are able to take action only at a meeting of stockholders and not by written consent;·only our board of directors and not our stockholders is able to fill vacancies on our board of directors;·our certificate of incorporation authorizes undesignated preferred stock, the terms of which may be41 Table of Contents established and shares of which may be issued without stockholder approval; and·advance notice procedures apply for stockholders to nominate candidates for election as directors or to bringmatters before a meeting of stockholders. In addition, as a Delaware corporation, we are subject to provisions of Delaware law, including Section 203 of the DelawareGeneral Corporation Law, which prevents certain stockholders holding more than 15% of our outstanding common stock fromengaging in certain business combinations without approval of the holders of at least two-thirds of our outstanding commonstock not held by such 15% or greater stockholder, although our board of directors waived this provision with respect toTencent’s potential acquisition of greater than 15% of our shares in connection with the Offering. Item 1B. Unresolved Staff Comments None. Item 2. Properties We lease our San Francisco, California corporate headquarters, an office building of approximately 29,000 squarefeet. The San Francisco facility currently accommodates our principal executive, marketing, business development, humanresources, finance, legal, information technology and administrative activities, one of our development studios, and otherdevelopment activities.We lease additional domestic office space in San Mateo and Long Beach, California; Portland, Oregon; and Bellevue,Washington. We lease offices for our foreign operations in: Toronto, Canada; Hyderabad, India; Moscow, Russia; Beijing,China; and Seoul, Korea. These additional domestic and international facilities primarily accommodate development studios,and customer care activities, and total approximately 117,600 square feet. We believe our space is adequate for our current needs and that suitable additional or substitute space will beavailable to accommodate the foreseeable expansion of our operations. See Note 7 of the Notes to Consolidated FinancialStatements in Item 8 of this report for more information about our lease commitments. Item 3. Legal ProceedingsOn August 19, 2014, Inventor Holdings, LLC (“IHL”), a Delaware limited liability company, filed a complaint in theU.S. District Court for the District of Delaware alleging that we are infringing one of its patents and seeking unspecifieddamages, including interest, costs, expenses and an accounting of all infringing acts, attorneys’ fees and such other costs as theCourt deems just and proper. On October 10, 2014, we filed a motion to dismiss the complaint with prejudice on the groundthat the patent asserted by IHL claims patent-ineligible subject matter pursuant to 35 U.S.C. § 101 and thus the complaint failsto state a claim upon which relief can be granted. On October 27, 2014, IHL filed an opposition to our motion to dismiss thecomplaint with prejudice. We filed our reply to IHL’s opposition on November 6, 2014. On September 30, 2015, the Courtgranted our motion to dismiss IHL’s complaint. On October 9, 2015, the parties entered a joint stipulation with the Courtunder which IHL agreed not to appeal the Court’s order to dismiss the case and each party agreed to bear its own fees and costsof the litigation.On November 5, 2014, we filed a complaint against Hothead Games, Inc. (“Hothead”) in the United States DistrictCourt for the Northern District of California alleging that Hothead had willfully infringed certain of our copyrights and tradedress contained in our Deer Hunter 2014 game through Hothead’s release of its game, Kill Shot. On August 3, 2015, weentered into a settlement agreement with Hothead resolving our claims against them. Hothead agreed to make payments to us,including ongoing payments, and we agreed to allow Hothead to continue to publish the Kill Shot game. We filed a dismissalof the case on August 17, 2015, which the Court granted on August 18, 2015. 42 Table of Contents In November 2014, Telinit Technologies, LLC, a Texas company, filed a complaint in the U.S. District Court for theEastern District of Texas, Marshall Division, alleging that we were infringing one of its patents and seeking unspecifieddamages, attorneys’ fees and costs. We settled this dispute in January 2015 for an immaterial amount.On November 4, 2015, Just Games Interactive LLC (d/b/a Kung Fu Factory, f/k/a Tiny Fun Studios) (“Just Games”)filed a complaint in the U.S. District Court for the Central District of California against us, Kristen Jenner (f/k/a KrisKardashian) and additional yet-to-be named defendants. The complaint alleged direct copyright infringement against us anddirect and contributory copyright infringement and breach of implied contract against the other defendants. Just Games wasseeking at least $10.0 million in damages as well as other relief, including costs, permanent and temporary injunctive relief, anaccounting of profits, a constructive trust and such other costs the Court deemed just and proper. We filed a motion to dismissthe complaint on January 27, 2016. On February 1, 2016, Just Games filed a voluntary motion to dismiss their case against uswithout prejudice. From time to time, we are subject to various claims, complaints and legal actions in the normal course ofbusiness. We are not currently party to any pending litigation, the outcome of which will have a material adverse effect on ouroperations, financial position or liquidity. However, the ultimate outcome of any litigation is uncertain and, regardless ofoutcome, litigation can have an adverse impact on us because of defense costs, potential negative publicity, diversion ofmanagement resources and other factors. Item 4. Mine Safety Disclosures Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Stock Our common stock has been listed on The NASDAQ Global Market under the symbol “GLUU” since our initialpublic offering in March 2007. The following table sets forth, for the periods indicated, the high and low intra-day prices forour common stock as reported on The NASDAQ Global Market. The closing price of our common stock on February 29, 2016was $3.71. High LowYear ended December 31, 2014 First quarter $5.65 $3.61Second quarter $5.09 $3.56Third quarter $7.60 $4.73Fourth quarter $5.32 $3.35Year ended December 31, 2015 First quarter $5.23 $3.36Second quarter $6.99 $4.95Third quarter $6.47 $4.07Fourth quarter $4.43 $2.23Our stock price has fluctuated and declined significantly since our initial public offering. Please see the Risk Factor– “Our stock price has fluctuated and declined significantly since our initial public offering in March 2007, and may continueto fluctuate, may not rise and may decline further” – in Item 1A of this report. 43 Table of Contents Stock Price Performance Graph The following graph shows a comparison from December 31, 2010 through December 31, 2015 of the cumulativetotal return for an investment of $100 (and the reinvestment of dividends) in our common stock, the NASDAQ CompositeIndex and the NASDAQ Telecommunications Index. Such returns are based on historical results and are not intended tosuggest future performance. The information under the heading “Stock Price Performance Graph” shall not be deemed “soliciting material” or tobe “filed” for purposes of Section 18 of the Exchange Act of 1934, and shall not be incorporated by reference into anyregistration statement or other document filed by us with the SEC, whether made before or after the date of this report,regardless of any general incorporation language in such filing, except as expressly set forth by specific reference in suchfiling. Stockholders As of February 29, 2016, we had approximately 70 record holders of our common stock and thousands of additionalbeneficial holders. Dividend Policy We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any futureearnings and do not expect to pay any dividends in the foreseeable future. Any future determination related to our dividendpolicy will be made at the discretion of our Board of Directors. Recent Sales of Unregistered Securities None. 44 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. 45 Table of Contents Item 6. Selected Financial Data The following selected consolidated financial data should be read in conjunction with Item 7, “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,” Item 8, “Financial Statements and SupplementaryData,” and other financial data included elsewhere in this report. Our historical results of operations are not necessarilyindicative of results of operations to be expected for any future period. Year Ended December 31, 2015 2014 2013 2012 2011 (In thousands, except per share amounts)Consolidated Statements of Operations Data: Revenue $249,900 $223,146 $105,613 $108,183 $74,025Cost of revenue: Platform commissions, royalties and other 98,184 80,992 32,806 29,630 20,760Amortization of intangible assets 9,553 4,767 4,238 3,783 5,447Total cost of revenue 107,737 85,759 37,044 33,413 26,207Gross profit 142,163 137,387 68,569 74,770 47,818Operating expenses(1): Research and development 72,856 64,284 46,877 54,275 39,073Sales and marketing 48,240 45,076 26,120 20,893 14,607General and administrative 26,092 25,019 15,550 14,744 14,002Amortization of intangible assets 201 508 1,336 1,980 825Restructuring charge 1,075 435 1,448 1,371 545Impairment of goodwill - - - 3,613 -Total operating expenses 148,464 135,322 91,331 96,876 69,052Income/(loss) from operations (6,301) 2,065 (22,762) (22,106) (21,234)Interest and other income (expense), net (743) (1,472) 10 (347) 747Income/(loss) before income taxes (7,044) 593 (22,752) (22,453) (20,487)Income tax benefit (provision) (141) 7,555 2,843 1,994 (614)Net income/(loss) (7,185) 8,148 (19,909) (20,459) (21,101) Net income /(loss) per share: Basic $(0.06) $0.09 $(0.28) $(0.32) $(0.37)Diluted $(0.06) $0.08 $(0.28) $(0.32) $(0.37) Weighted average common shares outstanding: Basic 118,775 91,826 71,453 64,318 57,518Diluted 118,775 96,922 71,453 64,318 57,518_________ (1) Includes stock-based compensation expense as follows:Research and development $3,563 $7,422 $1,948 $3,491 $1,387Sales and marketing 1,082 701 303 386 351General and administrative 7,041 3,510 2,034 1,945 1,372 As of December 31, 2015 2014 2013 2012 2011 (In thousands)Cash and cash equivalents and short-term investments $180,542 $70,912 $28,496 $22,325 $32,212Total assets 402,986 251,663 87,011 74,955 85,010Total long-term liabilities 25,932 3,936 2,357 6,190 8,503Total stockholder's equity $306,428 $171,706 $46,697 $38,887 $49,173Please see Note 1, Note 3 and Note 7 of Notes to Consolidated Financial Statements for a discussion of factors such asbusiness combinations and any material uncertainties that may materially affect the comparability of the information reflectedin selected financial data, described in Item 6 of this report.  46 Table of Contents Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion of our financial condition and results of operations in conjunction withour consolidated financial statements and the related notes included in Item 8, “Financial Statements and SupplementaryData” of this report. In addition to our historical consolidated financial information, the following discussion containsforward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from thosediscussed in the forward-looking statements. Factors that could cause or contribute to these differences include thosediscussed below and elsewhere in this report, particularly in Item 1A, “Risk Factors.” Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includesthe following sections: ·An Overview that discusses at a high level our operating results and some of the trends that affect ourbusiness; ·Critical Accounting Policies and Estimates that we believe are important to understanding the assumptionsand judgments underlying our financial statements; ·Recent Accounting Pronouncements; ·Results of Operations, including a more detailed discussion of our revenues and expenses; and ·Liquidity and Capital Resources, which discusses key aspects of our statements of cash flows, changes in ourbalance sheets and our financial commitments. Overview This overview provides a high-level discussion of our operating results and some of the trends that affect ourbusiness. We believe that an understanding of these trends is important to understanding our financial results for fiscal 2015,as well as our future prospects. We do not intend this summary to be exhaustive, or to be a substitute for the detaileddiscussion and analysis provided elsewhere in this report, including our consolidated financial statements and accompanyingnotes. Financial Results and Trends Revenues for 2015 were $249.9 million, a 12.0% increase compared to 2014, in which we reported revenues of$223.1 million. The increase in total revenues was primarily related to a $26.1 million increase in our revenues from micro-transactions (in-app purchases) and a $1.9 million increase from advertisements and offers. These increases were partiallyoffset by a $1.2 million decrease in premium and feature phone revenues due to the continued migration of users from featurephones to smartphone devices and our decision to concentrate our product development efforts exclusively towardsdeveloping new free-to-play titles for smartphones, tablets and other next-generation platforms. Revenues for 2014 were $223.1 million, a 111.3% increase compared to 2013, in which we reported revenues of$105.6 million. The increase in total revenues was primarily related to a $103.0 million increase in our revenues from micro-transactions (in-app purchases) and a $22.6 million increase in our revenues from advertisements and offers. These increaseswere partially offset by an $8.1 million decrease in premium and feature phone revenues. We have concentrated our product development efforts towards developing games for smartphone and tabletdevices. We generate the majority of our revenue from Apple’s iOS platform, which accounted for 60.5%, 61.8%, and 59.6%of our total revenue for the years ended December 31, 2015, 2014, and 2013, respectively. We generated the majority of thisiOS-related revenue through the Apple App Store, which represented 51.7%, 52.2%, and 50.1% of our total revenue for theyears ended December 31, 2015, 2014, and 2013, respectively, with the significant majority of such revenue derived from in-app purchases. We generated the balance of our iOS-related revenue from offers and47 Table of Contents advertisements in games distributed on the Apple App Store. In addition, we generated approximately 38.1%, 35.4%, and30.5% of our total revenue for the years ended December 31, 2015, 2014, and 2013, respectively, from the Androidplatform. We generated the majority of our Android-related revenue through the Google Play Store, which represented 27.4%,24.8%, 19.2% of our total revenue for the years ended December 31, 2015, 2014,and 2013, respectively, with the significantmajority of such revenue derived from in-app purchases. We generated the balance of our Android-related revenue from otherplatforms that distribute apps that run the Android operating system (e.g., the Amazon App Store) and through offers andadvertisements in games distributed through the Google Play Store and other Android platforms. We are dedicated to extending our leadership positions in the action, celebrity, sports, and simulation gaminggenres. Our leadership in the action category remains strong with our Deer Hunter and Contract Killer franchises, and we hopeto expand that leadership in 2016 with the launch of Frontline Commando Rivals, which is the title under developmentthrough our strategic partnership to bring Tencent’s, highly successful shooter in China, WeFire, to North America, Australia,New Zealand, EMEA and South America in 2016. We established our leadership in the celebrity gaming genre with KimKardashian: Hollywood, and we extended that leadership with the launch of our Kendall and Kylie game and withannouncements of games to be developed with several additional celebrities, including Taylor Swift. Our sports label isheadlined by our Tap Sports Baseball and Racing Rivals franchises, which we hope to maintain as the top baseball and racingfranchises, respectively, on mobile in 2016. The simulation category includes our Cooking Dash and Diner Dash franchises,and we look to bolster our position in this category in 2016 through a game featuring Gordon Ramsay and eventually throughan invest-express resource management title developed out of our Portland, Oregon studio. We believe that our games consistently have high production values, are visually appealing and have engaging coregameplay. These characteristics have typically helped to drive installs and awareness of our games and resulted in highlypositive consumer reviews. We also believe that we have been a consistently good partner of both Apple and Google, whichhas contributed to the majority of our games being featured on their storefronts when they are commercially released. We work closely with our celebrity licensors to engage their social media audiences and build games that willresonate with their unique fan bases. Our celebrity games utilize transmedia storytelling, leveraging the celebrity’s built-insocial media fan base to drive installs and awareness of the game, and then attempting to surprise and delight those fans withreal-world events and other game content based on the celebrity’s life. Our goal is for the game content to become entwinedwith the celebrity’s persona and social media presence, and to otherwise enhance interaction with the celebrity’s fans. We alsoplan to work to build and nurture social communities in and around the games themselves, creating a new vehicle for strong,personal engagement with the celebrity’s fan base. In order to capitalize on the impact of our celebrity licensors, we need todifferentiate each game we release and space out our launch dates in order to avoid cannibalization of revenue from ourexisting games and to ensure that each game resonates with our players. However, for us to continue driving installs and awareness of our games and to improve monetization and retention ofour players, we must first ensure that each game we develop is built with strong core gameplay and a core monetization loopthat incentivizes players to make in-app purchases. In addition, we must regularly update our games with compelling newcontent, deliver socio-competitive features like tournaments, player-versus-player gameplay and live events and build andnurture social media communities around our franchises both in-game and holistically via community features such asdedicated social channels. We have also made significant investments in our proprietary analytics and monetizationinfrastructure. With our enhanced analytics capabilities, we intend to devote resources towards segmenting and learning moreabout players of each of our franchises. We aim to connect our analytics and monetization infrastructure to every element ofour business – from marketing to merchandising. We also plan to continue monitoring the successful aspects of our games to drive downloads and enhancemonetization and retention, whether by optimizing advertising revenue within each title, securing additional compellinglicensing arrangements, building enhanced and more complex core gameplay, adding additional social features, tournamentsand events or otherwise. Optimizing advertising revenue within our games requires us to continue taking advantage ofpositive trends in the mobile advertising space, particularly as brands continue to migrate budgets from web tomobile. Continuing to drive installs and awareness of our games through licensing efforts requires that we continue to48 Table of Contents partner with celebrities, social influencers, organizations and brands that resonate with potential players of ourgames. Partnering with desirable licensing partners and renewing our existing licenses requires that we continue to developsuccessful games based on licensed content and are able to compete with other mobile gaming companies on financial andother terms in signing such partners. tinue introducing third-party licensed brands, properties and personalities into our gamesas additional licensed content, for cameo appearances or for limited time events in order to drive awareness and monetization. Across the globe our industry is evidencing that hit titles generally remain higher in the top grossing charts forlonger. We believe this is due to the continued specialization and investment of teams and companies in their hit titles, andthe live, social nature of certain games. Our business developments and strategy position us to take advantage of these trends,as evidenced by the longevity of our Kim Kardashian: Hollywood and Racing Rivals titles and the continued strength of ourCooking Dash 2016 title. We plan to focus on regularly updating and otherwise supporting our most successful games inorder to ensure that those games monetize and retain users for even longer periods of time. Our net loss in the year ended December 31, 2015 was $7.2 million versus net income of $8.1 million in the yearended December 31, 2014. This change was primarily due to an increase in cost of revenue of $22.0 million, a decrease inincome tax benefit of $7.7 million related to the release of a portion of our valuation allowance resulting from our acquisitionof Cie Games the prior year, and an increase in operating expenses of $13.1 million. These unfavorable factors were partiallyoffset by an increase in revenue of $26.8 million. See “—Results of Operations—Comparison of the Years Ended December31, 2015 and 2014” below for further details. Our operating results were also affected by fluctuations in foreign currencyexchange rates of the currencies in which we incurred meaningful operating expenses (principally the British Pound Sterling,Euro, Chinese Renminbi, Russian Ruble, and Indian Rupee), and our customers’ reporting currencies, which fluctuatedsignificantly in 2014 and 2015. Our net income in the year ended December 31, 2014 was $8.1 million versus a net loss of $19.9 million in the yearended December 31, 2013. This increase in our net income was primarily due to an increase in revenues of $117.5 million,and an increase in income tax benefit of $4.7 million. These favorable factors were partially offset by an increase in cost ofrevenues of $48.7 million, an increase in operating expenses of $44.0 million, and a decrease in interest and other income of$1.5 million. See “—Results of Operations—Comparison of the Year Ended December 31, 2014 and 2013” below for furtherdetails. Our operating results were also affected by fluctuations in foreign currency exchange rates of the currencies in whichwe incurred meaningful operating expenses (principally the British Pound Sterling, Euro, Chinese Renminbi, Russian Ruble,and Indian Rupee), and our customers’ reporting currencies, which fluctuated significantly in 2013 and 2014. Our ability to achieve and sustain profitability depends not only on our ability to grow our revenues, but also on ourability to manage our operating expenses. The largest component of our recurring expenses is personnel costs, which consistof salaries, benefits and incentive compensation, including bonuses and stock-based compensation. We expect our personnelcosts to increase in 2016, primarily due to our plans to bolster our studios by continuing to hire additional developmentpersonnel in North America. Cash and cash equivalents at December 31, 2015 totaled $180.5 million, an increase of $109.6 million from the $70.9million balance at December 31, 2014. This increase was primarily due to $125.2 million of net proceeds we received from thesale of 21,000,000 shares of our common stock to Red River Investments Limited, or Red River, an affiliate of TencentHoldings Limited, or Tencent, during the second quarter of 2015, and $6.1 million of aggregate proceeds from warrantexercises, option exercises and purchases under our employee stock purchase program that occurred during the year endedDecember 31, 2015. These inflows were partially offset by $11.5 million of net cash used in operations, which was primarilyrelated to a $31.8 million increase in prepaid royalties associated with minimum guaranteed royalty payments made to ourcelebrity and other licensors and $6.9 million of cash used in investing activities. 49 Table of Contents Key Operating Metrics We manage our business by tracking various non-financial operating metrics that give us insight into user behavior inour games. The three metrics that we use most frequently are Daily Active Users (DAU), Monthly Active Users (MAU), andAverage Revenue Per Daily Active User (ARPDAU). Our methodology for calculating DAU, MAU, and ARPDAU may differfrom the methodology used by other companies to calculate similar metrics. DAU is the number of individuals who played a particular smartphone game on a particular day. An individual whoplays two different games on the same day is counted as two active users for that day when we aggregate DAU acrossgames. In addition, an individual who plays the same game on two different devices during the same day (e.g., an iPhone andan iPad) is also counted as two active users for each such day when we average or aggregate DAU over time. Average DAU fora particular period is the average of the DAUs for each day during that period. We use DAU as a measure of player engagementwith the titles that our players have downloaded. MAU is the number of individuals who played a particular smartphone game in the month for which we are calculatingthe metric. An individual who plays two different games in the same month is counted as two active users for that month whenwe aggregate MAU across games. In addition, an individual who plays the same game on two different devices during thesame month (e.g., an iPhone and an iPad) is also counted as two active users for each such month when we average oraggregate MAU over time. Average MAU for a particular period is the average of the MAUs for each month during thatperiod. We use the ratio between DAU and MAU as a measure of player retention. ARPDAU is the total free-to-play smartphone revenue – consisting of micro-transactions, advertisements and offers – forthe measurement period divided by the number of days in the measurement period divided by the DAU for the measurementperiod. ARPDAU reflects game monetization. Under our revenue recognition policy, we recognize these revenues over theestimated average playing period of a user, but our methodology for calculating our DAU does not align with our revenuerecognition policy for micro-transactions and offers, under which we defer revenues. For example, if a title is introduced in thelast month of a quarter, we defer a substantial portion of the micro-transaction and offer revenue to future months, but theentire DAU for the newly released title is included in the month of launch. In addition, we also analyze social followers when determining which celebrities we might wish to partner with indeveloping games. Our social followers metric represents the aggregate number of individuals who follow our celebritylicensors on social media platforms (as reported by such platforms). We calculate the aggregate number of social followers of aparticular celebrity by adding the total followers of such celebrity on Facebook, Twitter, Instagram, and Vevo. There is fanoverlap among these social channels and among our various celebrity licensors, and such aggregate numbers have not beendeduplicated. We use the number of social followers as a measure of the potential reach and engagement a particular celebritymay have with players of our games. We calculate DAU, MAU and ARPDAU for only our primary distribution platforms, such as Apple’s App Store, theGoogle Play Store, Amazon’s Appstore and the Mac App Store; we are not able to calculate these metrics across all of ourdistribution channels. In addition, the platforms that we include for purposes of this calculation have changed over time, andwe expect that they will continue to change as our business evolves, but we do not expect that we will adjust prior metrics totake any such additions or deletions of distribution platforms into account. We believe that calculating these metrics for onlyour primary distribution platforms at a given period is generally representative of the metrics for all of our distributionplatforms. Moreover, we rely on the data analytics software that we incorporate into our games to calculate and report theDAU, MAU and ARPDAU of our games, and we make certain adjustments to the analytics data to address inconsistenciesbetween the information as reported and our DAU and MAU calculation methodology. Beginning in the first quarter of 2014, we have estimated the DAU and MAU for certain older titles because the analyticstools incorporated into those titles are incompatible with newer device operating systems (e.g., iOS 9), preventing us fromcollecting complete data. For these titles, we estimate DAU and MAU by extrapolating from each affected title’s historical datain light of the behavior of similar titles for which complete data is available. The table below sets forth our aggregate DAU,MAU and ARPDAU for all of our then-active smartphone titles for the periods specified, followed by a qualitative discussionof the changes in these metrics. Aggregate DAU and MAU include users of50 Table of Contents both our free-to-play and premium titles, whereas aggregate ARPDAU is calculated based only on revenues from our free-to-play games. Aggregate DAU and MAU for each period presented represents the aggregate metric for the last month of theperiod. For example, DAU for the three months ended December 31, 2015 is aggregate daily DAU for the month of December2015 calculated for all active smartphone free-to-play and premium titles in that month across the distribution platforms forwhich we calculate the metric. Three Months Ended 2015 2014 March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31 (In thousands, except aggregate ARPDAU) Aggregate DAU 5,986 6,107 5,490 5,085 7,028 5,324 7,237 7,222 Aggregate MAU 54,065 59,565 52,982 49,421 64,472 51,857 60,301 62,578 Aggregate ARPDAU $0.13 $0.10 $0.12 $0.13 $0.07 $0.08 $0.10 $0.11 The decrease in aggregate DAU and MAU for the three months ended December 31, 2015 as compared to the sameperiod of the prior year was primarily related to fewer downloads of our new title launches in the fourth quarter of 2015 ascompared to the fourth quarter of 2014 and lower retention of users for existing titles, particularly for our Kim Kardashian:Hollywood, Racing Rivals and Deer Hunter 2014 titles. Our aggregate ARPDAU increased for the three months endedDecember 31, 2015 as compared to the same period of the prior year, as we improved monetization on certain titles,particularly through increased use of social features in those games. Future increases in our aggregate DAU, MAU andARPDAU will depend on our ability to retain current players, attract new paying players, launch new games and expand intonew markets and distribution platforms. We rely on a very small portion of our total users for nearly all of our revenues derived from in-app purchases. Sincethe launch of our first free-to-play titles in the fourth quarter of 2010, the percentage of unique paying users for our largestrevenue-generating free-to-play games has typically been less than 2%, when measured as the number of unique paying userson a given day divided by the number of unique users on that day, though this percentage fluctuates, and it may be higherthan 2% for certain of our games during specific, relatively short time periods, such as immediately following worldwidelaunch or the week following content updates, marketing campaigns or certain other events. Significant Transactions Tencent Investment On April 29, 2015, we entered into a Purchase Agreement with Tencent and Tencent’s controlled affiliate, Red River,pursuant to which we issued to Red River an aggregate of 21,000,000 shares of our common stock at a purchase price of $6.00per share, for aggregate net proceeds of $125.2 million, after offering expenses. We issued 12,500,000 of these shares to RedRiver on April 29, 2015 and issued the remaining 8,500,000 shares at a second closing on June 3, 2015. In addition, weentered into a registration rights agreement with Tencent and Red River pursuant to which we agreed to file up to tworegistration statements with the SEC within 45 days of a request made by Red River at any time following the six monthanniversary of the initial closing and to use all reasonable efforts to have such registration statement declared effective by theSEC within 120 days after such request. Acquisition of Cie Games On August 20, 2014, we completed the acquisition of Cie Games, Inc., or Cie Games, a developer of racing genre mobilegames based in Long Beach, California. We acquired Cie Games to leverage its racing genre expertise, assembled workforceand existing mobile games in order to expand our game offerings. The purchase price consideration included 9,982,886shares of our common stock valued at $5.09 per share as of the closing date of the acquisition, for an aggregate of $50.8million in share consideration. In addition, we agreed to pay approximately $29.5 million in cash consideration, of which$1.9 million was paid during the year ended December 31, 2015, for total overall consideration paid of $80.3 million. We areholding back 2,139,190 of the 9,982,886 shares issued in the acquisition until the date that is 30 days after the 18 monthanniversary of the closing to satisfy potential indemnification claims under the merger agreement for the acquisition. Alloutstanding Cie Games capital stock and stock options were cancelled at the closing of the51 Table of Contents acquisition. Acquisition of PlayFirst On May 14, 2014, we completed the acquisition of PlayFirst, a developer of casual games for smartphones and tabletsbased in San Francisco, California. The purchase price consideration was $11.6 million, representing 2,954,659 shares of our common stock valued at $3.91per share as of the closing date of the acquisition. The number of shares comprising the purchase price consideration wasreduced from 3,000,000 shares to 2,954,659 shares due to a working capital adjustment. In addition, we withheldapproximately 106,000 shares to cover stockholders’ agent expenses and tax obligations of certain PlayFirst stockholders,which resulted in us issuing a total of 2,849,276 shares in the acquisition valued at $11.1 million and paying $412,000 ofcash. Of the 2,849,276 shares issued in the acquisition, 1,500,000 shares are being held back and will be retained by us untilthe date that is 60 days following the 24 month anniversary of the closing date to satisfy potential indemnification claimsunder the PlayFirst merger agreement. In addition, we assumed approximately $3.5 million of PlayFirst net liabilities. During the third quarter of 2014, we and the stockholders’ agent under the merger agreement agreed that we wereentitled to retain approximately 24,000 shares from the holdback due to a working capital adjustment, and an adjustment of$93,000 was made to goodwill representing the fair value of the shares on the date of acquisition. All outstanding PlayFirstcapital stock, stock options and warrants were cancelled at the closing of the acquisition. Our first title created by PlayFirst,Diner Dash, was released in the fourth quarter of 2014, and Cooking Dash 2016 was released in June 2015. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with United States generally accepted accountingprinciples, or GAAP. These accounting principles require us to make certain estimates and judgments that can affect thereported amounts of assets and liabilities as of the dates of the consolidated financial statements, the disclosure ofcontingencies as of the dates of the consolidated financial statements, and the reported amounts of revenues and expensesduring the periods presented. Although we believe that our estimates and judgments are reasonable under the circumstancesexisting at the time these estimates and judgments are made, actual results may differ from those estimates, which could affectour consolidated financial statements. We believe the following to be critical accounting policies because they are important to the portrayal of ourfinancial condition or results of operations and they require critical management estimates and judgments about matters thatare uncertain: ·revenue recognition; ·fair value; ·business combinations – purchase accounting; ·long-lived assets; ·prepaid royalties; ·goodwill; ·stock-based compensation; and 52 Table of Contents ·income taxes. Revenue Recognition We generate revenues through in-app purchases, advertising and other offers within our games on smartphones andtablets, such as Apple’s iPhone and iPad and other mobile devices utilizing Google’s Android operating system. Smartphonegames are distributed primarily through digital storefronts, such as the Apple App Store and the Google Play Store. We alsogenerate some revenue from sales of legacy feature phone games distributed primarily through wireless carriers. Revenue We distribute our games for smartphones and tablets to the end customers through digital storefronts such as Apple’sApp Store and the Google Play Store. Within these storefronts, users can download our free-to-play games and pay to acquirevirtual currency which is redeemed in the game for virtual goods. We recognize revenue when persuasive evidence of anarrangement exists, the service has been provided to the user, the price paid by the user is fixed or determinable, andcollectability is reasonably assured. Determining whether and when some of these criteria have been satisfied requiresjudgments that may have a significant impact on the timing and amount of revenue we report in each period. For the purposeof determining when the service has been provided to the player, we have determined that an implied obligation exists to thepaying user to continue displaying the purchased virtual goods within the game over the estimated average playing period ofpaying players for the game, which represents our best estimate of the estimated average life of virtual goods. We sell both consumable and durable virtual goods, and we receive reports from digital storefronts which breakdownthe various purchases made in our games for a given time period. We review these reports and determine on a per-item basiswhether the purchase was a consumable virtual good or a durable virtual good. Consumable goods are items consumed at apredetermined time or otherwise have limitations on repeated use, while durable goods are items that remain in the game for aslong as the player continues to play. Our revenues from consumable virtual goods have been insignificant since we launchedour first free-to-play title in the fourth quarter of 2010. We recognize revenue from the sale of durable virtual goods, such asvirtual currency and other virtual items, ratably over the estimated average playing period of paying users, which hasgenerally been in the range of three to four months. If a new game is launched and only a limited period of paying player datais available, then we also consider other qualitative factors, such as the playing patterns for paying users for other games withsimilar characteristics. We compute our estimated average playing period of paying users at least twice each year, and more frequently ifqualitative evidence exists that would indicate a possible change in estimated average playing life, including consideration ofchanges in the characteristics of games. We have examined the playing patterns of paying users across a representativesample of our games across various genres. To compute the estimated average playing period for paying users, we group thedaily populations of paying players (the “daily cohort”) from the date of their first installation of the game and track eachdaily cohort to understand the number of players from each daily cohort who played the game after their initial purchase. Fortitles with a year or more of data, we compute a weighted average playing period for paying users using this dataset. For titleswith less than a year of data (“new titles”), we use a linear interpolation model to estimate the average playing period ofpaying users. The measured average playing periods of games with at least one year of player data are mapped against theretention percentages of those same games at 150 days, generating a linear interpolation curve. The 150 day retention rate of anew title is then inputted into that curve to estimate an average playing period for that new title. Ninety day retention rates areused for new titles that do not have 150 days of data to interpolate their respective average playing period. We then computea revenue-based weighted average of the estimated playing period across all of the games in the sample to arrive at the overallweighted average playing period of paying users. We apply this weighted average playing period for all paying users to a majority of our games because the computedweighted average playing period for each game is generally consistent across the games analyzed. Two games were identifiedas outliers in this model as their useful life was demonstrated to be materially different from the majority53 Table of Contents of all other games primarily due to factors such as more social features or continued content updates resulting in higherretention rates of users. In order to calculate the useful life of these outlier titles, we use a second calculation model in whichthe average lifespan of users from their install date to last date of play is measured. This model is effective for titles withenough historical data to reasonably estimate the useful life in this manner. The average lifespan model is not appropriate fortitles that have been played for less than two years, as that timespan is insufficient to estimate the average lifespan of usersusing actual and not forecasted data. While we believe our estimates to be reasonable based on available game playerinformation, we may revise such estimates in the future as the games’ operation periods change. Any adjustments arising fromchanges in the estimates of the lives of these virtual goods would be applied to the current quarter and prospectively on thebasis that such changes are caused by new information indicating a change in game player behavior patterns compared tohistorical titles. Any changes in our estimates of useful lives of these virtual goods may result in revenues being recognizedon a basis different from prior periods’ and may cause our operating results to fluctuate. We also have relationships with certain advertising service providers for advertisements within our smartphone gamesand revenue from these advertising providers is generated through impressions, click-throughs, banner ads andoffers. Revenue is recognized as advertisements are delivered and reported to us, an executed contract exists, the price is fixedor determinable and collectability has been reasonably assured. Delivery generally occurs when the advertisement has beendisplayed or the offer has been completed by the user. The fee received for certain offer advertisements that result in the userreceiving virtual currency for redemption within a game are deferred and recognized over the average playing period ofpaying users. Other Estimates and Judgments We estimate revenues from digital storefronts in the current period when reasonable estimates of these amountscan be made. Certain digital storefronts provide reliable interim preliminary reporting and others report sales data within areasonable time frame following the end of each month, both of which allow us to make reasonable estimates of revenues andtherefore to recognize revenues during the reporting period. Determination of the appropriate amount of revenue recognizedinvolves judgments and estimates that we believe are reasonable, but it is possible that actual results may differ from ourestimates. When we receive the final reports, to the extent not received within a reasonable time frame following the end ofeach month, we record any differences between estimated revenues and actual revenues in the reporting period. Historically,the revenues on the final revenue report have not differed significantly from the reported revenues for the period. Principal Agent Considerations In accordance with the Accounting Standards Codification (ASC) 605-45, Revenue Recognition: Principal AgentConsiderations, we evaluate our digital storefront and advertising service provider agreements in order to determine whetheror not we are acting as the principal or as an agent when selling our games or when selling advertisements within our games,which we consider in determining if revenue should be reported gross or net. We primarily use digital storefronts fordistributing our smartphone games and advertising service providers for distributing advertisements within our games. Keyindicators that we evaluate in order to reach this determination include: ·the terms and conditions of our contracts with the digital storefronts and advertising service providers; ·the party responsible for billing and collecting fees from the end-users, including the resolution of billingdisputes; ·whether we are paid a fixed percentage of the arrangement’s consideration or a fixed fee for each game,transaction, or advertisement; ·the party which sets the pricing with the end-user, has the credit risk and provides customer support; and 54 Table of Contents ·the party responsible for the fulfillment of the game or serving of advertisement and that determines thespecifications of the game or advertisement. Based on the evaluation of the above indicators, we have determined that we are generally acting as a principal andare the primary obligor to end-users for smartphone games distributed through digital storefronts and advertisements servedthrough our advertising service providers. Therefore, we recognize revenue related to these arrangements on a gross basis,when the necessary information about the gross amounts or platform fees charged, before any adjustments, are made availableto us by the digital storefronts and advertising service providers. Fair Value Measurements We account for fair value in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). Fairvalue is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exitprice) in the principal or most advantageous market for the asset or liability in an orderly transaction between marketparticipants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the useof observable inputs and minimize the use of unobservable inputs. We use a three tier hierarchy, which prioritizes the inputsused in measuring fair value as follows: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices forsimilar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can becorroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to thefair value of the assets or liabilities. The first two levels in the hierarchy are considered observable inputs and the last is considered unobservable. Ourcash and cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted marketprices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. As of December31, 2015 and December 31, 2014, we had $180.5 million and $70.9 million in cash and cash equivalents, respectively. Thecarrying value of accounts receivable and payables approximates fair value due to the short time to expected receipt ofpayment or cash. Prepaid or Guaranteed Licensor Royalties Our royalty expenses consist of fees that we pay to content owners for the use of their brands, properties and otherlicensed content, including trademarks and copyrights, in the development of our games. Royalty-based obligations are eitherpaid in advance and capitalized on the balance sheet as prepaid royalties or accrued as incurred and subsequently paid. Theseroyalty-based obligations are expensed to cost of revenues at the greater of the revenues derived from the relevant gamemultiplied by the applicable contractual rate or an effective royalty rate based on expected net product sales. Advancedlicense payments that are not recoupable against future royalties are capitalized and amortized over the lesser of the estimatedlife of the title incorporating licensed content or the term of the license agreement. Our contracts with certain licensors include minimum guaranteed royalty payments, which are payable regardless ofthe ultimate volume of sales to end users, in accordance with ASC 440-10, Commitments (“ASC 440”). When no significantperformance remains with the licensor, we initially record each of these guarantees as an asset and as a liability at thecontractual amount. We believe that the contractual amount represents the fair value of the liability. When significantperformance remains with the licensor, we record royalty payments as an asset when actually paid and as a liability whenincurred, rather than upon execution of the contract. We classify minimum royalty payment obligations as current liabilitiesto the extent they are contractually due or estimated to be recoverable through royalties earned within the next twelve months. 55 Table of Contents Each quarter, we evaluate the realization of our prepaid and guaranteed royalties as well as any unrecognizedguarantees not yet paid to determine amounts that it deems unlikely to be realized through product sales. We use estimates ofrevenues to evaluate the future realization of prepaid royalties and guarantees. This evaluation considers multiple factors,including the term of the agreement, forecasted demand, game life cycle status, game development plans, social following forour celebrity licensors, and current and anticipated sales levels, as well as other qualitative factors such as the success ofsimilar games and similar genres on mobile devices for us and our competitors. To the extent that this evaluation indicatesthat the remaining prepaid and guaranteed royalty payments are not recoverable, we record an impairment charge to cost ofrevenues in the period that impairment is indicated. Business Combinations — Purchase Accounting We apply ASC 805, Business Combinations (“ASC 805”), which is the accounting guidance related to businesscombinations. The standard requires recognition of assets acquired, liabilities assumed, and contingent consideration at theirfair value on the acquisition date with subsequent changes recognized in earnings; requires acquisition-related expenses andrestructuring costs to be recognized separately from the business combination and expensed as incurred; requires in-processresearch and development to be capitalized at fair value as an indefinite-lived intangible asset until completion orabandonment; and requires that changes in accounting for deferred tax asset valuation allowances and acquired income taxuncertainties after the measurement period be recognized as a component of provision for taxes. We account for acquisitions of entities that include inputs and processes and have the ability to create outputs asbusiness combinations. The purchase price of the acquisition is allocated to tangible assets, liabilities, and identifiableintangible assets acquired based on their estimated fair values. The excess of the purchase price over those fair values isrecorded as goodwill. Acquisition-related expenses and restructuring costs are expensed as incurred. While we use our bestestimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilitiesassumed at the business combination date, these estimates and assumptions are inherently uncertain and subject to refinement.Our key assumptions used have included projected revenue, cost of goods sold, and operating expenses for our acquiredentities, the future amortization tax benefit of legacy titles, and discount rates. In addition, our key assumptions have includedprojected opportunity costs of re-establishing app store relationships. As a result, during the preliminary purchase priceallocation period, which may be up to one year from the business combination date, we may record adjustments to the assetsacquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocationperiod, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period inour operating results in the period in which the adjustments were determined. Long-Lived Assets We evaluate our long-lived assets, including property and equipment and intangible assets with finite lives, forimpairment whenever events or changes in circumstances indicate that the carrying value of these assets may not berecoverable in accordance with ASC 360, Property Plant & Equipment (“ASC 360”). Factors considered important that couldresult in an impairment review include significant underperformance relative to expected historical or projected futureoperating results, significant changes in the manner of use of the acquired assets, significant negative industry or economictrends, and a significant decline in our stock price for a sustained period of time. We recognize impairment based on thedifference between the fair value of the asset and its carrying value. Fair value is generally measured based on either quotedmarket prices, if applicable, or a discounted cash flow analysis. Goodwill We had goodwill attributable to our MIG, GameSpy, Blammo, Griptonite, PlayFirst, and Cie Games acquisitions as ofDecember 31, 2015. We formerly had three reporting units comprised of the Americas, EMEA and APAC regions. Weattributed all of the goodwill resulting from the MIG acquisition to our Asia and Pacific (“APAC”) reporting unit. All of thegoodwill attributable to the GameSpy, Blammo, Griptonite, PlayFirst, and Cie Games acquisitions had been fully assigned toour Americas reporting unit. We had fully impaired in prior years all goodwill allocated to our EMEA reporting unit. InSeptember 2015, we reorganized our reporting units and now have one reporting unit “Mobile Games.” This change inreporting units is due to the fact that our Chief Executive Officer, who is also chief operating56 Table of Contents decision maker, makes decisions and manages operations as one reporting unit, rather than as three separate regionalterritories, which used to be considered as three reporting units. In prior years, the Company’s Chief Executive Officer reviewsselected financial information on a geographic basis; however this information is included within one operating segment forpurposes of allocating resources and evaluating financial performance. Changes in reporting units require that goodwill betested for impairment both prior to and following the changes. We performed a “Step 0” analysis as defined below, whichresulted in no impairment. In the valuation of the goodwill balance for Griptonite, Blammo, MIG, GameSpy, PlayFirst, and Cie Games we gaveconsideration to the future economic benefits of other assets that were not individually identified or separately recognized. The acquired studio workforce for each of these acquisitions was estimated to have value, and since the acquired workforce isnot individually identified or separately recognized, it was subsumed within the goodwill recognized as part of each businesscombination. We further planned to leverage our preexisting contractual relationships with Digital Storefronts to distributenew titles developed by the Griptonite, Blammo, PlayFirst, and Cie Games studios and the expected synergies are reflected inthe value of the goodwill recognized. We also used the GameSpy acquired workforce and expertise to help in our developmentefforts for its games-as-a-service technology platform, and these synergies are reflected in the value of goodwill recognized. In accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”), we do not amortize goodwill or otherintangible assets with indefinite lives but rather test them for impairment. ASC 350 requires us to perform an impairmentreview of our goodwill balance at least annually, which we do as of September 30 each year, and also whenever events orchanges in circumstances indicate that the carrying amount of these assets may not be recoverable. We evaluate qualitative factors and overall financial performance to determine whether it is necessary to perform thefirst step of the two-step goodwill test. This step is referred to as “Step 0.” Step 0 involves, among other qualitative factors,weighing the relative impact of factors that are specific to the reporting unit as well as industry and macroeconomic factors.After assessing those various factors, if it is determined that it is more likely than not that the fair value of a reporting unit isless than its carrying amount, then the entity will need to proceed to the first step of the two-step goodwill impairment test.ASC 350 requires a multiple-step approach to testing goodwill for impairment for each reporting unit annually, or wheneverevents or changes in circumstances indicate the fair value of a reporting unit is below its carrying amount. The first stepmeasures for impairment by applying the fair value-based tests at the reporting unit level. The second step (if necessary)measures the amount of impairment by applying the fair value-based tests to individual assets and liabilities within eachreporting unit. The fair value of the reporting units is estimated using a combination of the market approach, which utilizescomparable companies’ data, and/or the income approach, which uses discounted cash flows. During the third quarters of fiscal 2015, 2014 and 2013, we performed a “Step 0” qualitative assessment for ourreporting unit. Based on the assessment, we concluded that it was more likely than not that the fair value of the reporting unitwas greater than its carrying amount, and as a result, did not proceed to further impairment testing. Accordingly, we did notrecognize an impairment of goodwill during the years ended December 31, 2015, December 31, 2014, and December 31, 2013. Due to a significant decline in our market capitalization during the fourth quarter of 2015, we concluded that atriggering event occurred that required an interim goodwill impairment test. While the short-term decline was greater thanexpected primarily due to a deterioration in general market conditions and underperformance of one of our titles, Katy PerryPop, we implemented several strategies including the release of our Kendall and Kylie game and announcing an exclusivedeal with Taylor Swift that are expected to result in future revenue growth. Based on the results of the interim goodwillimpairment test, as of December 31, 2015, we concluded that our goodwill was not impaired. However, if it is determined thatit is not likely to meet our projections of future cash flows or if our market capitalization remains at depressed levels for aprolonged period, among other factors, it is possible that we may need to re-evaluate our assumptions and perform anadditional impairment test in future reporting periods. 57 thTable of Contents Stock-Based Compensation We apply the fair value provisions of ASC 718, Compensation-Stock Compensation, or ASC 718. ASC 718 requiresthe recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments,including stock options. ASC 718 requires companies to estimate the fair value of share-based payment awards on the grantdate using an option pricing model. The fair value of stock options and stock purchase rights granted pursuant to our equityincentive plans and 2007 Employee Stock Purchase Plan, respectively, is determined using the Black-Scholes valuationmodel. The determination of fair value is affected by the stock price, as well as assumptions regarding subjective and complexvariables such as expected employee exercise behavior and expected stock price volatility over the expected term of theaward. Generally, these assumptions are based on historical information and judgment is required to determine if historicaltrends may be indicators of future outcomes. Employee stock-based compensation expense is calculated based on awardsultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are revised, if necessary, in subsequent periodsif actual forfeitures differ from those estimates and an adjustment to stock-based compensation expense will be recognized atthat time. Changes to the assumptions used in the Black-Scholes option valuation calculation and the forfeiture rate, as well asfuture equity granted or assumed through acquisitions could significantly impact the compensation expense we recognize. We also grant restricted stock units, or RSUs, to our employees under our equity incentive plans. The cost of RSUs isdetermined using the fair value of our common stock based on the quoted closing price of our common stock on the date ofgrant. RSUs typically vest and are settled over approximately a four-year period with 25% of the shares vesting on or aroundthe one-year anniversary of the grant date and the remaining shares vesting quarterly thereafter. Compensation cost isamortized on a straight-line basis over the requisite service period. In 2015, 2014, and 2013, we recorded total non-cash stock-based compensation expense of $11.7 million, $11.6 millionand $4.3 million, respectively. The 2014 and 2013 compensation expense includes contingent consideration issued toBlammo employees, which was recorded as research and development expense over the term of the earn-out periods, as theseemployees were primarily employed in product development. We re-measured the fair value of the contingent considerationeach reporting period and only recorded a compensation expense for the portion of the earn-out target which was likely to beachieved. As a result, $4.6 million, and $171,000 of stock-based compensation expense was recorded during the years endedDecember 31, 2014, 2013, respectively. No contingent consideration was issued in 2015. Additionally, ASC 718 requires thatwe recognize compensation expense only for the portion of stock options that are expected to vest. If the actual number offorfeitures differs from that estimated by management, we may be required to record adjustments to stock-based compensationexpense in future periods. Income Taxes In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes.” This updaterequires an entity to classify deferred tax liabilities and assets as non-current within a classified statement of financial position.ASU 2015-17 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. Thisupdate may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.Early application is permitted as of the beginning of the interim or annual reporting period. We adopted ASU 2015-17 on aprospective basis as of December 31, 2015. The adoption of ASU 2015-17 did not have a material impact on our consolidatedfinancial statements. We account for income taxes in accordance with ASC 740, Income Taxes (ASC 740). As part of the process ofpreparing our consolidated financial statements, we are required to estimate our income tax benefit (provision) in each of thejurisdictions in which we operate. This process involves estimating our current income tax benefit (provision) together withassessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differencesresult in deferred tax assets and liabilities, which are included within our consolidated balance sheet using the enacted taxrates in effect for the year in which we expect the differences to reverse. We record a valuation allowance to reduce our deferred tax assets to an amount that more likely than not will berealized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in58 Table of Contents assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferredtax assets in the future in excess of our net recorded amount, we would need to make an adjustment to the allowance for thedeferred tax asset, which would increase income in the period that determination was made. We account for uncertain income tax positions in accordance with ASC 740-10, which clarifies the accounting foruncertainty in income taxes recognized in financial statements. ASC 740-10 prescribes a recognition threshold andmeasurement attribute of tax positions taken or expected to be taken on a tax return. The interpretation also provides guidanceon de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Our policy isto recognize interest and penalties related to unrecognized tax benefits in income tax expense. Results of Operations The following sections discuss and analyze the changes in the significant line items in our statements of operationsfor the comparison periods identified. Comparison of the Years Ended December 31, 2015 and 2014 Revenues Year Ended December 31, 2015 2014 Revenue by Type (In thousands) Micro-Transactions $208,281 $182,213 Advertisements 13,126 14,566 Offers 26,289 22,984 Other 2,204 3,383 Total revenue $249,900 $223,146 Our revenues increased $26.8 million, or 12.0%, from $223.1 million for the year ended December 31, 2014 to $249.9million for the year ended December 31, 2015, which was primarily related to a $26.1 million increase in our revenues frommicro-transactions (in-app purchases) and a $1.9 million increase from advertisements and offers. These increases werepartially offset by a $1.2 million decrease in premium and feature phone revenues due to the continued migration of users fromfeature phones to smartphone devices and our decision to concentrate our product development efforts exclusively towardsdeveloping new free-to-play titles for smartphones, tablets and other next-generation platforms. The increase in revenue from in-app purchases, advertisements and offers was primarily attributable to an increase of$66.6 million of revenue from three existing titles, Racing Rivals, Contract Killer Sniper, and Kim Kardashian: Hollywood,compared with these titles’ performance in 2014, and the generation of $23.0 million in revenue from two new title launches,Tap Sports Baseball 2015 and Cooking Dash 2016. These increases were partially offset by a decrease of $48.4 million fromtwo existing titles, Deer Hunter 2014 and Eternity Warriors 3, compared with these titles’ performance in 2014. We generaterevenues from micro-transactions, advertisements and, offers, and we sometimes change the focus of our monetization effortsamong methods within a given game over the life of the title in an attempt to maximize revenue. For example, we may elect todisable advertisements within a game if we believe doing so will encourage users to play the game longer and thus increasethe chance that they will make micro-transactions or complete offers, which generally result in higher revenues for us thanadvertisements. We rely on a very small portion of our total users for nearly all of our revenues derived from in-app purchases.Since the launch of our first free-to-play titles in the fourth quarter of 2010, the percentage of unique paying users for ourlargest revenue-generating free-to-play games has typically been less than 2%, when measured as the number of unique payingusers on a given day divided by the number of unique users on that day, though this percentage fluctuates, and it may behigher than 2% for certain of our games during specific, relatively short time periods, such as immediately following aworldwide launch or the week following content updates, marketing campaigns or certain other events. Our revenues do notinclude $31.1 million of revenues as of December 31, 2015 relating primarily to micro-transactions and offers that have beendeferred over the weighted average useful lives of paying users.59 Table of Contents In 2015, Kim Kardashian: Hollywood, Racing Rivals, and Deer Hunter 2014 were our top three revenue-generatinggames and comprised 30.7% , 17.7%, and 10.8%, respectively, of revenue for the period. No other game generated more than10% of revenue during the year. International revenues (defined as revenues generated from distributors and advertising service providers whoseprincipal operations are located outside the United States or, in the case of the digital storefronts, the revenues generated byend-user purchases made outside of the United States) decreased by $12.6 million, from $90.7 million in the year endedDecember 31, 2014 to $78.1 million in the year ended December 31, 2015. This was primarily related to a $7.4 milliondecrease in our EMEA revenues and a $7.0 million decrease in our APAC revenues. These decreases were partially offset by a$1.8 million increase in our Americas (excluding the United States) revenues. This decrease in our international revenues wasoffset by an increase of $39.3 million in our United States revenues. Cost of Revenues Year Ended December 31, 2015 2014 (In thousands) Cost of revenue: Platform commissions, royalties and other $98,184 $80,992 Amortization of intangible assets 9,553 4,767 Total cost of revenue $107,737 $85,759 Revenue $249,900 $223,146 Gross margin 56.9% 61.6% Our cost of revenues increased $22.0 million, or 25.6%, from $85.8 million in the year ended December 31, 2014 to$107.7 million in the year ended December 31, 2015. This increase was primarily due to a $6.8 million increase in royaltiesassociated with an increase in royalty-burdened revenues, a $6.5 million increase in platform commissions due to a highervolume of revenue transactions through the digital storefronts, a $4.8 million increase in amortization of intangible assetsprimarily associated with intangible assets purchased through our PlayFirst and Cie Games acquisitions, a $2.2 millionincrease in prepaid royalty impairments, an $816,000 increase in non-cash warrant expense, and a $775,000 increase inhosting fees to support our free-to-play titles. Revenues attributable to games based upon original intellectual propertydecreased as a percentage of revenues from 62.7% in the year ended December 31, 2014 to 42.1% in the year ended December31, 2015, primarily due to an increase in revenue generated from games based on or significantly incorporating licensedbrands and other content. We expect to continue to launch a significant number of games based on or incorporating licensedbrands or other content in 2016. The average royalty rate that we paid on games based on or significantly incorporatinglicensed brands or other content, excluding royalty impairments, increased from 21.3% in the year ended December 31, 2014to 21.9% in the year ended December 31, 2015, due to higher royalty rates for distribution of certain games based on orsignificantly incorporating licensed brands or other content. Overall royalties, including impairment of prepaid royalties andguarantees, as a percentage of total revenues increased from 8.1% in the year ended December 31, 2014 to 10.6% in the yearended December 31, 2015. Research and Development Expenses Year Ended December 31, 2015 2014 (In thousands) Research and development expenses $72,856 $64,284 Percentage of revenue 29.2% 28.8% Our research and development expenses increased $8.6 million, or 13.3%, from $64.3 million in the year endedDecember 31, 2014 to $72.9 million in the year ended December 31, 2015. The increase in research and development costswas primarily due to a $10.5 million increase in salaries and benefits, as our research and development headcount increasedfrom 520 employees at December 31, 2014 to 601 employees at December 31, 2015, resulting primarily from headcount addedthrough the addition of studio personnel throughout our North America studios, as well as a $4.0 million60 Table of Contents increase in outside services primarily related to external development. These increases were partially offset by a $3.9 milliondecrease in stock-based compensation expense, as stock-based compensation expense attributable to the contingentconsideration that was issuable to the employees who were former shareholders of Blammo became fully vested during thethird quarter of 2014, and a $2.1 million decrease in variable compensation resulting from lower attainment of employee andexecutive bonus targets. As a percentage of revenues, research and development expenses increased from 28.8% in the yearended December 31, 2014 to 29.2% in the year ended December 31, 2015. Research and development expenses included $3.6million of stock-based compensation expense in the year ended December 31, 2015 and $7.4 million in the year endedDecember 31, 2014. We anticipate that our research and development expenses will increase in absolute dollars in 2016 dueprimarily to our plans to bolster our studios by hiring additional personnel in North America. Sales and Marketing Expenses Year Ended December 31, 2015 2014 (In thousands) Sales and marketing expenses $48,240 $45,076 Percentage of revenue 19.3% 20.2% Our sales and marketing expenses increased $3.2 million, or 7.0%, from $45.1 million in the year ended December 31,2014 to $48.2 million in the year ended December 31, 2015. The increase was primarily due to a $3.3 million increase inmarketing promotions associated with our free-to-play games and a $570,000 increase in professional fees. These increaseswere partially offset by a decrease of $738,000 in salaries, benefits and variable compensation. As a percentage of revenues,sales and marketing expenses decreased from 20.2% in the year ended December 31, 2014 to 19.3% in the year endedDecember 31, 2015. Sales and marketing expenses included $1.1 million of stock-based compensation expense in the yearended December 31, 2015 and $701,000 in the year ended December 31, 2014. We expect our sales and marketingexpenditures to continue to increase in 2016 in absolute dollars in connection with the sales and marketing initiatives weintend to undertake related to the new free-to-play games that we expect to release during 2016. General and Administrative Expenses Year Ended December 31, 2015 2014 (In thousands) General and administrative expenses $26,092 $25,019 Percentage of revenue 10.4% 11.2% Our general and administrative expenses increased $1.1 million, or 4.3%, from $25.0 million in 2014 to $26.1 millionin 2015. The increase in general and administrative expenses was primarily due to a $3.5 million increase in stock-basedcompensation due to stock-based awards issued to new employees and other executives. These increases were partially offsetby a $2.6 million decrease in salaries, benefits and variable compensation resulting from lower attainment of employee andexecutive bonuses in 2015. Our general and administrative headcount increased from 79 employees at December 31, 2014 to88 employees at December 31, 2015. As a percentage of revenues, general and administrative expenses decreased from 11.2%in the year ended December 31, 2014 to 10.4% in the year ended December 31, 2015. General and administrative expensesincluded $7.0 million of stock-based compensation expense in the year ended December 31, 2015 and $3.5 million in the yearended December 31, 2014. We expect our general and administrative expenses to continue to increase in terms of absolutedollars in 2016 as we expand to support a greater number of development teams and product launches. Other Operating Expenses Our restructuring charge increased from $435,000 in the year ended December 31, 2014 to $1.1 million in the yearended December 31, 2015, due to increased employee termination costs in our APAC and Washington offices that took placein the fourth quarter of 2015.61 Table of Contents Our amortization of intangible assets decreased from $508,000 in the year ended December 31, 2014 to $201,000 inthe year ended December 31, 2015 due to the non-compete agreements associated with our acquisition of Blammo in August2011 being fully amortized in the first quarter of 2015. Interest and Other Income/(Expense), Net Interest and other income/(expense), net, decreased from net expense of $1.5 million in the year ended December 31,2014 to net expense of $743,000 in the year ended December 31, 2015. This decrease was primarily due to foreign currencylosses related to the revaluation of certain assets and liabilities including accounts payable and accounts receivable caused bythe fluctuation in foreign exchange rates against the United States Dollar. Income Tax Expense Our income tax benefit changed from $7.6 million in 2014 to an income tax expense of $141,000 in 2015. Theincome tax benefit in 2014 was due to the release of a portion of our valuation allowance for $6.8 million, primarily resultingfrom our acquisition of Cie Games. The change in 2015 income tax expense was also due to changes in the jurisdictionsincluded in the anticipated effective tax rate computation and changes in pre-tax income in the United States and certainforeign entities. The provision for income taxes differs from the amount computed by applying the statutory U.S. federal rateprincipally due to the effect of our non-U.S. operations, non-deductible stock-based compensation expense and change inforeign withholding taxes. Our effective income tax rates for future periods will depend on a variety of factors, including changes in the deferredtax valuation allowance, as well as changes in our business such as intercompany transactions, any acquisitions, any changesin our international structure, any changes in the geographic location of our business functions or assets, changes in thegeographic mix of our income, any changes in or termination of our agreements with tax authorities, changes in applicableaccounting rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audit and othermatters, and variations in our annual pre-tax income or loss. We incur certain tax expenses that do not decline proportionatelywith declines in our pre-tax consolidated income or loss. As a result, in absolute dollar terms, our tax expense will have agreater influence on our effective tax rate at lower levels of pre-tax income or loss than at higher levels. In addition, at lowerlevels of pre-tax income or loss, our effective tax rate will be more volatile. At December 31, 2015, we anticipated that theliability for uncertain tax positions, excluding interest and penalties, could decrease by approximately $157,000 within thenext twelve months due to the expiration of certain statutes of limitation in foreign jurisdictions in which we do business. Comparison of the Years Ended December 31, 2014 and 2013 Revenues Year Ended December 31, 2014 2013 Revenue by Type (In thousands) Micro-Transactions $182,213 $79,169 Advertisements 14,566 6,638 Offers 22,984 8,336 Other 2,009 6,151 Feature phone 1,374 5,319 Total revenue $223,146 $105,613 Our revenues increased $117.5 million, or 111.3%, from $105.6 million for the year ended December 31, 2013 to$223.1 million for the year ended December 31, 2014, which was primarily related to a $103.0 million increase in ourrevenues from micro-transactions (in-app purchases) and a $22.6 million increase in our revenues from advertisements andoffers. These increases were primarily driven by the success of our Kim Kardashian: Hollywood, Racing Rivals, and DinoHunter: Deadly Shores titles and the continued success of our Deer Hunter 2014 and Eternity Warriors62 Table of Contents 3 titles during 2014. These increases were partially offset by an $8.1 million decrease in premium and feature phone revenuesdue to the continued migration of users from feature phones to smartphone devices and our decision to concentrate ourproduct development efforts exclusively towards developing new free-to-play titles for smartphones, tablets and other next-generation platforms. Our revenues do not include approximately $37.3 million of revenues as of December 31, 2014 relatingprimarily to micro-transactions and offers that have been deferred over the weighted average useful lives of paying users. In 2014, Kim Kardashian: Hollywood and Deer Hunter 2014 were our top two revenue-generating games andcomprised 27.5% and 26.4%, respectively, of revenue for the period. No other game generated more than 10% of revenueduring the year. International revenues increased by $33.8 million, from $56.9 million in the year ended December 31, 2013 to $90.7million in the year ended December 31, 2014. This was primarily related to a $20.7 million increase in our EMEA revenues, an$8.8 million increase in our APAC revenues, primarily related to increased revenues from Japan, Korea, and China, and a $4.3million increase in our Americas (excluding the United States) revenues. The increase in our international revenues wassupplemented by an increase of $83.8 million in our United States revenues. Cost of Revenues Year Ended December 31, 2014 2013 (In thousands) Cost of revenue: Platform commissions, royalties and other $80,992 $32,806 Amortization of intangible assets 4,767 4,238 Total cost of revenue $85,759 $37,044 Revenue $223,146 $105,613 Gross margin 61.6% 64.9% Our cost of revenues increased $48.7 million, or 131.5%, from $37.0 million in the year ended December 31, 2013 to$85.8 million in the year ended December 31, 2014. This increase was primarily due to a $30.8 million increase in platformcommissions due to a higher volume of revenue transactions through the digital storefronts, a $14.5 million increase inroyalties associated with an increase in royalty-burdened revenues due largely to the success of titles like Kim Kardashian:Hollywood, Racing Rivals and Robocop: The Official Game, a $2.2 million increase in hosting fees to support our free-to-playtitles, a $765,000 increase in non-cash warrant expense due to the vesting of 333,333 shares in connection with the launch ofour game based on MGM’s intellectual property, Hercules, and the vesting of 33,333 shares in connection with our licenseagreement with Kim Kardashian West, and a $529,000 increase in amortization of intangible assets primarily associated withintangible assets purchased through our PlayFirst and Cie Games acquisitions. Revenues attributable to games based uponoriginal intellectual property decreased as a percentage of revenues from 93.3% in the year ended December 31, 2013 to62.7% in the year ended December 31, 2014, primarily due to an increase in revenue generated from games based on orsignificantly incorporating licensed brands and other content, in particular our Kim Kardashian: Hollywood game, whichlaunched in late June 2014. The average royalty rate that we paid on games based on or significantly incorporating licensedbrands or other content, excluding royalty impairments, decreased from 44.8% in the year ended December 31, 2013 to 21.3%in the year ended December 31, 2014, due to lower royalty rates for distribution of certain games based on or significantlyincorporating licensed brands or other content. Overall royalties, including impairment of prepaid royalties and guarantees,as a percentage of total revenues increased from 3.4% in the year ended December 31, 2013 to 8.1% in the year endedDecember 31, 2014. 63 Table of Contents Research and Development Expenses Year Ended December 31, 2014 2013 (In thousands) Research and development expenses $64,284 $46,877 Percentage of revenue 28.8% 44.4% Our research and development expenses increased $17.4 million, or 37.1%, from $46.9 million in the year endedDecember 31, 2013 to $64.3 million in the year ended December 31, 2014. The increase in research and development costswas primarily due to an $8.7 million increase in salaries and benefits, as our research and development headcount increasedfrom 418 employees at December 31, 2013 to 520 employees at December 31, 2014, resulting primarily from headcount addedthrough our PlayFirst and Cie Games acquisitions in the second and third quarters of 2014, respectively. The increase inresearch and development expenses was also driven by a $5.5 million increase in employee stock-based compensationexpense primarily related to fair value changes of the contingent consideration issued to employees who are former Blammoshareholders, as we issued them 750,000 shares in July 2014 in lieu of the potential earnout they would have earned for theirfiscal 2015 earnout period. Further contributing to the increase in research and development expenses was a $1.2 millionincrease in outside services due to higher external developer costs, and a $962,000 increase in temporary and consulting feesassociated with outsourced art, engineering, and quality assurance personnel. As a percentage of revenues, research anddevelopment expenses decreased from 44.4% in the year ended December 31, 2013 to 28.8% in the year ended December 31,2014. Research and development expenses included $7.4 million of stock-based compensation expense in the year endedDecember 31, 2014 and $1.9 million in the year ended December 31, 2013. Sales and Marketing Expenses Year Ended December 31, 2014 2013 (In thousands) Sales and marketing expenses $45,076 $26,120 Percentage of revenue 20.2% 24.7% Our sales and marketing expenses increased $19.0 million, or 72.6%, from $26.1 million in the year ended December31, 2013 to $45.1 million in the year ended December 31, 2014. The increase was primarily due to a $16.7 million increase inmarketing promotions associated with our free-to-play games and an increase of $1.6 million in salaries, benefits and variablecompensation, as our sales and marketing headcount increased from 42 at December 31, 2013 to 54 at December 31, 2014. Asa percentage of revenues, sales and marketing expenses decreased from 24.7% in the year ended December 31, 2013 to 20.2%in the year ended December 31, 2014. Sales and marketing expenses included $701,000 of stock-based compensation expensein the year ended December 31, 2014 and $303,000 in the year ended December 31, 2013. General and Administrative Expenses Year Ended December 31, 2014 2013 (In thousands) General and administrative expenses $25,019 $15,550 Percentage of revenue 11.2% 14.7% Our general and administrative expenses increased $9.5 million, or 60.9%, from $15.6 million in 2013 to $25.0million in 2014. The increase in general and administrative expenses was primarily due to a $5.6 million increase in salaries,benefits and variable compensation resulting from higher attainment of employee and executive bonuses in 2014 and anincrease in the annual base salaries for our executives, a $1.2 million increase in professional services due to higher legal andaccounting fees associated with the acquisitions of PlayFirst and Cie Games, and a $1.5 million increase in stock-basedcompensation due to stock-based awards issued to new employees and other executives. General and administrative expensesalso increased in 2014 by an $835,000 increase in the fair market value of contingent consideration issued to Blammo non-employee shareholders. Our general and administrative headcount increased from 6764 Table of Contents employees at December 31, 2013 to 79 employees at December 31, 2014. As a percentage of revenues, general andadministrative expenses decreased from 14.7% in the year ended December 31, 2013 to 11.2% in the year ended December 31,2014. General and administrative expenses included $3.5 million of stock-based compensation expense in the year endedDecember 31, 2014 and $2.0 million in the year ended December 31, 2013. Other Operating Expenses Our restructuring charge decreased from $1.4 million in the year ended December 31, 2013 to $435,000 in the yearended December 31, 2014, as the restructuring that took place in 2014 resulted in fewer terminated employees. Our amortization of intangible assets decreased from $1.3 million in the year ended December 31, 2013 to $508,000in the year ended December 31, 2014 due to the non-compete agreements associated with our acquisitions of Superscape in2008 and Griptonite in August 2011 being fully amortized in July 2013 and March 2014, respectively. Interest and Other Income/(Expense), Net Interest and other income/(expense), net, decreased from net income of $10,000 in the year ended December 31, 2013to net expense of $1.5 million in the year ended December 31, 2014. This decrease was primarily due to foreign currencylosses related to the revaluation of certain assets and liabilities including accounts payable and accounts receivable. Income Tax Benefit Our income tax benefit increased from $2.8 million in 2013 to $7.6 million in 2014. This change was primarily due tothe release of a portion of our valuation allowance for $6.8 million, primarily resulting from our acquisition of Cie Games andthe release of a $1.2 million liability of uncertain tax positions from 2011 and 2012, and as we received a closure notice for anongoing tax return inquiry in July 2014. The change in income tax benefit was also due to changes in the jurisdictionsincluded in the anticipated effective tax rate computation and changes in pre-tax income in the United States and certainforeign entities. The provision for income taxes differs from the amount computed by applying the statutory U.S. federal rateprincipally due to the effect of our non-U.S. operations, non-deductible stock-based compensation expense, and change inforeign withholding taxes. Our effective income tax rates for future periods will depend on a variety of factors, including changes in the deferredtax valuation allowance, as well as changes in our business such as intercompany transactions, any acquisitions, any changesin our international structure, any changes in the geographic location of our business functions or assets, changes in thegeographic mix of our income, any changes in or termination of our agreements with tax authorities, changes in applicableaccounting rules, applicable tax laws and regulations, rulings and interpretations thereof, developments in tax audit and othermatters, and variations in our annual pre-tax income or loss. We incur certain tax expenses that do not decline proportionatelywith declines in our pre-tax consolidated income or loss. As a result, in absolute dollar terms, our tax expense will have agreater influence on our effective tax rate at lower levels of pre-tax income or loss than at higher levels. In addition, at lowerlevels of pre-tax income or loss, our effective tax rate will be more volatile. At December 31, 2014, we anticipated that theliability for uncertain tax positions, excluding interest and penalties, could decrease by approximately $102,000 within thenext twelve months due to the expiration of certain statutes of limitation in foreign jurisdictions in which we do business. 65 Table of Contents Liquidity and Capital Resources Year Ended December 31, 2015 2014 2013 (In thousands) Consolidated Statement of Cash Flows Data: Cash flows (used in)/provided by operating activities (11,465) 30,574 (9,578) Cash flows used in investing activities (6,924) (26,188) (4,905) Cash flows provided by financing activities 128,370 38,955 20,587 Since our inception, we have generally incurred recurring losses and negative annual cash flows from operatingactivities. As of December 31, 2015, we had an accumulated deficit of $251.2 million. Operating Activities In 2015, net cash used in operating activities was $11.5 million, which was primarily due to a $29.7 million increasein prepaid royalties and license fees and other prepaid assets, as we signed additional celebrity licensing agreements in 2015, anet loss of $7.2 million, a decrease in deferred revenues of $6.2 million, a decrease in accrued royalties of $5.1 million, adecrease in accrued compensation of $3.6 million, a decrease of $2.0 million in accounts payable and other accrued liabilities, a decrease in non-current liabilities of $1.5 million, and adjustments for non-cash items, including stock-based compensationexpense of $11.7 million, amortization expense of $9.8 million, depreciation expense of $2.9 million, and a non-cash warrantexpense of $2.0 million. These factors were partially offset by a decrease in accounts receivable of $13.4 million which wasprimarily due to early cash collection from customers. In 2014, net cash provided by operating activities was $30.6 million, which was primarily due to net income of$8.1 million, an increase in deferred revenues of $18.8 million, an increase in accrued royalties of $10.2 million, an increase inaccrued compensation of $5.3 million, and adjustments for non-cash items, including stock-based compensation expense of$11.6 million, amortization expense of $5.3 million, depreciation expense of $2.5 million, a non-cash warrant expense of $1.2million, and a fair value expense adjustment of $835,000 related to the Blammo earnout for non-employee shareholders. Thesefavorable factors were partially offset by an increase in accounts receivable of $9.2 million, an increase in prepaid expensesand other current assets of $9.1 million, a decrease in non-current liabilities of $8.6 million, an increase in prepaid royalties of$5.2 million, and a decrease of $4.3 million in accounts payable and other accrued liabilities. In 2013, net cash used in operating activities was $9.6 million, compared to net cash used in operating activities of$6.7 million in 2012. This increase in cash utilized in our business was primarily due to a net loss of $19.9 million, an increasein accounts receivable of $6.5 million, an increase in prepaid expenses and other current assets of $2.7 million, a decrease innon-current liabilities of $3.1 million and a decrease in accrued royalties of $1.5 million. These amounts were partially offsetby an increase in deferred revenues of $6.5 million, an increase in accounts payable of $3.3 million, an increase in accruedcompensation of $910,000, and adjustments for non-cash items, including amortization expense of $5.6 million, stock-basedcompensation expense of $4.3 million, depreciation expense of $2.7 million, an impairment of prepaid royalties andguarantees of $435,000 and a non-cash warrant expense of $427,000. Investing Activities Our primary investing activities have consisted of purchases of property and equipment and leasehold improvementsfor our offices and acquisitions of mobile gaming companies. In 2015, we used $6.9 million of cash for investing activities, of which $2.8 million related to property andequipment purchases, $2.5 million related to purchases of intangible assets, $1.9 million related to acquisition considerationpaid to former Cie Games stockholders, and other investments of $251,000, partially offset by a release of $492,000 ofrestricted cash relating to letters of credit on our San Francisco and Bellevue leases. In 2014, we used $26.2 million of cash for investing activities, of which $22.6 million related to the acquisitions66 Table of Contents of PlayFirst and Cie Games and $3.3 million for property and equipment purchases. In 2013, we used $4.9 million of cash for investing activities resulting primarily from deposits of $1.7 million underour letters of credit associated with the sublease for our new San Francisco headquarters lease and our new office for ourBellevue, Washington studio, $2.7 million of property and equipment purchases, $253,000 of intangible asset purchases and$200,000 of other investments. Financing Activities In 2015, net cash provided by financing activities was $128.4 million due primarily to the aggregate net proceeds of$125.2 million, after offering expenses, we received in connection with the purchase of 21,000,000 shares of our commonstock by Red River, as well as $6.1 million related to option and warrant exercises and purchases under our employee stockpurchase plan. These cash inflows were partially offset by $3.0 million of taxes paid related to net share settlement of RSUs. In 2014, net cash provided by financing activities was $39.0 million due to proceeds received from our underwrittenpublic offering in June 2014, option and warrant exercises and purchases under our employee stock purchase plan. These cashinflows were partially offset by payments made on the line of credit agreement and outstanding term loan assumed in ouracquisition of PlayFirst. In 2013, net cash provided by financing activities was $20.6 million due to $14.0 million in net proceeds receivedfrom our underwritten public offering of common stock in September 2013, and $6.6 million of proceeds received from optionand warrant exercises and purchases under our employee stock purchase plan. Sufficiency of Current Cash and Cash Equivalents Our cash and cash equivalents were $180.5 million as of December 31, 2015. Cash and cash equivalents held outsideof the U.S. in various foreign subsidiaries were $6.1 million as of December 31, 2015, most of which were held by our UnitedKingdom, China, and Russia subsidiaries. Under current tax laws and regulations, if cash and cash equivalents held outside theU.S. are distributed to the U.S. in the form of dividends or otherwise, we may be subject to additional U.S. income taxes andforeign withholding taxes. We have not provided deferred taxes on unremitted earnings attributable to foreign subsidiariesbecause these earnings are intended to be reinvested indefinitely. We expect to fund our operations, grow our business and satisfy our contractual obligations during the next 12months primarily through our cash and cash equivalents and cash flows from operations. We believe our cash and cashequivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months; however, our cashrequirements for the next 12 months may be greater than we anticipate due to, among other reasons, revenue that is lower thanwe currently anticipate, greater than expected operating expenses, particularly with respect to our research and developmentand sales and marketing initiatives, use of cash to repurchase our common stock pursuant to the $50 million stock repurchaseprogram approved by our board of directors in January 2016, use of cash to pay minimum guaranteed royalties, use of cash tofund our foreign operations and the impact of foreign currency rate changes, unanticipated limitations or timing restrictions onour ability to access funds that are held in our non-U.S. subsidiaries or any investments or acquisitions that we may decide topursue. We expect to continue to use cash to fund minimum guaranteed royalty payments during 2016 as we increase thenumber of games we publish and/or develop that incorporate third-party licensed property, including signing celebrity licensepartners with significant minimum guaranteed royalty requirements. If the games we develop based on such licensingarrangements fail to perform in accordance with our expectations, we may not fully recoup these minimum guaranteed royaltypayments, which would negatively impact our operating results. If our cash sources are insufficient to satisfy our cash requirements, we may seek to raise additional capital. However,we may be unable to do so on terms that are favorable to us or at all, particularly given current capital market and overalleconomic conditions. 67 Table of Contents Contractual Obligations The following table is a summary of our contractual obligations as of December 31, 2015: Payments Due by Period Total 2016 2017-2018 2019-2020 Thereafter (In thousands) Operating lease obligations $13,168 $4,897 $5,592 $2,679 $ — Guaranteed royalties (1) 36,404 34,358 2,046 — — Total contractual obligations $49,572 $39,255 $7,638 $2,679 $ — (1)We have entered into license and publishing agreements with various owners of brands, properties and other content todevelop and publish games for mobile devices. Pursuant to some of these agreements, we are required to pay minimumguaranteed royalties or license fees over the term of the agreement regardless of actual game sales. (2) We have omitted uncertain income tax liabilities from this table due to the inherent uncertainty regarding the timing ofpotential issue resolution. Specifically, either the underlying positions have not been fully developed enough under audit to quantify at this time or the years relating to the issues for certain jurisdictions are not currently under audit. AtDecember 31, 2015, we had $915,000 of gross unrecognized tax benefits, of which $567,000 was included in "Other long-term Liabilities" and $348,000 was included in "Accounts Payable" in the consolidated balance sheet. Off-Balance Sheet Arrangements At December 31, 2015, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that are not already disclosed in this report. Inflation We do not believe that inflation has had a material effect on our business, financial condition or results of operations.If our costs were to become subject to significant inflationary pressures, we might not be able to fully offset these higher coststhrough price increases. Our inability or failure to do so could harm our business, operating results and financial condition. Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, “Leases.” The new guidance requires lessees to recognize mostleases as assets and liabilities on the balance sheet. Qualitiative and quantitative disclosures will be enhanced to betterunderstand the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for annual andinterim periods beginning after December 31, 2018. The updated standard mandates a modified retrospective transitionmethod with early adoption permitted. We are currently evaluating the effect that the updated standard will have on ourconsolidated financial statements. In November 2015, the FASB issued ASU 2015-17 “Balance Sheet Classification of Deferred Taxes.” The newguidance requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financialposition. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December15, 2016. Early adoption is permitted. We early adopted this guidance on a prospective basis as of December 31, 2015. Theadoption of this standard is not expected to have a material impact on our consolidated financial statements. In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement-PeriodAdjustments.” The new guidance requires that adjustments made to provisional amounts recognized in a businesscombination be recorded in the period such adjustments are determined, rather than retrospectively adjusting previouslyreported amounts. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2015. Early adoption is permitted. We are currently evaluating the effect that the updated standard will have onour consolidated financial statements.68 Table of Contents In April 2015, the FASB issued ASU 2015-05 “Intangibles-Goodwill and Other-Internal-Use Software.” The standardamended the existing accounting standards for intangible assets and provides explicit guidance to customers in determiningthe accounting for fees paid in a cloud computing arrangement, wherein the arrangements that do not convey a softwarelicense to the customer are accounted for as service contracts. The pronouncement is effective for reporting periods beginningafter December 15, 2015. We are currently evaluating the effect that the updated standard will have on our consolidatedfinancial statements. In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. ASU 2015-02 changesthe guidance with respect to the analysis that a reporting entity must perform to determine whether it should consolidatecertain types of legal entities. The new standard is effective for all annual periods, and interim periods within those annualperiods, beginning after December 15, 2015. Early adoption is permitted, but the guidance must be applied as of thebeginning of the annual period containing the adoption date. The adoption of this standard is not expected to have a materialimpact on our consolidated financial statements. In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as aGoing Concern. The new standard provides guidance around management’s responsibility to evaluate whether there issubstantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Thenew standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the our consolidatedfinancial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under this guidance, revenue isrecognized when promised goods or services are transferred to customers in an amount that reflects the consideration that isexpected to be received for those goods or services. The updated standard will replace most existing revenue recognitionguidance under U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effecttransition method. Early adoption is not permitted. The updated standard will be effective for us beginning January 1, 2018. We have not yet selected a transition method and are currently evaluating the effect that the updated standard will have on ourconsolidated financial statements and related disclosures. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate and Credit Risk Our exposure to interest rate risk relates primarily to our investment portfolio and the potential losses arising fromchanges in interest rates. We are potentially exposed to the impact of changes in interest rates as they affect interest earned on our investmentportfolio. As of December 31, 2015, we had no short-term investments and substantially all $180.5 million of our cash andcash equivalents was held in operating bank accounts earning nominal interest. Accordingly, we do not believe that a 10%change in interest rates would have a significant impact on our interest income, operating results or liquidity related to theseamounts. The primary objectives of our investment activities are, in order of importance, to preserve principal, provideliquidity and maximize income without significantly increasing risk. We do not currently use or plan to use derivativefinancial instruments in our investment portfolio. As of December 31, 2015 and December 31, 2014, our cash and cash equivalents were maintained by financialinstitutions in the United States, the United Kingdom, Canada, China, France, Hong Kong, India, Russia, Japan, Korea and ourcurrent deposits are likely in excess of insured limits. Our accounts receivable primarily relate to revenues earned from digital storefront operators and advertising69 Table of Contents platforms. We perform ongoing credit evaluations of our customers’ and the digital storefronts’ financial condition butgenerally require no collateral from them. At December 31, 2015, Apple accounted for 31.4%, Jirbo (dbaAdColony) accounted for 26.2%, and Google accounted for 19.2% of total accounts receivable. At December 31, 2014, Appleaccounted for 55.0%, and Google accounted for 15.2% of total accounts receivable. No other customer or Digital Storefrontrepresented more than 10% of our total accounts receivable as of these dates. Foreign Currency Exchange Risk We transact business in 100 countries in more than 30 different currencies, and in 2015 and 2014, some of thesecurrencies fluctuated significantly. Our revenues are usually denominated in the functional currency of the distributor whilethe operating expenses of our operations outside of the United States are maintained in their local currency, with thesignificant operating currencies consisting of British Pound Sterling (“GBP”), Chinese Renminbi, Euro, and Russian Ruble.Although recording operating expenses in the local currency of our foreign operations mitigates some of the exposure offoreign currency fluctuations, variances among the currencies of our customers and our foreign operations relative to theUnited States Dollar (“USD”) could have and have had a material impact on our results of operations. Our foreign currency exchange gains and losses have been generated primarily from fluctuations in GBP versus theUSD, the Russian Ruble versus the USD and in the Euro versus GBP. At month-end, non-functional currency-denominatedaccounts receivable and intercompany balances are marked to market and unrealized gains and losses are included in otherincome (expense), net. Translation adjustments arising from the use of differing exchange rates are included in accumulatedother comprehensive income in stockholders’ equity. We have in the past experienced, and in the future expect to experience,foreign currency exchange gains and losses on our accounts receivable and intercompany receivables and payables. Foreigncurrency exchange gains and losses could have a material adverse effect on our business, operating results and financialcondition. There is also additional risk if the currency is not freely or actively traded. Some currencies, such as the ChineseRenminbi, in which our Chinese operations principally transact business, are subject to limitations on conversion into othercurrencies, which can limit our ability to react to foreign currency devaluations. To date, we have not engaged in exchange rate hedging activities, and we do not expect to do so in the foreseeablefuture.70 Table of Contents Item 8. Financial Statements and Supplementary Data GLU MOBILE INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Glu Mobile Inc. Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 72 Consolidated Balance Sheets 73 Consolidated Statements of Operations 74 Consolidated Statements of Comprehensive Income/(Loss) 75 Consolidated Statements of Stockholders’ Equity 76 Consolidated Statements of Cash Flows 77 Notes to Consolidated Financial Statements 78 71 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Glu Mobile Inc. In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations,of comprehensive income/ (loss), of stockholders' equity and of cash flows present fairly, in all material respects, the financialposition of Glu Mobile Inc. and its subsidiaries at December 31, 2015 and December 31, 2014, and the results of theiroperations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity withaccounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, inall material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria establishedin Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). The Company's management is responsible for these financial statements, for maintaining effectiveinternal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,included in Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibilityis to express opinions on these financial statements and on the Company's internal control over financial reporting based onour integrated audits. We conducted our audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assuranceabout whether the financial statements are free of material misstatement and whether effective internal control over financialreporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing therisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control basedon the assessed risk. Our audits also included performing such other procedures as we considered necessary in thecircumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies andprocedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary topermit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of thecompany; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, ordisposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate. /s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaMarch 4, 2016 72 Table of Contents GLU MOBILE INC. CONSOLIDATED BALANCE SHEETS(in thousands, except per share data) As of December 31, 2015 2014 ASSETS Current assets: Cash and cash equivalents $180,542 $70,912 Accounts receivable, net 17,956 32,231 Prepaid royalties (including prepaid royalties to a related party of $7,949 and $0 as of December 31, 2015and December 31, 2014, respectively) 23,715 864 Prepaid expenses and other assets 14,841 17,388 Total current assets 237,054 121,395 Property and equipment, net 5,447 6,116 Restricted cash 1,498 1,990 Long-term prepaid royalties (including long-term prepaid royalties to a related party of $2,051 and $0 as ofDecember 31, 2015 and December 31, 2014, respectively) 46,944 5,870 Other long-term assets 1,386 804 Intangible assets, net (including intangible assets acquired from a related party of $5,000 and $0 as ofDecember 31, 2015 and December 31, 2014, respectively) 22,767 27,524 Goodwill 87,890 87,964 Total assets $402,986 $251,663 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $9,386 $11,685 Accrued liabilities 1,996 3,812 Accrued compensation 7,100 10,751 Accrued royalties and license fees (including accrued royalties and license fees to a related party of$10,449 and $0 as of December 31, 2015 and December 31, 2014, respectively) 21,032 12,440 Deferred revenue 31,112 37,333 Total current liabilities 70,626 76,021 Long-term accrued royalties (including long-term accrued royalties to a related party of $2,051 and $0 as ofDecember 31, 2015 and December 31, 2014, respectively) 24,347 870 Other long-term liabilities 1,585 3,066 Total liabilities 96,558 79,957 Commitments and contingencies (Note 7) Stockholders’ equity: Preferred stock, $0.0001 par value; 5,000 shares authorized at December 31, 2015 and 2014; no sharesissued and outstanding at December 31, 2015 and 2014 — — Common stock, $0.0001 par value; 250,000 shares authorized at December 31, 2015 and 2014; 131,580and 107,174 shares issued and outstanding at December 31, 2015 and 2014 13 11 Additional paid-in capital 557,748 415,766 Accumulated other comprehensive loss (85) (8) Accumulated deficit (251,248) (244,063) Total stockholders’ equity 306,428 171,706 Total liabilities and stockholders’ equity $402,986 $251,663 The accompanying notes are an integral part of these consolidated financial statements. 73 Table of Contents GLU MOBILE INC. CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) Year Ended December 31, 2015 2014 2013 Revenue $249,900 $223,146 $105,613 Cost of revenue: Platform commissions, royalties and other 98,184 80,992 32,806 Amortization of intangible assets 9,553 4,767 4,238 Total cost of revenue 107,737 85,759 37,044 Gross profit 142,163 137,387 68,569 Operating expenses: Research and development 72,856 64,284 46,877 Sales and marketing 48,240 45,076 26,120 General and administrative 26,092 25,019 15,550 Amortization of intangible assets 201 508 1,336 Restructuring charge 1,075 435 1,448 Total operating expenses 148,464 135,322 91,331 Income/(loss) from operations (6,301) 2,065 (22,762) Interest income and other expense, net: Interest income 49 30 16 Other expense (792) (1,502) (6) Interest income and other expense, net (743) (1,472) 10 Income/(loss) before income taxes (7,044) 593 (22,752) Income tax benefit/(provision) (141) 7,555 2,843 Net income/(loss) $(7,185) $8,148 $(19,909) Net income/(loss) per common share: Basic $(0.06) $0.09 $(0.28) Diluted (0.06) 0.08 (0.28) Weighted average common shares outstanding - basic and diluted Basic 118,775 91,826 71,453 Diluted 118,775 96,922 71,453 The accompanying notes are an integral part of these consolidated financial statements.74 Table of Contents GLU MOBILE INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)(in thousands) Year Ended December 31, 2015 2014 2013 Net income/(loss) $(7,185) $8,148 $(19,909) Other comprehensive income/(loss): Foreign currency translation adjustments (77) (315) 378 Reclassification to net loss (1) — — (238) Other comprehensive income/(loss): (77) (315) 140 Comprehensive income/(loss) $(7,262) $7,833 $(19,769) (1)The reclassification to net loss relates to the write-off of cumulative translation adjustment upon substantial liquidation of the Company’sBrazilian entity and is recognized in Restructuring charge in the Company’s consolidated statement of operations for the year ended December31, 2013. The accompanying notes are an integral part of these consolidated financial statements. 75 Table of Contents GLU MOBILE INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands) Accumulated Other Compre- Total Additional hensive Stockholders' Common Stock Paid-In Income Accumulated Equity Shares Amount Capital (loss) Deficit Deficit (In thousands, except per share data) Balances at December 31, 2012 66,022 $6 $271,016 $167 $(232,302) $38,887 Net loss - - - - (19,909) (19,909) Stock-based compensation expense - - 4,113 - - 4,113 Issuance of common stock upon exercise of stock options 958 - 1,295 - - 1,295 Issuance of common stock upon exercise of warrants 2,886 1 4,328 - - 4,329 Issuance of common stock as consideration for property andequipment 89 - 189 - 189 Issuance of common stock pursuant to Employee Stock Purchase Plan 522 - 978 - - 978 Issuance of common stock as contingent consideration earned 742 - 2,263 - 2,263 Issuance of common stock upon Public Offering, net of issuancecosts 7,245 1 13,984 - 13,985 Non-cash warrant expense - - 427 - 427 Other comprehensive loss - - - 140 - 140 Balances at December 31, 2013 78,464 $8 $298,593 $307 $(252,211) $46,697 Net loss - - - - 8,148 8,148 Stock-based compensation expense - - 7,073 - - 7,073 Issuance of common stock upon exercise of stock options 2,867 1 6,270 - - 6,271 Issuance of common stock upon exercise of warrants 1,191 - 2,786 - - 2,786 Taxes paid related to net share settlement of equity awards 348 (896) (896) Issuance of common stock pursuant to Employee Stock Purchase Plan 426 - 1,076 - - 1,076 Issuance of common stock as contingent consideration earned 1,185 - 5,821 - - 5,821 Issuance of common stock upon Public Offering, net of issuancecosts 9,861 1 32,057 - - 32,058 Non-cash warrant expense - - 1,126 - - 1,126 Issuance of common stock as consideration for acquisitions 12,832 1 61,860 61,861 Other comprehensive income - - - (315) - (315) Balances at December 31, 2014 107,174 $11 $415,766 $(8) $(244,063) $171,706 Net loss - - - - (7,185) (7,185) Stock-based compensation expense - - 11,686 - - 11,686 Issuance of common stock upon exercise of stock options 1,440 - 3,794 - - 3,794 Issuance of common stock upon exercise of warrants 450 - 676 - - 676 Taxes paid related to net share settlement of equity awards 1,090 - (3,018) - - (3,018) Tax benefits of exercised stock options - - 107 - - 107 Issuance of common stock pursuant to Employee Stock Purchase Plan 426 - 1,655 - - 1,655 Issuance of common stock upon private offering, net of issuance costs 21,000 2 125,154 - - 125,156 Non-cash warrant expense - - 1,928 - - 1,928 Other comprehensive loss - - - (77) - (77) Balances at December 31, 2015 131,580 $13 $557,748 $(85) $(251,248) $306,428 The accompanying notes are an integral part of these consolidated financial statements. 76 Table of ContentsGLU MOBILE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2015 2014 2013 Cash flows from operating activities: Net income/(loss) $(7,185) $8,148 $(19,909) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 2,861 2,513 2,707 Amortization of intangible assets 9,754 5,275 5,574 Stock-based compensation 11,686 11,633 4,285 Change in fair value of Blammo earnout — 835 7 Non-cash warrant expense 2,009 1,192 427 Non-cash foreign currency remeasurement loss 792 1,495 23 Other non-cash income tax expense — 1,531 — Impairment of prepaid royalties and guarantees 2,502 257 435 Non-cash restructuring charges — — 244 Changes in allowance for doubtful accounts 418 (162) 27 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable 13,408 (9,195) (6,540) Prepaid royalties(31,776)(5,209)(742)Prepaid expenses and other assets 2,049 (9,123) (1,984) Accounts payable (1,701) (4,298) 3,347 Accrued liabilities (259) (20) (157) Accrued compensation (3,639) 5,259 910 Accrued royalties and license fees (including accrued royalties and license fees to a relatedparty of $2,500, $0, and $0 as of December 31, 2015, December 31, 2014, and December31, 2013, respectively) (5,070) 10,231 (1,495) Deferred revenue (6,208) 18,810 6,499 Accrued restructuring 342 — (161) Other long-term liabilities (1,448) (8,598) (3,075) Net cash (used in)/provided by operating activities (11,465) 30,574 (9,578) Cash flows from investing activities: Purchase of property and equipment (2,751) (3,292) (2,722) Restricted Cash 492 (60) (1,730) Other investing activities (251) (250) (200) Purchase of intangible assets (including purchase of intangible assets from a related party of$2,500, $0, and $0 as of December 31, 2015, December 31, 2014, and December 31, 2013,respectively) (2,500) — (253) Cash paid for acquisitions, net of cash acquired (1,914) (22,586) — Net cash used in investing activities (6,924) (26,188) (4,905) Cash flows from financing activities: PlayFirst payments on acquired line of credit and term loan — (2,340) — Proceeds from public offering, net of issuance costs — 32,058 13,985 Taxes paid related to net share settlement of equity awards (3,018) (896) — Proceeds from exercise of stock options and ESPP 5,449 7,347 2,273 Proceeds from exercise of stock warrants and issuance of common stock 676 2,786 4,329 Excess tax benefit from stock awards 107 — — Proceeds from private offering, net of issuance costs 125,156 — — Net cash provided by financing activities 128,370 38,955 20,587 Effect of exchange rate changes on cash (351) (925) 67 Net increase in cash and cash equivalents 109,630 42,416 6,171 Cash and cash equivalents at beginning of period 70,912 28,496 22,325 Cash and cash equivalents at end of period $180,542 $70,912 $28,496 Supplemental disclosures of cash flow information Common stock issued for acquisitions $ — 61,861 — Common stock issued for property and equipment $ — — 189 Common stock issued as contingent consideration earned $ — $5,821 2,263 Income taxes paid $310 303 269 The accompanying notes are an integral part of these consolidated financial statements.77 Table of Contents GLU MOBILE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except per share data and percentages) NOTE 1 — THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company Glu Mobile Inc. (the “Company” or “Glu”) was incorporated in Nevada in May 2001 and reincorporated in the stateof Delaware in March 2007. The Company develops, publishes, and markets a portfolio of games designed for users ofsmartphones and tablet devices who download and make purchases within its games through direct-to-consumer digitalstorefronts, such as the Apple App Store, Google Play Store, Amazon Appstore and others (“Digital Storefronts”). TheCompany creates games based on its own original brands, as well as third-party licensed brands, properties and other content. Basis of Presentation The Company's consolidated financial statements have been prepared in accordance with accounting principlesgenerally accepted in the United States. Basis of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Allmaterial intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accountingprinciples (“U.S. GAAP”) requires the Company’s management to make judgments, assumptions and estimates that affect theamounts reported in its consolidated financial statements and accompanying notes. Management bases its estimates onhistorical experience and on various other assumptions it believes to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assets and liabilities. Significant estimates andassumptions reflected in the financial statements include, but are not limited to, the estimated lives that the Company uses forrevenue recognition, the allowance for doubtful accounts, useful lives of property and equipment and intangible assets,valuation and realizibility of deferred tax assets and uncertain tax positions, fair value of stock awards issued and contingentconsideration issued to Blammo shareholders, fair value of warrants issued, accounting for business combinations, evaluatinggoodwill, and long-lived assets for impairment and realization of prepaid royalties. Actual results may differ from theseestimates and these differences may be material. Revenue Recognition The Company generates revenues through in-app purchases within its games on smartphones and tablets, such asApple’s iPhone and iPad and mobile devices utilizing Google’s Android operating system. Smartphone and tablet games aredistributed primarily through Digital Storefronts. Revenue The Company distributes its games for smartphones and tablets to the end customer through Digital Storefronts.Within these Digital Storefronts, users can download the Company’s free-to-play games and pay to acquire virtual currencywhich can be redeemed in the game for virtual goods. The Company recognizes revenue, when persuasive evidence of anarrangement exists, the service has been provided to the user, the price paid by the user is fixed or determinable, andcollectability is reasonably assured. Determining whether and when some of these criteria have been satisfied requiresjudgments that may have a significant impact on the timing and amount of revenue the Company reports78 Table of Contents in each period. For the purposes of determining when the service has been provided to the player, the Company hasdetermined that an implied obligation exists to the paying user to continue displaying the purchased virtual goods within thegame over the estimated average playing period of paying players for the game, which represents the Company’s best estimateof the estimated average life of virtual goods. The Company sells both consumable and durable virtual goods and receives reports from the Digital Storefronts,which breakdown the various purchases made from their games over a given time period. The Company reviews these reportsto determine on a per-item basis whether the purchase was a consumable virtual good or a durable virtual good. Consumablegoods are items that can be purchased directly by the player through the Digital Storefront and are consumed at apredetermined time or otherwise have limitations on repeated use, while durable goods are items accessible to the user over anextended period of time. The Company’s revenues from consumable virtual goods have been insignificant over the previousthree years. The Company recognizes the revenues from these items immediately, since it believes that the delivery obligationhas been met and there are no further implicit or explicit performance obligations related to the purchase of that consumablevirtual good. Revenues from durable virtual goods are generated through the purchase of virtual coins by users through aDigital Storefront. Players convert the virtual coins within the game to durable virtual goods such as weapons, armor or otheraccessories to enhance their game-playing experience. The durable virtual goods remain in the game for as long as the playercontinues to play. The Company believes this represents an implied service obligation, and accordingly, recognizes therevenues from the purchase of these durable virtual goods over the estimated average playing period of paying users. Based onthe Company’s analysis, the estimated weighted average useful life of a paying user is approximately three months for themajority of our games, except for four games for which the estimated weighted average useful life of a paying user has beendetermined to be approximately four months primarily due to more social features in these games resulting in higher retentionrates of users. If a new game is launched and only a limited period of paying player data is available, then the Company alsoconsiders other quantitative and qualitative factors, such as the playing patterns for paying users for other games with similarcharacteristics. While the Company believes its estimates to be reasonable based on available game player information, it mayrevise such estimates in the future as the games’ operation periods change. Any adjustments arising from changes in theestimates of the lives of these virtual goods would be applied to the current quarter and prospectively on the basis that suchchanges are caused by new information indicating a change in game player behavior patterns. Any changes in the Company’sestimates of useful lives of these virtual goods may result in revenues being recognized on a basis different from prior periods’and may cause its operating results to fluctuate. The Company also has relationships with certain advertising service providers for advertisements within smartphonegames and revenue from these advertising providers is generated through impressions, clickthroughs, banner ads and offers.Revenue is recognized as advertisements are delivered and reported to the Company, an executed contract exists, the price isfixed or determinable and collectability has been reasonably assured. Delivery generally occurs when the advertisement hasbeen displayed or the offer has been completed by the user. The fee received for certain offer advertisements that result in theuser receiving virtual currency for redemption within a game are deferred and recognized over the average playing period ofpaying users. Other Estimates and Judgments The Company estimates revenues from Digital Storefronts in the current period when reasonable estimates of theseamounts can be made. Certain Digital Storefronts provide reliable interim preliminary reporting and others report sales datawithin a reasonable time frame following the end of each month, both of which allow the Company to make reasonableestimates of revenues and therefore to recognize revenues during the reporting period. Determination of the appropriateamount of revenue recognized involves judgments and estimates that the Company believes are reasonable, but it is possiblethat actual results may differ from the Company’s estimates. When the Company receives the final reports, to the extent notreceived within a reasonable time frame following the end of each month, the Company records any differences betweenestimated revenues and actual revenues in the reporting period when the Company determines the actual amounts.Historically, the revenues on the final revenue report have not differed significantly from the reported revenues for the period. 79 Table of Contents Principal Agent Considerations In accordance with ASC 605-45, Revenue Recognition: Principal Agent Considerations, the Company evaluates itsDigital Storefront and advertising service provider agreements in order to determine whether or not it is acting as the principalor as an agent when selling its games or when selling advertisements within its games, which it considers in determining ifrevenue should be reported gross or net. The Company primarily uses Digital Storefronts for distributing its smartphone gamesand advertising service providers for serving advertisements within its games. Key indicators that the Company evaluates toreach this determination include: ·the terms and conditions of the Company’s contracts with the Digital Storefronts and advertising serviceproviders; ·the party responsible for billing and collecting fees from the end-users, including the resolution of billingdisputes; ·whether the Company is paid a fixed percentage of the arrangement’s consideration or a fixed fee for each game,transaction, or advertisement; ·the party which sets the pricing with the end-user, has the credit risk and provides customer support; and ·the party responsible for the fulfillment of the game or serving of advertisements and that determines thespecifications of the game or advertisement. Based on the evaluation of the above indicators, the Company has determined that it is generally acting as a principaland is the primary obligor to end-users for smartphone games distributed through digital storefronts and advertisements servedthrough our advertising service providers. Therefore, the Company recognizes revenue related to these arrangements on agross basis, when the necessary information about the gross amounts or platform fees charged, before any adjustments, aremade available by the Digital Storefronts and advertising service providers. Deferred Platform Commissions and Royalties Digital Storefronts retain platform commissions and fees on each purchase made by the paying players through theDigital Storefront. The Company is also obligated to pay ongoing licensing fees in the form of royalties related to the gamesdeveloped based on or significantly incorporating licensed brands, properties or other content, and the Company plans toincorporate additional licensed content in even its own originally branded games. Additionally, certain smartphone gamessold through digital storefronts require the revenue to be deferred due to an implied obligation to the paying player tocontinue displaying the purchased virtual goods within the game over the estimated average playing period of paying playersfor the game. As revenues from sales to paying players through Digital Storefronts are deferred, the related direct andincremental platform commissions and fees as well as third-party royalties are also deferred and reported in “Prepaid expensesand other” on the consolidated balance sheets. The deferred platform commissions and royalties are recognized in theconsolidated statements of operations in “Cost of revenues” in the period in which the related sales are recognized asrevenues. Cash and Cash Equivalents The Company considers all investments purchased with an original or remaining maturity of three months or less atthe date of purchase to be cash equivalents. The Company deposits cash and cash equivalents with financial institutions thatmanagement believes are of high credit quality. Deposits held with financial institutions often exceed the amount of insuranceon these deposits. Restricted Cash Restricted cash consists of deposits related to letters of credit to secure obligations under the Company’s80 Table of Contents operating lease agreements. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cashequivalents and accounts receivable. The Company derives its accounts receivable from revenues earned from customers or through Digital Storefrontslocated in the U.S. and other locations outside of the U.S. The Company performs ongoing credit evaluations of its customers’and the Digital Storefronts’ financial condition and, generally, requires no collateral from its customers or the DigitalStorefronts. The Company bases its allowance for doubtful accounts on management’s best estimate of the amount of probablecredit losses in the Company’s existing accounts receivable. The Company reviews past due balances over a specified amountindividually for collectability on a monthly basis. It reviews all other balances quarterly. The Company charges off accountsreceivable balances against the allowance when it determines that the amount will not be recovered. The following table summarizes the revenues from customers or aggregate purchases through Digital Storefronts inexcess of 10% of the Company’s revenues: Year Ended December 31, 2015 2014 2013 Apple 51.7% 52.2% 50.1% Google 27.4% 24.8% 19.2% At December 31, 2015, Apple Inc. (“Apple”) accounted for 31.4%, Jirbo (dba AdColony) accounted for 26.2%, andGoogle Inc. (“Google”) accounted for 19.2% of total accounts receivable. At December 31, 2014, Apple accounted for 55.0%,and Google accounted for 15.2% of total accounts receivable. No other customer or Digital Storefront represented more than10% of the Company’s total accounts receivable as of these dates. Fair Value The Company accounts for fair value in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC820”). Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer aliability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction betweenmarket participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximizethe use of observable inputs and minimize the use of unobservable inputs. The Company uses a three tier hierarchy, whichprioritizes the inputs used in measuring fair value as follows: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similarassets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroboratedby observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fairvalue of the assets or liabilities. The first two levels in the hierarchy are considered observable inputs and the last is considered unobservable. TheCompany’s cash and cash equivalents, which were held in operating bank accounts, are classified within Level 1 of the fairvalue hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternative pricing sourceswith reasonable levels of price transparency. Please refer to Note 4 for further details.81 Table of Contents Prepaid or Guaranteed Licensor Royalties The Company’s royalty expenses consist of fees that it pays to content owners for the use of their brands, propertiesand other licensed content, including trademarks and copyrights, in the development of the Company’s games. Royalty-basedobligations are either paid in advance and capitalized on the balance sheet as prepaid royalties or accrued as incurred andsubsequently paid. These royalty-based obligations are expensed to cost of revenues at the greater of the revenues derivedfrom the relevant game multiplied by the applicable contractual rate or an effective royalty rate based on expected net productsales. Advanced license payments that are not recoupable against future royalties are capitalized and amortized over the lesserof the estimated life of the title incorporating licensed content or the term of the license agreement. The Company’s contracts with some licensors include minimum guaranteed royalty payments, which are payableregardless of the ultimate revenue generated from end users. In accordance with ASC 440-10, Commitments (“ASC 440”), theCompany recorded a minimum guaranteed liability of $36,404 and $1,434 as of December 31, 2015 and 2014, respectively.When no significant performance remains with the licensor, the Company initially records each of these guarantees as an assetand as a liability at the contractual amount. The Company believes that the contractual amount represents the fair value of theliability. When significant performance remains with the licensor, the Company records royalty payments as an asset whenactually paid and as a liability when incurred, rather than upon execution of the contract. The Company classifies minimumroyalty payment obligations as current liabilities to the extent they are contractually due within the next twelve months. Each quarter, the Company evaluates the realization of its prepaid and guaranteed royalties as well as anyunrecognized guarantees not yet paid to determine amounts that it deems unlikely to be realized through product sales. TheCompany uses estimates of revenues to evaluate the future realization of prepaid royalties and guarantees. This evaluationconsiders multiple factors, including the term of the agreement, forecasted demand, game life cycle status, game developmentplans, social following of the Company’s celebrity licensors, and current and anticipated sales levels, as well as otherqualitative factors such as the success of similar games and similar genres on mobile devices for the Company and itscompetitors. To the extent that this evaluation indicates that the remaining prepaid and guaranteed royalty payments are notrecoverable, the Company records an impairment charge to cost of revenues in the period that impairment is indicated. TheCompany recorded impairment charges to cost of revenues of $2,502, $257, and $435 during the years ended December 31,2015, 2014, and 2013, respectively. Goodwill and Intangible Assets In accordance with ASC 350, Intangibles-Goodwill and Other (“ASC 350”), the Company’s goodwill is notamortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that thecarrying amount of these assets may not be recoverable. Under ASC 350, the Company performs the annual impairment reviewof its goodwill balance as of September 30. This impairment review involves a multiple-step process as follows: Step — 0 The Company evaluates qualitative factors and overall financial performance to determine whether it isnecessary to perform the first step of the two-step goodwill test. This step is referred to as “Step 0.” Step 0 involves, amongother qualitative factors, weighing the relative impact of factors that are specific to the reporting unit as well as industry andmacroeconomic factors. After assessing those various factors, if it is determined that it is more likely than not that the fairvalue of a reporting unit is less than its carrying amount, then the entity will need to proceed to the first step of the two-stepgoodwill impairment test. Step — 1 The Company compares the fair value of each of its reporting units to the carrying value includinggoodwill of that unit. For each reporting unit where the carrying value, including goodwill, exceeds the unit’s fair value, theCompany moves on to step 2. If a unit’s fair value exceeds the carrying value, no further work is performed and no impairmentcharge is necessary. 82 Table of Contents Step — 2 The Company performs an allocation of the fair value of the reporting unit to its identifiable tangible andintangible assets (other than goodwill) and liabilities. This allows the Company to derive an implied fair value for the unit’sgoodwill. The Company then compares the implied fair value of the reporting unit’s goodwill with the carrying value of theunit’s goodwill. If the carrying amount of the unit’s goodwill is greater than the implied fair value of its goodwill, animpairment charge would be recognized for the excess. In 2015, 2014 and 2013, the Company did not record any goodwill impairment charges as it was determined that itwas more likely than not that the fair values of the reporting units exceeded their respective carrying values. Purchased intangible assets with finite lives are amortized using the straight-line method over their useful livesranging from one to nine years and are reviewed for impairment in accordance with ASC 360, Property, Plant and Equipment(“ASC 360”). Long-Lived Assets The Company evaluates its long-lived assets, including property and equipment and intangible assets with finitelives, for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not berecoverable in accordance with ASC 360. Factors considered important that could result in an impairment review includesignificant underperformance relative to expected historical or projected future operating results, significant changes in themanner of use of acquired assets, significant negative industry or economic trends, and a significant decline in the Company’sstock price for a sustained period of time. The Company recognizes impairment based on the difference between the fair valueof the asset and its carrying value. Fair value is generally measured based on either quoted market prices, if available, or adiscounted cash flow analysis. Property and Equipment The Company states property and equipment at cost. The Company computes depreciation or amortization using thestraight-line method over the estimated useful lives of the respective assets or, in the case of leasehold improvements, the leaseterm of the respective assets, whichever is shorter. The depreciation and amortization periods for the Company’s property and equipment are as follows: Computer equipmentThree years Computer softwareThree years Furniture and fixturesThree years Leasehold improvementsShorter of the estimated useful life or remaining term of lease Research and Development Costs The Company charges costs related to research, design and development of products to research and developmentexpense as incurred. The types of costs included in research and development expenses include salaries, contractor fees andallocated facilities costs. Software Development Costs The Company applies the principles of ASC 985-20, Software-Costs of Computer Software to Be Sold, Leased,or Otherwise Marketed (“ASC 985-20”). ASC 985-20 requires that software development costs incurred in conjunction withproduct development be charged to research and development expense until technological feasibility is established.Thereafter, until the product is released for sale, software development costs must be capitalized and reported at the lower ofunamortized cost or net realizable value of the related product. The Company has adopted the “tested working model”approach to establishing technological feasibility for its games. Under this approach, the Company does not consider a gamein development to have passed the technological feasibility milestone until the Company has completed a model of83 Table of Contents the game that contains essentially all the functionality and features of the final game and has tested the model to ensure that itworks as expected. To date, the Company has not incurred significant costs between the establishment of technologicalfeasibility and the release of a game for sale; thus, the Company has expensed all software development costs as incurred. TheCompany considers the following factors in determining whether costs can be capitalized: the uncertainty regarding a game’srevenue-generating potential and its historical practice of canceling games at any stage of the development process. Internal Use Software The Company recognizes internal use software development costs in accordance with ASC 350-40, Intangibles-Goodwill and Other-Internal Use Software (“ASC 350-40”). Thus, the Company capitalizes software development costs,including costs incurred to purchase third-party software, beginning when it determines certain factors are present including,among others, that technology exists to achieve the performance requirements and/or buy versus internal developmentdecisions have been made. The Company capitalized certain internal use software costs totaling approximately $615, $2,165and $249 during the years ended December 31, 2015, 2014, and 2013, respectively. The estimated useful life of costscapitalized is generally three years. During the years ended December 31, 2015, 2014 and 2013, the amortization ofcapitalized software costs totaled approximately $1,155, $950 and $1,097, respectively. Capitalized internal use softwaredevelopment costs are included in property and equipment, net. Income Taxes In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes.” This updaterequires an entity to classify deferred tax liabilities and assets as noncurrent within a classified statement of financial position.ASU 2015-17 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. Thisupdate may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.Early application is permitted as of the beginning of the interim or annual reporting period. The Company adopted ASU 2015-17 on a prospective basis as of December 31, 2015. The adoption of ASU 2015-17 did not have a material impact on theCompany’s consolidated financial statements. The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requiresrecognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included inits financial statements or tax returns. Under ASC 740, the Company determines deferred tax assets and liabilities based on thetemporary difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effectfor the year in which it expects the differences to reverse. The Company establishes valuation allowances when necessary toreduce deferred tax assets to the amount it expects to realize. The Company accounts for uncertain tax positions in accordance with ASC 740, which requires companies to adjusttheir financial statements to reflect only those tax positions that are more-likely-than-not to be sustained. ASC 740 prescribesa comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain taxpositions taken or expected to be taken in income tax returns. The Company’s policy is to recognize interest and penaltiesrelated to unrecognized tax benefits in income tax expense. Restructuring The Company accounts for costs associated with employee terminations and other exit activities in accordance withASC 420, Exit or Disposal Cost Obligations (“ASC 420”). The Company records employee termination benefits as anoperating expense when it communicates the benefit arrangement to the employee and it requires no significant futureservices, other than a minimum retention period, from the employee to earn the termination benefits. Stock-Based Compensation The Company applies the fair value provisions of ASC 718, Compensation-Stock Compensation (“ASC 718”). ASC718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-84 Table of Contents based payments including stock options and restricted stock units (“RSUs”). ASC 718 requires companies to estimate the fairvalue of stock-option awards on the grant date using an option pricing model. The fair value of stock options and stockpurchase rights granted pursuant to the Company’s equity incentive plans and 2007 Employee Stock Purchase Plan (“ESPP”),respectively, is determined using the Black-Scholes valuation model. The determination of fair value is affected by the stockprice, as well as assumptions regarding subjective and complex variables such as expected employee exercise behavior andexpected stock price volatility over the expected term of the award. Generally, these assumptions are based on historicalinformation and judgment is required to determine if historical trends may be indicators of future outcomes. Employee stock-based compensation expense is calculated based on awards ultimately expected to vest and is reduced for estimatedforfeitures. Forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates and anadjustment to stock-based compensation expense will be recognized at that time. Changes to the assumptions used in theBlack-Scholes option valuation calculation and the forfeiture rate, as well as future equity granted or assumed throughacquisitions could significantly impact the compensation expense the Company recognizes. The cost of RSUs is determinedusing the fair value of the Company’s common stock based on the quoted closing price of the Company’s common stock onthe date of grant, and is reduced for estimated forfeitures. The compensation cost for all share-based payment awards isamortized on a straight-line basis over the requisite service period. The Company has elected to use the “with and without” approach under which windfall benefit is recognized only ifan incremental benefit is provided after considering all other tax attributes presently available to the Company. As a result, theCompany will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefitis realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company haselected to account for the indirect effects of stock-based awards on other tax attributes, such as the research tax credit, throughits statement of operations. The Company accounts for equity instruments issued to non-employees in accordance with the provisions of ASC718 and ASC 505-50. Advertising Expenses The Company expenses the production costs of advertising, including direct response advertising, the first time theadvertising takes place. Advertising expense was $38,481, $35,169 and $18,308 in the years ended December 31, 2015, 2014and 2013, respectively. Comprehensive Income/(loss) Comprehensive income/(loss) consists of two components, net income/(loss) and other comprehensive income/(loss).Other comprehensive income/(loss) refers to revenues, expenses, gains and losses that under GAAP are recorded as an elementof stockholders’ equity but are excluded from net income/(loss). The Company’s other comprehensive income/(loss) includedforeign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency, and areclassification to net loss from the write-off of cumulative translation adjustment. Foreign Currency Translation In preparing its consolidated financial statements, the Company translates the financial statements of its foreignsubsidiaries from their functional currencies, the local currency, into U.S. Dollars. This process resulted in unrealized exchangegains and losses, which are included as a component of accumulated other comprehensive loss within stockholders’ deficit.However, if the functional currency is deemed to be the U.S. Dollar, any gain or loss associated with the translation of thesefinancial statements would be included within the Company’s consolidated statements of operations. Cumulative foreign currency translation adjustments include any gain or loss associated with the translation of asubsidiary’s financial statements when the functional currency of a subsidiary is the local currency. If the Company disposesof any of its subsidiaries, any cumulative translation gains or losses would be realized and recorded within the Company’sconsolidated statement of operations in the period during which the disposal occurs. If the Company85 Table of Contents determines that there has been a change in the functional currency of a subsidiary relative to the U.S. Dollar, any translationgains or losses arising after the date of change would be included within the Company’s consolidated statement of operations. Business Combination The Company applies the accounting standard related to business combinations, ASC 805, Business Combinations(“ASC 805’). The standard requires recognition of assets acquired, liabilities assumed, and contingent consideration at theirfair value on the acquisition date with subsequent changes recognized in earnings; requires acquisition-related expenses andrestructuring costs to be recognized separately from the business combination and expensed as incurred; requires in-processresearch and development to be capitalized at fair value as an indefinite-lived intangible asset until completion orabandonment; and requires that changes in accounting for deferred tax asset valuation allowances and acquired income taxuncertainties after the measurement period be recognized as a component of provision for taxes. The Company accounts for acquisitions of entities or assets that include inputs and processes and have the ability tocreate outputs as business combinations. The purchase price of the acquisition is allocated to tangible assets, liabilities, andidentifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over those fairvalues is recorded as goodwill. Acquisition-related expenses and restructuring costs are expensed as incurred. While theCompany uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assetsacquired and liabilities assumed at the business combination date, these estimates and assumptions are inherently uncertainand subject to refinement. As a result, during the preliminary purchase price allocation period, which may be up to one yearfrom the business combination date, the Company may record adjustments to the assets acquired and liabilities assumed, withthe corresponding offset to goodwill. After the preliminary purchase price allocation period, the Company records adjustmentsto assets acquired or liabilities assumed subsequent to the purchase price allocation period in its operating results in the periodin which the adjustments were determined. Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, “Leases.” The new guidance requires lessees to recognize mostleases as assets and liabilities on the balance sheet. Qualitiative and quantitative disclosures will be enhanced to betterunderstand the amount, timing and uncertainty of cash flows arising from leases. The guidance is effective for annual andinterim periods beginning after December 31, 2018. The updated standard mandates a modified retrospective transitionmethod with early adoption permitted. The Company is currently evaluating the effect that the updated standard will have onits consolidated financial statements. In November 2015, the FASB issued ASU 2015-17 “Balance Sheet Classification of Deferred Taxes.” The newguidance requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financialposition. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December15, 2016. Early adoption is permitted. The Company early adopted this guidance on a prospective basis as of December 31,2015. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements. See"Note 10 - Income Taxes" for additional information. In September 2015, the FASB issued ASU 2015-16 “Simplifying the Accounting for Measurement-PeriodAdjustments.” The new guidance requires that adjustments made to provisional amounts recognized in a businesscombination be recorded in the period such adjustments are determined, rather than retrospectively adjusting previouslyreported amounts. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2015. Early adoption is permitted. The Company is currently evaluating the effect that the updated standardwill have on its consolidated financial statements. In April 2015, the FASB issued ASU 2015-05 “Intangibles-Goodwill and Other-Internal-Use Software.” The standardamended the existing accounting standards for intangible assets and provides explicit guidance to customers in determiningthe accounting for fees paid in a cloud computing arrangement, wherein the arrangements that do not convey86 Table of Contents a software license to the customer are accounted for as service contracts. The pronouncement is effective for reporting periodsbeginning after December 15, 2015. The Company is currently evaluating the effect that the updated standard will have on itsconsolidated financial statements. In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. ASU 2015-02 changesthe guidance with respect to the analysis that a reporting entity must perform to determine whether it should consolidatecertain types of legal entities. The new standard is effective for all annual periods, and interim periods within those annualperiods, beginning after December 15, 2015. Early adoption is permitted, but the guidance must be applied as of thebeginning of the annual period containing the adoption date. The adoption of this standard is not expected to have a materialimpact on the Company’s consolidated financial statements. In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties About an Entity’s Ability to Continue as aGoing Concern. The new standard provides guidance around management’s responsibility to evaluate whether there issubstantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The newstandard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Earlyadoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidatedfinancial statements.In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under this guidance, revenue isrecognized when promised goods or services are transferred to customers in an amount that reflects the consideration that isexpected to be received for those goods or services. The updated standard will replace most existing revenue recognitionguidance under U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effecttransition method. Early adoption is not permitted. The updated standard will be effective for the Company beginningJanuary 1, 2018. The Company has not yet selected a transition method and is currently evaluating the effect that the updatedstandard will have on its consolidated financial statements and related disclosures. NOTE 2 — NET INCOME/(LOSS) PER SHARE The Company computes basic net income/(loss) per share by dividing its net income/(loss) for the period by theweighted average number of common shares outstanding during the period less the weighted average common shares subjectto restrictions imposed by the Company. Diluted net income/(loss) per share reflects the potential dilution that could occurfrom common shares issuable through stock-based compensation plans (including stock options, RSUs and common stockissuable through the Company’s ESPP), warrants and contingently issuable shares by application of the treasury stock method. Year Ended December 31, 2015 2014 2013 Net income/(loss) $(7,185) $8,148 $(19,909) Basic and diluted shares used to compute net income/(loss) per share: Weighted average common shares outstanding 122,414 93,575 71,543 Weighted average common shares subject to restrictions (3,639) (1,749) (90) Weighted average shares used to compute basic net income/(loss) per share 118,775 91,826 71,453 Dilutive potential common shares — 5,096 — Weighted average shares used to compute diluted net income/(loss) per share 118,775 96,922 71,453 Basic net income/(loss) per share $(0.06) $0.09 $(0.28) Diluted net income/(loss) per share (0.06) 0.08 (0.28) The following weighted average options to purchase common stock, warrants to purchase common stock, shares ofcommon stock subject to restrictions and RSUs have been excluded from the computation of diluted net income/(loss)87 Table of Contents per share of common stock for the periods presented because including them would have had an anti-dilutive effect: Year Ended December 31, 2015 2014 2013 Options to purchase common stock 6,804 6,347 10,646 Warrants to purchase common stock 3,832 2,362 3,310 RSUs 5,776 2,746 936 Common shares subject to restrictions 3,639 1,596 90 $20,051 $13,051 $14,982 NOTE 3 — BUSINESS COMBINATIONS Cie Games, Inc.On August 20, 2014, the Company completed its acquisition of Cie Games, Inc. (“Cie Games”), a developer of racinggenre mobile games based in Long Beach, California. The Company acquired Cie Games’ to leverage its racing genreexpertise, assembled workforce and existing mobile games in order to expand the Company’s game offerings on smartphonesand tablets. The purchase price consideration included 9,983 shares of the Company’s common stock valued at $5.09 pershare as of the closing date of the acquisition, for an aggregate of $50,813 in share consideration. In addition, the Companyagreed to pay approximately $29,495 in cash consideration, of which $1,914 was paid during the year ended December 31,2015, for total overall consideration paid of $80,308. The Company is holding back 2,139 of the 9,983 shares issued in theacquisition until the date that is 30 days after the 18 month anniversary of the closing to satisfy potential indemnificationclaims under the merger agreement for the acquisition. All outstanding Cie Games capital stock and stock options werecancelled at the closing of the acquisition. The allocation of the purchase price is based on valuations derived from estimated fair value assessments andassumptions used by the Company. While the Company believes that its estimates and assumptions underlying the valuationsare reasonable, different estimates and assumptions could result in different valuations assigned to the individual assetsacquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values ofassets acquired and liabilities assumed at the date of acquisition: Assets acquired: Cash $5,281 Accounts receivable, net 4,624 Restricted cash 200 Other current assets 422 Property and equipment 519 Intangible assets: Titles, content and technology 19,200 Customer contract and related relationships 4,300 Goodwill 57,247 Total assets acquired 91,793 Liabilities assumed: Accounts payable (2,317) Other accrued liabilities (2,053) Deferred revenue (294) Deferred tax liability (6,821) Total liabilities acquired (11,485) Net acquired assets $80,308 Acquisition-related intangibles included in the above table are finite-lived and are being amortized on a straight-linebasis over their estimated lives of three to five years, which approximates the pattern in which the economic benefits of theintangible assets are expected to be realized. Of the total purchase price, $23,500 was allocated to identifiable intangibleassets. Pursuant to ASC 805, Business Combinations (“ASC 805”), for the twelve months ended December 31, 2015 and 2014,the Company incurred $0 and $513, of acquisition and transitional costs associated with the acquisition of Cie Games. 88 Table of Contents The Company allocated the residual value of $57,247 to goodwill. Goodwill represents the excess of the purchase priceover the fair value of the net tangible and intangible assets acquired. In accordance with ASC 350, Intangibles – Goodwill andOther (“ASC 350”), goodwill will not be amortized but will be tested for impairment at least annually. Goodwill created as aresult of the Cie Games acquisition is not deductible for tax purposes.PlayFirst, Inc.On May 14, 2014, the Company completed the acquisition of PlayFirst, Inc. (“PlayFirst”), a developer of casual gamesfor smartphones and tablets based in San Francisco, California. The Company acquired PlayFirst to leverage its casual gameexpertise, assembled workforce and existing mobile games in order to expand the Company’s game offerings on smartphonesand tablets.The purchase price consideration was $11,553, representing 2,955 shares of the Company’s common stock valued at$3.91 per share as of the closing date of the acquisition. The number of shares comprising the purchase price consideration wasreduced from 3,000 shares to 2,955 shares due to a working capital adjustment. In addition, the Company withheld a total of106 shares to cover stockholders’ agent expenses and tax obligations of certain PlayFirst stockholders, which resulted in theCompany issuing a total of 2,849 shares valued at $11,141 and paying $412 in cash. Of the 2,849 shares issued in theacquisition, 1,500 are being held in escrow and will be retained by the Company until the date that is 60 days following the24 month anniversary of the closing date to satisfy potential indemnification claims under the PlayFirst merger agreement. Inaddition, the Company assumed approximately $3,480 of PlayFirst net liabilities. All outstanding PlayFirst capital stock,stock options and warrants were cancelled at the closing of the PlayFirst acquisition. The allocation of the purchase price is based on valuations derived from estimated fair value assessments andassumptions used by the Company. While the Company believes that its estimates and assumptions underlying the valuationsare reasonable, different estimates and assumptions could result in different valuations assigned to the individual assetsacquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values ofassets acquired and liabilities assumed at the date of acquisition: Assets acquired: Cash $123 Accounts receivable, net 736 Other current assets 145 Property and equipment 15 Intangible assets: Titles, content and technology 2,200 In process research and development 800 Customer contract and related relationships 700 Goodwill 11,241 Total assets acquired 15,960 Liabilities assumed: Accounts payable (1,509) Other accrued liabilities (651) Line of credit (890) Term loan (1,450) Total liabilities acquired (4,500) Net acquired assets $11,460 Acquisition-related intangibles included in the above table are finite-lived and are being amortized on a straight-linebasis over their estimated lives of three to five years, which approximates the pattern in which the economic benefits of theintangible assets are expected to be realized. Of the total purchase price, $3,700 was allocated to identifiable intangible assets.Pursuant to ASC 805, the Company incurred and expensed a total of $917 in acquisition and transitional costs associated withthe acquisition of PlayFirst during the year ended December 31, 2014, respectively, which were primarily general andadministrative related.89 Table of Contents The Company allocated the residual value of $11,241 to goodwill. Goodwill represents the excess of the purchase priceover the fair value of the net tangible and intangible assets acquired. In accordance with ASC 350, goodwill will not beamortized but will be tested for impairment at least annually. Goodwill created as a result of the PlayFirst acquisition is notdeductible for tax purposes.Valuation MethodologyThe Company engaged a third party valuation firm to aid management in its analyses of the fair value of Cie Games andPlayFirst. All estimates, key assumptions and forecasts were either provided by or reviewed by the Company. While theCompany chose to utilize a third party valuation firm, the fair value analyses and related valuations represent the conclusionsof management and not the conclusions or statements of any third party.The Company valued titles, content and technology, and in-process research and development using the Multi-PeriodExcess Earnings (“MPEE”) method of the income approach and key assumptions used included: projected revenue, cost ofgoods sold, and operating expenses for PlayFirst’s and Cie Games’ legacy titles, the future amortization tax benefit of thelegacy titles, and a discount rate of between 20% and 35%.As of the valuation date, PlayFirst was in the process of developing a game, which was launched in the fourth quarter of2014.The Company valued customer relationships using the replacement cost method of the cost approach and based on theperceived value that a market participant would ascribe to the PlayFirst and Cie Games customer relationships, which includeexisting relationships with Amazon, Apple and Google. Key assumptions used in valuing customer relationships includedlegal fees and opportunity costs in re-establishing such relationships.Pro Forma Financial InformationThe results of operations for PlayFirst and Cie Games and the estimated fair market values of the assets acquired andliabilities assumed have been included in the Company’s consolidated financial statements since their respective dates ofacquisition. For the year ended December 31, 2014 and since the dates of their respective acquisition, PlayFirst and Cie Gamescontributed approximately $13,601 to the Company’s gross revenue and increased net losses by $315. The unaudited proforma financial information in the table below summarizes the combined results of the Company’s operations and those ofPlayFirst and Cie Games for the periods shown as if the acquisition of PlayFirst and Cie Games had each occurred onJanuary 1, 2013. The pro forma financial information includes the business combination accounting effects of the acquisition,including amortization charges from acquired intangible assets. The pro forma financial information presented below is forinformational purposes only, and is subject to a number of estimates, assumptions and other uncertainties. See Note 6 foradditional information related to the changes in the carrying amount of goodwill. Year Ended December 31, 2014 2013 Total pro forma revenue $243,971 $137,095 Pro forma net income 2,800 (33,009) Pro forma net income per share — basic 0.03 (0.41) Pro forma net income per share — diluted 0.03 (0.41) 90 Table of Contents NOTE 4 — FAIR VALUE MEASUREMENTS Fair Value Measurements The Company accounts for fair value in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC820”). Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer aliability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction betweenmarket participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximizethe use of observable inputs and minimize the use of unobservable inputs. The Company uses a three-tier hierarchy, whichprioritizes the inputs used in measuring fair value as follows:Level 1 — Quoted prices in active markets for identical assets or liabilities.Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similarassets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can becorroborated by observable market data for substantially the full term of the assets or liabilities.Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair valueof the assets or liabilities. The first two levels in the hierarchy are considered observable inputs and the last is considered unobservable. TheCompany’s cash and cash equivalents, which were held in operating bank accounts, are classified within Level 1 of the fairvalue hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternative pricing sourceswith reasonable levels of price transparency. As of December 31, 2015 and December 31, 2014, the Company had $180,542and $70,912, respectively, in cash and cash equivalents. In addition, the Company’s restricted cash is classified within Level 1of the fair value hierarchy. The carrying value of accounts receivable and payables approximates fair value due to the shorttime to expected receipt of payment or cash.Liabilities for Contingent ConsiderationOn August 1, 2011, the Company completed the acquisition of Blammo Games Inc. (“Blammo”) by entering into a SharePurchase Agreement (the “Share Purchase Agreement”) by and among the Company, Blammo and each of the owners of theoutstanding share capital of Blammo (the “Sellers”). Pursuant to the terms of the Share Purchase Agreement, theCompany agreed to issue to the Sellers, in the aggregate, 1,000 shares of the Company’s common stock plus up to anadditional 3,313 shares of the Company’s common stock (the “Additional Shares”) if Blammo achieved certain Net Revenue(as such term is defined in the Share Purchase Agreement) targets during the fiscal years ending March 31, 2013, March 31,2014 and March 31, 2015.The Company issued 742 shares of common stock in May 2013, and an aggregate of 1,185 shares of common stockduring 2014 to the former Blammo shareholders based on the Net Revenue that Blammo achieved, or was projected toachieve, for its fiscal years ended March 31, 2013, 2014, and 2015, respectively. Since the contingency related to the numberof shares earned in connection with the earnout targets for these fiscal years was resolved and the number of shares becamefixed, the fair values of these shares have been presented in additional paid-in capital in the Company’s consolidated balancesheet since March 31, 2013 and September 2014, respectively. Three of the five Sellers were also employees of Blammo and the contingent consideration issued to these employeeswas not considered part of the purchase price, since vesting was contingent upon these employees’ continued service duringthe earn-out periods. See Note 9 for additional details on the fair value recognition and measurement of this contingentconsideration. The fair value of the contingent consideration issued to the two Sellers who were not employees of Blammowas recorded as part of the purchase accounting and was fair valued at each subsequent reporting period. During the yearsended December 31, 2015, 2014, and 2013, the Company recorded fair value adjustments of $0, $835, and $7 respectively, asthe contingency related to the number of shares earned was resolved during the second quarter of 2014. In accordance withASC 805, changes in the fair value of non-employee contingent consideration were91 Table of Contents recognized in general and administrative expense in the Company’s unaudited condensed consolidated statements ofoperations. NOTE 5 — BALANCE SHEET COMPONENTS Accounts Receivable December 31, 2015 2014 Accounts receivable $18,672 $32,528 Less: Allowance for doubtful accounts (716) (297) $17,956 $32,231 Accounts receivable include amounts billed and unbilled as of the respective balance sheet dates, but net of platformcommissions to the Company’s digital storefronts. The movement in the Company’s allowance for doubtful accounts is as follows: Balance at Balance at Beginning of End of Description Year Additions Deductions Year Year ended December 31, 2015 $297 $419 $ - $716 Year ended December 31, 2014 $459 $219 $381 $297 Year ended December 31, 2013 $432 $51 $24 $459 The Company had no significant write-offs or recoveries during the years ended December 31, 2015, 2014, and 2013. Prepaid expenses and other December 31, 2015 2014 Deferred platform commission fees 7,675 9,776 Deferred royalties 2,668 3,739 Deferred tax asset — 921 Taxes receivable 759 1,218 Other 3,739 1,734 $14,841 $17,388 92 Table of Contents Property and Equipment December 31, 2015 2014 Computer equipment $6,106 $6,721 Furniture and fixtures 1,053 949 Software 7,408 8,504 Leasehold improvements 3,661 3,381 18,228 19,555 Less: Accumulated depreciation and amortization (12,781) (13,439) $5,447 $6,116 Depreciation and amortization for the years ended December 31, 2015, 2014 and 2013 was $2,861, $2,513 and$2,707, respectively. Other Long-Term Liabilities December 31, 2015 2014 Deferred rent $692 $1,001 Uncertain tax position obligations 567 977 Deferred tax liability — 842 Other 326 246 $1,585 $3,066 NOTE 6 — GOODWILL AND INTANGIBLE ASSETS Intangible Assets The carrying amounts and accumulated amortization expense of the acquired intangible assets, including the impactof foreign currency exchange translation, at December 31, 2015 and December 31, 2014 were as follows: December 31, 2015 December 31, 2014 Gross Accumulated Net Gross Accumulated Net Carrying Amortization Carrying Carrying Amortization Carrying Value Expense Value Value Expense Value (Including (Including (Including (Including (Including (Including Estimated Impact of Impact of Impact of Impact of Impact of Impact of Useful Foreign Foreign Foreign Foreign Foreign Foreign Life Exchange) Exchange) Exchange) Exchange) Exchange) Exchange) Intangible assets amortized to cost ofrevenue: Titles, content and technology 3 yrs $34,750 $(22,954) $11,796 $34,895 $(15,314) $19,581 Catalogs 1 yr 1,152 (1,152) — 1,208 (1,208) — ProvisionX Technology 6 yrs 190 (190) — 199 (199) — Carrier contract and related relationships 5 yrs 24,200 (20,597) 3,603 24,794 (20,192) 4,602 Licensed content 2.5 - 5 yrs 7,866 (2,866) 5,000 3,012 (3,012) — Service provider license 9 yrs 454 (406) 48 479 (375) 104 Trademarks 7 yrs 5,217 (2,897) 2,320 5,226 (2,190) 3,036 73,829 (51,062) 22,767 69,813 (42,490) 27,323 Other intangible assets amortized tooperating expenses: Emux Technology 6 yrs 1,228 (1,228) — 1,289 (1,289) — Non-compete agreements 4 yrs 5,391 (5,391) — 5,417 (5,216) 201 6,619 (6,619) — 6,706 (6,505) 201 Total intangibles assets $80,448 $(57,681) $22,767 $76,519 $(48,995) $27,524 Acquisition-related intangibles included in the above table are finite-lived and are being amortized on a straight-93 Table of Contents line basis over their estimated lives, which approximate the pattern in which the economic benefits of the intangible assets arerealized. The Company has included amortization of acquired intangible assets directly attributable to revenue-generatingactivities in cost of revenues. The Company has included amortization of acquired intangible assets not directly attributableto revenue-generating activities in operating expenses. During the years ended December 31, 2015, 2014 and 2013, the Company recorded amortization expense in theamounts of $9,553, $4,767 and $4,238, respectively, in cost of revenues. During the years ended December 31, 2015, 2014and 2013, the Company recorded amortization expense in the amounts of $201, $508 and $1,336, respectively, in operatingexpenses. The Company recorded no impairment charges during the years ended December 31, 2015, 2014 and 2013. As of December 31, 2015, the total expected future amortization related to intangible assets was as follows: Amortization Amortization Included in Included in Total Cost of Operating Amortization Period Ending December 31, Revenue Expenses Expense 2016 $10,557 $ — $10,557 2017 8,076 — 8,076 2018 3,354 — 3,354 2019 780 — 780 $22,767 $ — $22,767 Goodwill The Company had goodwill attributable to its MIG, GameSpy, Blammo, Griptonite, PlayFirst, and Cie Gamesacquisitions as of December 31, 2015. The Company formerly had three reporting units comprised of the Americas, EMEA andAsia and Pacific (“APAC”) regions. The Company attributed all of the goodwill resulting from the MIG acquisition to itsAPAC reporting unit. All of the goodwill attributable to the GameSpy, Blammo, Griptonite, PlayFirst, and Cie Gamesacquisitions had been fully assigned to the Company’s Americas reporting unit. The Company had fully impaired in prioryears all goodwill allocated to its EMEA reporting unit. In September 2015, the Company reorganized its reporting units andnow has one reporting unit “Mobile Games.” This change in reporting units is due to the fact that the Company’s ChiefExecutive Officer, who is also chief operating decision maker, makes decisions and manages operations as one reporting unit,rather than as three separate regional territories, which used to be considered as three reporting units. In prior years, theCompany’s Chief Executive Officer reviewed selected financial information on a geographic basis; however this informationis included within one operating segment for purposes of allocating resources and evaluating financial performance. Changesin reporting units require that goodwill be tested for impairment both prior to and following the changes. The Companyperformed a “Step 0” analysis as defined below, which resulted in no impairment In the valuation of the goodwill balance for Griptonite, Blammo, MIG, GameSpy, PlayFirst, and Cie Games, theCompany gave consideration to the future economic benefits of other assets that were not individually identified or separatelyrecognized. The acquired studio workforce for each of these acquisitions was estimated to have value, and since the acquiredworkforce is not individually identified or separately recognized, it was subsumed within the goodwill recognized as part ofeach business combination. The Company further planned to leverage its preexisting contractual relationships with DigitalStorefronts to distribute new titles developed by the Griptonite, Blammo, PlayFirst, and Cie Games studios and the expectedsynergies are reflected in the value of the goodwill recognized. The Company also used the GameSpy acquired workforce andexpertise to help in its development efforts for its games-as-a-service technology platform, and these synergies are reflected inthe value of goodwill recognized. 94 Table of Contents Goodwill for the periods indicated was as follows: December 31, 2015 December 31, 2014 Total Total Balance as of January 1: Goodwill$161,075 $92,596 Accumulated impairment losses (73,111) (73,111) 87,964 19,485 Goodwill acquired during the year — 68,488 Effects of foreign currency exchange (74) (9) 87,890 87,964 Balance as of period ended: Goodwill 161,001 161,075 Accumulated impairment losses (73,111) (73,111) $87,890 $87,964 In accordance with ASC 350, the Company’s goodwill is not amortized but is tested for impairment on an annualbasis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable.Under ASC 350, the Company performs the annual impairment review of its goodwill balance as of September 30 or morefrequently if triggering events occur. The Company evaluates qualitative factors and overall financial performance to determine whether it is necessary toperform the first step of the multiple-step goodwill test. This step is referred to as “Step 0.” Step 0 involves, among otherqualitative factors, weighing the relative impact of factors that are specific to the reporting unit as well as industry andmacroeconomic factors. After assessing those various factors, if it is determined that it is more likely than not that the fairvalue of a reporting unit is less than its carrying amount, then the entity will need to proceed to the first step of the goodwillimpairment test. ASC 350 requires a multiple-step approach to testing goodwill for impairment for each reporting unitannually, or whenever events or changes in circumstances indicate the fair value of a reporting unit is below its carryingamount. The first step measures for impairment by applying the fair value-based tests at the reporting unit level. The secondstep (if necessary) measures the amount of impairment by applying the fair value-based tests to individual assets and liabilitieswithin each reporting unit. The fair value of the reporting units is estimated using a combination of the market approach,which utilizes comparable companies’ data, and/or the income approach, which uses discounted cash flows. During the third quarter of fiscal 2015, 2014 and 2013, the Company performed a “Step 0” qualitative assessment forits reporting unit. Based on the assessment, the Company concluded that it was more likely than not that the fair value of thereporting unit was greater than its carrying amount, and as a result, did not proceed to further impairment testing. Accordingly,the Company did not recognize an impairment of goodwill during the years ended December 31, 2015, December 31, 2014,and December 31, 2013. Due to a significant decline in its market capitalization in the fourth quarter of 2015, the Company concluded that atriggering event occurred that required an interim goodwill impairment test. While the short term decline was greater thanexpected, the Company implemented several strategies that it expects will result in in future growth in revenues resulting in astable profit model. Based on the results of the interim goodwill impairment test, as of December 31, 2015, the Companyconcluded that its goodwill was not impaired. However, if it is determined that it is not likely that the Company will meetprojections of future cash flows, or if the Company’s market capitalization remains at depressed levels for a prolonged period,among other factors, it is possible that the Company may need to re-evaluate its assumptions and perform an additionalimpairment test in the future reporting periods. NOTE 7 — COMMITMENTS AND CONTINGENCIES LeasesThe Company leases office space under non-cancelable operating facility leases with various expiration dates throughSeptember 2020. Rent expense for the years ended December 31, 2015, 2014 and 2013 was $4,639, $4,149 and95 Table of Contents $3,380, respectively. The terms of the facility leases provide for rental payments on a graduated scale. The Companyrecognizes rent expense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid.The deferred rent balance was $749 and $1,001 at December 31, 2015 and 2014, respectively, of which $692 and $1,001 wasincluded within other long-term liabilities at December 31, 2015 and 2014, respectively.In April 2013 and June 2013, the Company entered into lease agreements for space at its San Francisco headquarters andWashington offices that will expire on March 31, 2018 and September 30, 2020, respectively. In May 2014, the Companyentered into a lease amendment for its Washington offices to expand the rentable square footage by 13 square feet andamended the lease payment schedule. In August and September of 2015, the Company entered into lease agreements for spaceat its San Mateo, and Portland offices that will expire on November 30, 2020, and December 31, 2017, respectively. In March2015, the Company entered into a lease amendment for its Long Beach office to expand the rentable square footage by 7,949square feet, and amended the lease payment schedule. The Company has provided deposits for lines of credit totaling $1,298to secure its obligations under the leases, which have been classified as restricted cash on the Company’s consolidated balancesheet as of December 31, 2015. At December 31, 2015, future minimum lease payments under non-cancelable operating leases were as follows: Minimum Operating Lease Period Ending December 31, Payments 2016 $4,897 2017 3,794 2018 1,798 2019 1,466 2020 1,213 2021 and thereafter — $13,168 Minimum Guaranteed Royalties and Developer Commitments The Company has entered into license and publishing agreements with various celebrities, Hollywood studios, athletes,sports organizations, and other well-known brands and properties to develop and publish games for mobile devices. Pursuantto some of these agreements, the Company is required to make minimum guaranteed royalty payments regardless of revenuesgenerated by the applicable game, which may not be dependent on any deliverables. The significant majority of theseminimum guaranteed royalty payments are recoupable against future royalty obligations that would otherwise becomepayable, or in certain circumstances, where not recoupable, are capitalized and amortized over the lesser of (1) the estimatedlife of the title incorporating licensed content or (2) the term of the license agreement. At December 31, 2015, future unpaid minimum guaranteed royalty commitments were as follows:. Future Minimum GuaranteePeriod Ending December 31, Commitments2016 $34,3582017 2,0362018 and thereafter 10 $36,404The amounts represented in the table above reflect the Company’s minimum cash obligations for the respective calendaryears, but do not necessarily represent the periods in which they will be expensed in the Company’s Consolidated FinancialStatements.Licensor commitments include $38,949 of commitments to licensors that have been recorded in current and long-termliabilities and a corresponding amount in current and long-term assets because payment is not contingent upon96 Table of Contents performance by the licensor. The classification of commitments between long-term and short-term is determined based on theexpected timing of recoupment of earned royalties calculated on projected revenues for the licensed IP games. Income Taxes As of December 31, 2015, unrecognized tax benefits have been netted against deferred tax assets and potentialinterest and penalties are classified within “other long-term liabilities” and “accounts payable” on the Company’sconsolidated balance sheets. As of December 31, 2015, the settlement of the Company’s income tax liabilities could not bedetermined; however, the liabilities are not expected to become due within the next 12 months. Indemnification Arrangements The Company has entered into agreements under which it indemnifies each of its officers and directors during his orher lifetime for certain events or occurrences while the officer or director is or was serving at the Company’s request in thatcapacity. The maximum potential amount of future payments the Company could be required to make under theseindemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits itsexposure and enables the Company to recover a portion of any future amounts paid. As a result of its insurance policycoverage, the Company believes the estimated fair value of these indemnification agreements is minimal. Accordingly, theCompany had recorded no liabilities for these agreements as of December 31, 2015 or 2014. In the ordinary course of its business, the Company includes standard indemnification provisions in most of itscommercial agreements with Digital Storefronts and licensors. Pursuant to these provisions, the Company generallyindemnifies these parties for losses suffered or incurred in connection with its games, including as a result of intellectualproperty infringement, viruses, worms and other malicious software, and legal or regulatory violations. The term of theseindemnity provisions is generally perpetual after execution of the corresponding license agreement, and the maximumpotential amount of future payments the Company could be required to make under these provisions is often unlimited. Todate, the Company has not incurred costs to defend lawsuits or settle indemnified claims of these types. As a result, theCompany believes the estimated fair value of these indemnity provisions is minimal. Accordingly, the Company had recordedno liabilities for these provisions as of December 31, 2015 or 2014. ContingenciesFrom time to time, the Company is subject to various claims, complaints and legal actions in the normal course ofbusiness. The Company assesses its potential liability by analyzing specific litigation and regulatory matters using availableinformation. The Company’s estimate of losses is developed in consultation with inside and outside counsel, which involves asubjective analysis of potential results and outcomes, assuming various combinations of appropriate litigation and settlementstrategies. After taking all of the above factors into account, the Company determines whether an estimated loss from acontingency should be accrued by assessing whether a loss is deemed reasonably probable and the amount can be reasonablyestimated. The Company further determines whether an estimated loss from a contingency should be disclosed by assessingwhether a material loss is deemed reasonably possible. Such disclosure will include an estimate of the additional loss or rangeof loss or will state that an estimate cannot be made.On August 19, 2014, Inventor Holdings, LLC (“IHL”), a Delaware limited liability company, filed a complaint in theU.S. District Court for the District of Delaware alleging that the Company was infringing one of its patents and seekingunspecified damages, including interest, costs, expenses and an accounting of all infringing acts, attorneys’ fees and suchother costs as the Court deems just and proper. On October 10, 2014, the Company filed a motion to dismiss the complaintwith prejudice on the ground that the patent asserted by IHL claims patent-ineligible subject matter pursuant to 35 U.S.C. §101 and thus the complaint fails to state a claim upon which relief can be granted. On October 27, 2014, IHL filed anopposition to the Company’s motion to dismiss the complaint with prejudice. The Company filed its reply to IHL’sopposition on November 6, 2014. On September 30, 2015, the Court granted the Company’s motion to dismiss IHL’scomplaint. On October 9, 2015, the parties entered a joint stipulation with the Court under which IHL agreed not to appeal theCourt’s order to dismiss the case and each party agreed to bear its own fees and costs of the litigation.97 Table of Contents On November 5, 2014, the Company filed a complaint against Hothead Games, Inc. (“Hothead”) in the United StatesDistrict Court for the Northern District of California alleging that Hothead had willfully infringed certain of the Company’scopyrights and trade dress contained in its Deer Hunter 2014 game through Hothead’s release of its game, Kill Shot. OnAugust 3, 2015, the Company entered into a settlement agreement with Hothead resolving its claims against Hothead. Hothead agreed to make payments to the Company, including ongoing payments and the Company agreed to allow Hotheadto continue to publish the Kill Shot game. The Company filed a dismissal of the case on August 17, 2015, which the Courtgranted on August 18, 2015. In November 2014, Telinit Technologies, LLC, a Texas company, filed a complaint in the U.S. District Court for theEastern District of Texas, Marshall Division, alleging that the Company was infringing one of its patents and seekingunspecified damages, attorneys’ fees and costs. The Company settled this dispute in January 2015 for an immaterial amount.On November 4, 2015, Just Games Interactive LLC (d/b/a Kung Fu Factory, f/k/a Tiny Fun Studios) (“Just Games”)filed a complaint in the U.S. District Court for the Central District of California against the Company, Kristen Jenner (f/k/a KrisKardashian) and additional yet-to-be named defendants. The complaint alleged direct copyright infringement against theCompany and direct and contributory copyright infringement and breach of implied contract against the other defendants. Just Games was seeking at least $10,000 in damages as well as other relief, including costs, permanent and temporaryinjunctive relief, an accounting of profits, a constructive trust and such other costs the Court deemed just and proper. TheCompany filed a motion to dismiss the complaint on January 27, 2016. On February 1, 2016, Just Games filed a voluntarymotion to dismiss their case against the Company without prejudice. The Company does not believe it is party to any currently pending litigation, the outcome of which is reasonably likelyto have a material adverse effect on its operations, financial position or liquidity. However, the ultimate outcome of anylitigation is uncertain and, regardless of outcome, litigation can have an adverse impact on the Company because of defensecosts, potential negative publicity, diversion of management resources and other factors. NOTE 8 — STOCKHOLDERS’ EQUITY Common Stock At December 31, 2015, the Company was authorized to issue 250,000 shares of common stock. As of December 31,2015, the Company had reserved 30,386 shares for future issuance under its stock plans and outstanding warrants. Preferred Stock At December 31, 2015, the Company was authorized to issue 5,000 shares of preferred stock. Tencent Investment On April 29, 2015, the Company entered into a Purchase Agreement with Tencent Holdings Limited (“Tencent”) andTencent’s controlled affiliate, Red River Investment Limited (“Red River”). Pursuant to the Purchase Agreement, theCompany issued to Red River in a private placement an aggregate of 21,000 shares of the Company’s common stock (the“Shares”) at a purchase price of $6.00 per share, for aggregate net proceeds of $125,156, after offering expenses. The Companyissued 12,500 of the Shares to Red River on April 29, 2015 and issued the remaining 8,500 Shares at a second closing on June3, 2015. AcquisitionsOn August 20, 2014, as part of the consideration for its acquisition of Cie Games, the Company issued an aggregateof 9,983 shares of its common stock to Cie Games’ former shareholders, of which approximately 2,139 shares98 Table of Contents was held back by Glu for 18 months from the closing date of the acquisition to satisfy potential indemnification claims underthe Cie Games merger agreement. On May 14, 2014, as consideration for its acquisition of PlayFirst, the Company issued an aggregate of 2,849 sharesof its common stock to PlayFirst’s former shareholders, which is net of shares withheld to cover a net working capitaladjustment, stockholders’ agent expenses and tax obligations of certain former PlayFirst shareholders. Of the 2,849 sharesissued in the acquisition, 1,500 are being held in escrow and will be be retained by the Company until the date that is 60 daysfollowing the 24 month anniversary of the closing date to satisfy potential indemnification claims under the PlayFirst mergeragreement. During the third quarter of 2014, approximately 24 shares that were being held back pursuant to the PlayFirstmerger agreement were cancelled to satisfy a net working capital adjustment. See Note 3 – Business Combinations – for more information about these acquisitions. Shares Issues In Connection With the Blammo EarnoutIn May 2013, the Company issued 742 shares to the former Blammo shareholders based on the Net Revenue thatBlammo achieved for its fiscal year ended March 31, 2013. In May 2014, the Company issued 435 shares of common stock tothe former Blammo shareholders based on the Net Revenue that Blammo achieved for its fiscal year ended March 31, 2014. InJuly 2014, the Company issued 750 shares of common stock to the former Blammo shareholders in lieu of the opportunity thatthe former Blammo shareholders otherwise would have had under the Share Purchase Agreement to earn up to 1,154 shares ofthe Company’s common stock for Fiscal 2015. The fair values of these earnout amounts have been presented in additionalpaid-in capital on the Company’s consolidated balance sheet. See Note 4 for more information about these issuances. Public Offerings In June 2014, the Company sold in an underwritten public offering an aggregate of 9,861 shares of its common stockat a public offering price of $3.50 per share for net cash proceeds of approximately $32,058 after underwriting discounts andother offering expenses. In September 2013, the Company sold in an underwritten public offering an aggregate of 7,245 shares of its commonstock at a public offering price of $2.10 per share for net cash proceeds of approximately $13,985 after underwriting discountsand other offering expenses. This public offering exhausted all of the securities that the Company was able to issue under itsshelf registration statement that the SEC declared effective in December 2010. Warrants to Purchase Common Stock Celebrity Warrants During 2015 and 2014, the Company issued warrants to celebrity licensors, and entities affiliated with celebritylicensors, to purchase up to an aggregate of 1,100 and 500 shares of the Company’s common stock, respectively, subject toadjustments for dividends, reorganizations and other common stock events (collectively, the “Celebrity Warrants”). Withrespect to warrants covering 1,000 shares issued in 2015, such warrants vest with respect to 50% of the underlying shares uponpublic announcement of the related license agreement, with the remaining shares vesting in equal monthly installments over24 months, subject to full acceleration in the event of (1) the Company’s full recoupment of the minimum guarantee paymentsunder the related license agreement, (2) the termination of the license agreement due to the Company’s material breach of theagreement or (3) a change of control of the Company. With respect to warrants covering 100 shares issued in 2015, suchwarrants vest in equal monthly installments over 60 months, with up to 25% of the shares subject to accelerated vesting in theevent the celebrity licensor approves game design documentation by a certain date and the related game commerciallylaunches by a certain date. With respect to warrants covering 500 shares issued in 2014, such warrants vests and becomesexercisable in equal monthly installments over the 60-month term of the license agreement with the applicable celebrity,subject to full acceleration or cessation of vesting under specified circumstances, as stipulated in such license agreement.Vesting of each of the warrants will immediately terminate in the99 Table of Contents event that the Company terminates the related license agreement due to the celebrity licensor’s material breach of suchagreement. The Company will estimate and record the fair value of these warrants using a Black-Scholes valuation modelwhen the above vesting conditions have been met. Each of the Celebrity Warrants may, at the election of the holder, be either exercised for cash or net exercised on acashless basis. During the years ended December 31, 2015 and 2014, the Company recorded a warrant compensation charge of $83, and$66 respectively, which was included within cost of revenue. MGM Warrants In July 2013, the Company and MGM Interactive Inc. (“MGM”) entered into a warrant agreement that provided MGMthe right to purchase up to 3,333 shares of the Company’s common stock subject to adjustments for dividends, reorganizationsand other common stock events (the “MGM Warrant”). Of the 3,333 shares of the Company’s common stock underlying theMGM Warrant, 333 shares were immediately vested and exercisable on the warrant agreement effective date and the remainingshares would vest and become exercisable based on conditions related to the Company releasing mobile games based onmutually agreed upon intellectual property licensed by MGM to the Company, which includes the right to build games basedon the James Bond and Hercules film franchises. During the years ended December 30, 2014, and 2013, and in connectionwith the vesting of warrants associated with the commercial release of the Hercules game, the Company recorded $1,126 and$427, respectively, of non-cash warrant related expense in cost of revenues as the game was not expected to generatemeaningful revenues over its lifetime. During the year ended December 31, 2015, 1,000 shares underlying the MGM Warrantsvested in conjunction with the commercial release of the Company’s game, James Bond: World of Espionage, which occurredon September 29, 2015. During the year ended December 31, 2015, the Company recorded $1,928 of non-cash warrant relatedexpense in cost of revenues as the James Bond: World of Espionage game is not expected to generate meaningful revenuesover its lifetime. The Company estimated the fair value of the warrants using the Black-Scholes valuation model and the weightedaverage assumptions noted in the following table: Year Ended December 31, 2015 2014 2013 Dividend yield —% —% —%Risk-free interest rate 1.18% 1.90% 1.50%Expected volatility 53.40% 58.20% 64.20%Expected term (in years) 5.00 5.00 5.00 Warrants outstanding at December 31, 2015 were as follows: Number Weighted of Shares Exercise Outstanding Price Average Under per Contractual Warrant Share Term Warrants outstanding, December 31, 2014 3,617 $3.09 Granted 1,100 4.44 Exercised (450) 1.50 Warrants outstanding, December 31, 2015 4,267 3.61 5.50 During the years ended December 31, 2015, 2014, and 2013, warrant holders exercised warrants to purchase 450, 1,191,and 2,886 shares of the Company’s common stock, respectively, and the Company received gross proceeds of $675, $2,786,and $4,329, respectively, in connection with these exercises.100 Table of Contents NOTE 9 — STOCK OPTION AND OTHER BENEFIT PLANS 2007 Equity Incentive Plan In 2007, the Company’s Board of Directors adopted, and the Company’s stockholders approved, the 2007 EquityIncentive Plan (the “2007 Plan”). The 2007 Plan permits the Company to grant stock options, RSUs, and other stock-basedawards to employees, non-employee directors and consultants. The 2007 Plan was amended and restated in 2013 (the“Amended 2007 Plan”) to, among other things, increase the aggregate number of shares of common stock authorized forissuance under the plan by 7,200 shares. In April 2015, the Company’s Board of Directors approved, and in June 2015, theCompany’s stockholders approved, the Second Amended and Restated 2007 Equity Incentive Plan (the “Second Amended2007 Plan”). The Second Amended 2007 Plan includes an increase of 13,000 shares in the aggregate number of shares ofcommon stock authorized for issuance under the plan. It also includes a fungible share provision, pursuant to which each sharethat is subject to a stock-based award that is not a “full value award” (restricted stock, RSUs, or other stock-based awards wherethe price charged to the participant for the award is less than 100% of the fair market value) reduces the number of sharesavailable for issuance by 1.32 shares (previously this fungible ratio was 1.39 shares under the Amended 2007 Plan). The Company may grant options under the 2007 Plan at prices no less than 85% of the estimated fair value of theshares on the date of grant as determined by its Board of Directors, provided, however, that (i) the exercise price of anincentive stock option (“ISO”) or non-qualified stock options (“NSO”) may not be less than 100% or 85%, respectively, of theestimated fair value of the underlying shares of common stock on the grant date, and (ii) the exercise price of an ISO or NSOgranted to a 10% stockholder may not be less than 110% of the estimated fair value of the shares on the grant date. The fairvalue of the Company’s common stock is determined by the last sale price of such stock on the NASDAQ Global Market onthe date of determination. The stock options granted to employees generally vest with respect to 25% of the underlying sharesone year from the vesting commencement date and with respect to an additional 1/48 of the underlying shares per monththereafter. Stock options granted during 2007 before October 25, 2007 and after June 4, 2015 have a contractual term of tenyears and stock options granted on or after October 25, 2007 and before June 4, 2015 have a contractual term of six years. As of December 31, 2015, 9,266 shares were available for future grants under the Second Amended 2007 Plan. 2007 Employee Stock Purchase Plan In 2007, the Company’s Board of Directors adopted and the Company’s stockholders approved, the 2007 EmployeeStock Purchase Plan (the “2007 Purchase Plan”). The Company initially reserved 667 shares of its common stock for issuanceunder the 2007 Purchase Plan. On each January 1 for the first eight calendar years after the first offering date, the aggregatenumber of shares of the Company’s common stock reserved for issuance under the 2007 Purchase Plan was increasedautomatically by the number of shares equal to 1% of the total number of outstanding shares of the Company’s common stockon the immediately preceding December 31, provided that the Board of Directors had the power to reduce the amount of theincrease in any particular year and provided further that the aggregate number of shares issued over the term of this plan maynot exceed 5,333. The 2007 Purchase Plan permits eligible employees, including employees of certain of the Company’ssubsidiaries, to purchase common stock at a discount through payroll deductions during defined offering periods. The price atwhich the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of anoffering period or after a purchase period ends. In January 2009, the 2007 Purchase Plan was amended to provide that the Compensation Committee of the101 Table of Contents Company’s Board of Directors may fix a maximum number of shares that may be purchased in the aggregate by all participantsduring any single offering period (the “Maximum Offering Period Share Amount”). The Compensation Committee may raiseor lower the Maximum Offering Period Share Amount. The Compensation Committee established the Maximum OfferingPeriod Share Amount of 500 shares for the offering period that commenced on February 15, 2009 and ended on August 14,2009, and a Maximum Offering Period Share Amount of 200 shares for each offering period thereafter. In October 2011, theCommittee increased the Maximum Offering Period Share Amount for the offering period that started on August 22, 2011 andfor each subsequent offering period to 300 shares. As of December 31, 2015, 1,929 shares were available for issuance under the 2007 Purchase Plan. 2008 Equity Inducement PlanIn March 2008, the Company’s Board of Directors adopted the 2008 Equity Inducement Plan (the “InducementPlan”) to augment the shares available under its existing 2007 Plan. The Company has not sought stockholder approval for theInducement Plan. As such, awards under the Inducement Plan are granted in accordance with NASDAQ Listing Rule 5635(c)(4) and only to persons not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such individuals entering into employment with the Company. The InducementPlan initially permitted the Company to grant only nonqualified stock options, but in 2013, the Compensation Committee ofthe Company’s Board amended the Inducement Plan to permit the award of RSUs under the plan. The Company may grantNSOs under the Inducement Plan at prices less than 100% of the fair value of the shares on the date of grant, at the discretionof its Board of Directors. The fair value of the Company’s common stock is determined by the last sale price of such stock onthe NASDAQ Global Market on the date of determination. In December 2015, the Company’s Compensation Committeeapproved an increase of 1,000 shares in the aggreagate number of common stock authorized under the plan. As of December 31, 2015, 418 shares were reserved for future grants under the Inducement Plan. Share-Based Awards Available for GrantThe calculation of share-based awards available for grant under the Amended 2007 Plan and the InducementPlan for the year ended December 31, 2015 is as follows: Shares Available Balances at December 31, 2014 1,380 Increase in authorized shares 14,000 Share-based awards granted (1) (8,026)Share-based awards canceled (2) 2,330 Balances at December 31, 2015 9,684 (1)Under the terms of the Amended 2007 Plan, RSUs granted on or after June 6, 2013 but before June 4, 2015 reduced the number of sharesavailable for grant by 1.39 shares for each share subject to an RSU award. Under the terms of the Second Amended 2007 Plan, RSUs grantedon or after June 4, 2015 reduce the number of shares available for grant by 1.32 shares for each share subject to an RSU award. (2)Under the terms of the Amended 2007 Plan, RSUs forfeited and returned to the pool of shares available for grant that were granted on or afterJune 6, 2013 but before June 4, 2015 increase the pool by 1.39 shares for each share subject to an RSU that is forfeited. RSUs forfeited andreturned to the pool of shares available for grant that were granted on or after June 4, 2015 increase the pool by 1.32 shares for each sharesubject to an RSU that is forfeited. 102 Table of Contents RSU ActivityA summary of the Company’s RSU activity for the year ended December 31, 2015 is as follows: Weighted Number of Average Aggregate Units Grant Date Intrinsic Outstanding Fair Value Value Awarded and unvested, December 31, 2014 4,919 3.87 Granted 4,955 4.87 Vested (1,687) 3.58 Forfeited (843) 4.48 Awarded and unvested, December 31, 2015 7,344 $4.40 Restricted stock units vested and expected to vest, December 31, 2015 6,074 $4.41 $14,759 103 Table of Contents Stock Option Activity The following table summarizes the Company’s stock option activity: Options Outstanding Weighted Weighted Number Average Average Aggregate of Exercise Contractual Intrinsic Shares Price Term (Years) Value Balances at December 31, 2012 10,921 3.07 Options granted 2,937 2.70 Options canceled (2,502) 3.65 Options exercised (957) 1.35 Balances at December 31, 2013 10,399 2.98 Options granted 1,344 4.08 Options canceled (1,506) 3.72 Options exercised (2,867) 2.19 Balances at December 31, 2014 7,370 3.32 Options granted 1,659 4.65 Options canceled (425) 4.00 Options exercised (1,440) 2.64 Balances at December 31, 2015 7,164 $3.73 4.05 $389 Options vested and expected to vest at December 31, 2015 6,814 $3.73 3.87 $389 Options exercisable at December 31, 2015 4,703 $3.67 2.72 $387 At December 31, 2015, the options outstanding and currently exercisable by exercise price were as follows: Options Outstanding Options Exercisable Weighted Average Remaining Weighted WeightedRange of Contractual Average AverageExercise Number Life Exercise Number ExercisePrices Outstanding (in Years) Price Exercisable Price$ 1.19 - $ 2.74 972 2.20 $2.12 806 $2.01$ 2.83 - $ 2.84 114 3.47 2.84 66 2.84$ 2.90 - $ 2.90 782 1.80 2.90 782 2.90$ 2.91 - $ 2.92 996 5.58 2.91 388 2.91$ 2.98 - $ 3.20 89 9.18 3.17 7 3.14$ 3.29 - $ 3.29 873 2.75 3.29 692 3.29$ 3.47 - $4.02 805 3.12 3.76 669 3.72$ 4.09 - $ 4.10 920 7.47 4.09 124 4.10$ 4.15 - $5.06 716 3.48 4.50 587 4.48$ 5.07 - $ 11.88 897 4.90 6.69 582 7.06$ 1.19 - $ 11.88 7,164 4.05 $3.73 4,703 $3.67 The Company has computed the aggregate intrinsic value amounts disclosed in the above table based on thedifference between the original exercise price of the options and the fair value of the Company’s common stock of $2.43 pershare at December 31, 2015. The total intrinsic value of awards exercised during the years ended December 31, 2015, 2014and 2013 was $4,960, $7,735, and $1,886, respectively. Stock-Based Compensation The Company recognizes stock-based compensation expense in accordance with ASC 718, and has estimated the fairvalue of each option award on the grant date using the Black-Scholes option valuation model and the weighted104 Table of Contents average assumptions noted in the following table. Year Ended December 31, 2015 2014 2013 Dividend yield —% —% —%Risk-free interest rate 1.34%1.34%0.82%Expected volatility 51.8%52.0%52.0%Expected term (years) 4.00 4.00 4.00 The Company based its expected volatility on its own historical volatility and the historical volatility of a peer groupof publicly traded entities. The expected term of options gave consideration to early exercises, post-vesting cancellations andthe options’ contractual term ranging from 6 to 10 years. The risk-free interest rate for the expected term of the option is basedon the U.S. Treasury Constant Maturity Rate as of the date of grant. The weighted-average fair value of stock options grantedduring the year ended December 31, 2015, 2014 and 2013 was $1.88, $1.69, and $1.10 per share, respectively. The cost of RSUs is determined using the fair value of the Company’s common stock based on the quoted closing priceof the Company’s common stock on the date of grant. RSUs typically vest and are settled over approximately a four-yearperiod with 25% of the shares vesting on or around the one-year anniversary of the grant date and the remaining shares vestingquarterly thereafter. Compensation cost is amortized on a straight-line basis over the requisite service period. The Company calculated employee stock-based compensation expense based on awards ultimately expected to vestand reduced it for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, ifnecessary, in subsequent periods if actual forfeitures differ from those estimates. During 2014, the Company granted to its Chief Executive Officer two RSU awards for a total of 575 shares of theCompany’s common stock with both time-based and stock-price-based vesting components (the “Market-Based RSUs”). TheCompany estimated the fair values and derived service periods of the Market-Based RSUs on the date of grant using a MonteCarlo valuation model. The total fair value of both Market-Based RSUs was initially estimated at $1,311 and was to berecognized in tranches over the longer of the derived service period or time-based vesting period on a graded vesting basis.Key assumptions for the year ended December 31, 2014 included an expected volatility of 48.5%, risk-free rate of 1.35%,dividend yield of 0.00%, and grant price of $4.05 based on closing price of the Company’s common stock on The NASDAQGlobal Market on April 24, 2014. On July 24, 2014, the Compensation Committee of the Company’s Board of Directorsapproved a modification to the Market-Based RSUs to remove stock-price-based vesting conditions. Accordingly, the Market-Based RSUs will only be subject to time-based vesting from July 24, 2014 onwards. As a result of the modification to themarket-based vesting condition, the original unamortized stock-based compensation expense and an incremental unamortizedexpense of $2,714 will be recognized over the remaining service period. The following table summarizes the consolidated stock-based compensation expense by line items in theconsolidated statement of operations: Year Ended December 31, 2015 2014 2013 Research and development $3,563 $7,422 $1,948 Sales and marketing 1,082 701 303 General and administrative 7,041 3,510 2,034 Total stock-based compensation expense $11,686 $11,633 $4,285 The above table includes compensation expense attributable to the contingent consideration issued to the Blammoemployees who were former shareholders of Blammo, which was recorded as research and development expense over the term105 Table of Contents of the earn-out periods, since these employees were primarily employed in product development. The Company re-measured the fairvalue of the contingent consideration each reporting period and only recorded a compensation expense for the portion of the earn-out target that was likely to be achieved. Since the contingency related to the number of shares to be earned in conjunction with allearn out years was resolved as of December 31, 2014, the full fair value of the shares has been presented in additional paid incapital. During the years ended December 31, 2015, 2014, and 2013 the Company recorded $0, $4,560, and $171 of stock-basedcompensation expense, respectively, related to this contingent consideration. See Note 4 for further details. Consolidated net cash proceeds from option exercises were $3,794, $6,271 and $1,295 for the year ended December 31,2015, 2014 and 2013, respectively. The Company realized no significant income tax benefit from stock option exercises during theyear ended December 31, 2015, 2014 and 2013. As required, the Company presents excess tax benefits from the exercise of stockoptions, if any, as financing cash flows rather than operating cash flows. As permitted by ASC 718, the Company has deferred therecognition of its excess tax benefit from non-qualified stock option exercises. As of December 31, 2015, the Company had $24,935 of total unrecognized compensation expense related to RSUs, net ofestimated forfeitures. As of December 31, 2015, the Company had $3,530 of total unrecognized compensation expense related tostock options, net of estimated forfeitures. The unrecognized compensation expense related to RSUs will be recognized over aweighted average period of 3.02 years. The unrecognized compensation expense related to stock options will be recognized over aweighted average period of 2.53 years. 401(k) Defined Contribution Plan The Company sponsors a 401(k) defined contribution plan covering all employees. The Company does not match thecontributions made by its employees. NOTE 10 — INCOME TAXES The components of income/(loss) before income taxes by tax jurisdiction were as follows: Year Ended December 31, 2015 2014 2013 United States $(7,819) $5,283 $(21,820) Foreign 775 (4,690) (932) Income/(loss) before income taxes $(7,044) $593 $(22,752) The components of income tax benefit/(expense) were as follows: Year Ended December 31,Current: 2015 2014 2013Federal $(24) $(5) $ —State (5) (5) (4)Foreign (183) 656 2,294 (212) 646 2,290 Deferred: Federal — 6,821 —State — — —Foreign 71 88 553 71 6,909 553 Total: Federal (24) 6,816 —State (5) (5) (4)Foreign (112) 744 2,847 $(141) $7,555 $2,843 106 Table of Contents The difference between the actual rate and the federal statutory rate was as follows: Year Ended December 31, 2015 2014 2013 Tax at federal statutory rate 34.0% 34.0% 34.0%State tax, net of federal benefit (0.1) 0.8 — Foreign rate differential 1.0 56.6 (0.1) Research and development credit 15.9 (133.9) 5.1 Warrants — 67.7 — Withholding taxes 0.3 (10.5) (2.1) Stock-based compensation (8.7) 224.9 (0.7) Non-deductible intercompany bad debt — 3.9 0.3 FIN 48 interest and release 1.8 (219.4) 14.6 Other (0.2) 59.6 1.6 Valuation allowance (46.1) (1,357.7) (40.2) Effective tax rate (2.0)% (1,274.0)% 12.5% Deferred tax assets and liabilities consist of the following: December 31, 2015 December 31, 2014 US Foreign Total US Foreign TotalDeferred tax assets: Fixed assets $ — $1,156 $1,156 $ — $1,231 $1,231Net operating loss carryforwards 37,907 9,493 47,400 41,885 9,902 51,787Accruals, reserves and other 1,796 129 1,925 3,163 154 3,317Foreign tax credit 6,615 — 6,615 6,398 — 6,398Stock-based compensation 4,866 — 4,866 3,382 24 3,406Research and development credit 9,292 — 9,292 7,929 — 7,929Other 3,136 17 3,153 2,974 18 2,992Total deferred tax assets $63,612 $10,795 $74,407 $65,731 $11,329 $77,060Deferred tax liabilities: Fixed assets $(290) $ — $(290) $(431) $ — $(431)Macrospace, MIG and iFone intangible assets — (54) (54) — — —Blammo intangible assets — — — — — —Superscape,Cie Games and PlayFirst intangible assets (4,471) — (4,471) (7,915) (109) (8,024)Other — (16) (16) — — —Net deferred tax assets 58,851 10,725 69,576 57,385 11,220 68,605Less valuation allowance (58,851) (10,470) (69,321) (57,385) (11,141) (68,526)Net deferred tax liability $ — $255 $255 $ — $79 $79 In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes.” This updaterequires an entity to classify deferred tax liabilities and assets as noncurrent within a classified statement of financial position.ASU 2015-17 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2016. Thisupdate may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.Early application is permitted as of the beginning of the interim or annual reporting period. The Company adopted ASU 2015-17 on a prospective basis as of December 31, 2015. The adoption of ASU 2015-17 did not have a material impact on theCompany’s consolidated financial statements. The Company has not provided deferred taxes on unremitted earnings attributable to foreign subsidiaries becausethese earnings are intended to be reinvested indefinitely. No deferred tax asset was recognized since the Company does notbelieve the deferred tax asset will be realized in the foreseeable future. The amount of accumulated foreign earnings of theCompany’s foreign subsidiaries totaled $3,088 as of December 31, 2015. If the Company's foreign earnings were repatriated,additional tax expense might result. The Company determined that the calculation of the amount of unrecognized deferred taxliability related to these cumulative unremitted earnings attributable to foreign subsidiaries is not practicable.107 Table of Contents The Company recorded a release of its valuation allowance of $0, $6,821, and $0 during 2015, 2014, and 2013,respectively. The 2014 release was associated with the acquisitions of Cie Games in August 2014. Pursuant to ASC 805-740,changes in the Company’s valuation allowance that stem from a business combination should be recognized as an element ofthe Company’s deferred income tax expense or benefit. The Company previously recognized a valuation allowance against itsnet operating loss carryforwards and determined that it should be able to utilize the benefit of those net operating lossesagainst the deferred tax liabilities of Cie Games; therefore, it has partially released its pre-existing valuation allowance.In accordance with ASC 740 and based on all available evidence on a jurisdictional basis, the Company believes thatit is more likely than not that its deferred tax assets will not be utilized and has recorded a full valuation allowance against itsnet deferred tax assets in each of its jurisdictions except for one entity in China. The Company assesses on a periodic basis thelikelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positiveand negative, including historical levels of income or losses, expectations and risks associated with estimates of future taxableincome and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. If it is notmore likely than not that the Company expects to recover its deferred tax assets, the Company will increase its provision fortaxes by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable.The available negative evidence at December 31, 2015 and 2014 included historical and projected future operating losses. Asa result, the Company concluded that an additional valuation allowance of $795 and reduction valuation allowance of$5,258, net of the described releases, was required to reflect the change in its deferred tax assets prior to valuation allowanceduring 2015 and 2014, respectively. As of December 31, 2015 and 2014, the Company considered it more likely than not thatits deferred tax assets would not be realized with their respective carryforward periods.At December 31, 2015, the Company had net operating loss carryforwards of approximately $107,952 and $83,841for federal and state tax purposes, respectively. These carryforwards will expire at various times between 2016 and 2035. Inaddition, the Company has research and development tax credit carryforwards of approximately $9,606 for federal income taxpurposes and $9,906 for California tax purposes. The federal research and development tax credit carryforwards will begin toexpire in 2023. The California state research credit will carry forward indefinitely. The Company has approximately $6,475 offoreign tax credits that will begin to expire in 2017. The Company’s ability to use its net operating loss carryforwards andfederal and state tax credit carryforwards to offset future taxable income and future taxes, respectively, may be subject torestrictions attributable to equity transactions that result in changes in ownership as defined by Internal Revenue CodeSection 382. In addition, at December 31, 2015, the Company had net operating loss carryforwards of approximately $44,154 forUnited Kingdom tax purposes that are all limited and can only offset a portion of the annual combined profits in the UnitedKingdom until the net operating losses are fully utilized. A reconciliation of the total amounts of unrecognized tax benefits was as follows: Year Ended December 31, 2015 2014Beginning balance $6,794 $6,538Reductions of tax positions taken during previous years (304) (1,364)Additions based on uncertain tax positions related to the current period 2,085 1,641Additions based on uncertain tax positions related to prior periods 675 71Cumulative translation adjustment (32) (92)Ending balance $9,218 $6,794 The total unrecognized tax benefits as of December 31, 2015 and 2014 included approximately $8,678 and $6,030,respectively, of unrecognized tax benefits that have been netted against deferred tax assets. As of December 31, 2015,approximately $540 of unrecognized tax benefits, if recognized, would impact the Company’s effective tax rate. Theremaining amount, if recognized, would adjust the Company’s deferred tax assets which are subject to valuation allowance. AtDecember 31, 2015, the Company anticipated that the liability for uncertain tax positions, excluding108 Table of Contents interest and penalties, could decrease by approximately $157 within the next twelve months due to the expiration of certainstatutes of limitation in foreign jurisdictions in which the Company does business. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits in income taxexpense. The Company has accrued $375 of interest and penalties on uncertain tax positions as of December 31, 2015, ascompared to $329 as of December 31, 2014. Approximately $78, $86 and $105 of accrued interest and penalty expense relatedto estimated obligations for unrecognized tax benefits was recognized during 2015, 2014 and 2013, respectively. During2015, the Company released $14 of interest and penalties on uncertain tax positions due to the expiration of certain statutes oflimitation in foreign jurisdictions in which the Company does business. The Company is subject to taxation in the United States and various foreign jurisdictions. The material jurisdictionssubject to examination by tax authorities are primarily the State of California, the United States, the United Kingdom, Canada,and China. The Company’s federal tax returns are open by statute for tax years 1997 and California tax returns are open bystatute for tax years 2003 and forward and could be subject to examination by the tax authorities. The statute of limitations forthe Company’s 2014 tax returns for the various entities in the United Kingdom is expected to be closed in 2016. TheCompany’s China income tax returns are open by statute for tax years 2010 and forward. NOTE 11 — SEGMENT REPORTING ASC 280, Segment Reporting (“ASC 280”), establishes standards for reporting information about operating segments.It defines operating segments as components of an enterprise about which separate financial information is available that isevaluated regularly by the chief operating decision-maker, or decision-making group, in deciding how to allocate resourcesand in assessing performance. The Company’s Chief Executive Officer, who is also chief operating decision maker, makesdecisions and manages the Company’s operations as one reporting unit, rather than as three separate regional territories, whichused to be considered as three reporting units. In prior years, the Company’s Chief Executive Officer reviewed selectedfinancial information on a geographic basis; however this information is included within one operating segment for purposesof allocating resources and evaluating financial performance. Accordingly, the Company reports as a single reportable segment—mobile games. In the case of Digital Storefronts,revenues are attributed to the geographic location where the end-user makes the purchase. The Company generates itsrevenues in the following geographic regions: Year Ended December 31, 2015 2014 2013 United States of America $171,759 $132,447 $48,697 Americas, excluding the USA 11,538 9,705 5,430 EMEA 36,134 43,507 22,820 APAC 30,469 37,487 28,666 $249,900 $223,146 $105,613 The Company attributes its long-lived assets, which primarily consist of property and equipment, to a countryprimarily based on the physical location of the assets. Property and equipment, net of accumulated depreciation andamortization, summarized by geographic location was as follows: Year Ended December 31, 2015 2014 Americas $4,938 $5,406 EMEA 408 632 APAC 101 78 $5,447 $6,116 109 Table of Contents NOTE 12 — RESTRUCTURING During 2013, 2014 and 2015, the Company’s management approved restructuring plans to improve the effectivenessand efficiency of its operating model and reduce operating expenses around the world. During the year ended December 31,2013, the Company recorded $1,448, of restructuring plan charges relating to employee termination costs in its Brazil, SanFrancisco, China, Washington, and EMEA offices, and facility-related costs related to streamlining its facility in Washingtonand additional costs associated with vacating its Brazil office. During the year ended December 31, 2014, the Companyrecorded $435 of restructuring charges, relating to employee termination costs associated with headcount reductions in itsMoscow, Washington, and San Francisco studios. During the year ended December 31, 2015, the Company recorded $1,075of restructuring charges relating to employee termination costs in the Company’s China and Washington offices. Fiscal 2013, 2014, and 2015 Restructuring Restructuring Restructuring Workforce Facility Other Total Balance as of December 31, 2013 $ — $ — $ — $ — Charges to operations 435 — 435 Non Cash Charges/Adjustments — — — Charges settled in cash (435) — (435) Balance as of December 31, 2014 $ — $ — $ — $ — Charges to operations 1,043 — 31 1,075 Non Cash Charges/Adjustments — — — — Charges settled in cash (733) — — (733) Balance as of December 31, 2015 $311 $ — $31 $342 NOTE 13 – QUARTERLY FINANCIAL DATA (unaudited, in thousands) The following table sets forth unaudited quarterly consolidated statements of operations data for 2014 and 2015. TheCompany derived this information from its unaudited consolidated financial statements, which it prepared on the same basisas its audited consolidated financial statements contained in this report. In its opinion, these unaudited statements include alladjustments, consisting only of normal recurring adjustments that the Company considers necessary for a fair statement of thatinformation when read in conjunction with the consolidated financial statements and related110 Table of Contents notes included elsewhere in this report. The operating results for any quarter should not be considered indicative of results forany future period. For the Three Months Ended 2015 2014 March 31 June 30 September 30 December31 March 31 June 30 September 30 December31 (In thousands) Revenue $69,470 $56,150 $63,250 $61,030 $44,580 $40,910 $64,791 $72,865 Cost of revenue: Platform commissions, royalties and other 26,310 21,320 27,445(a) 23,109(b) 13,202 12,432 25,733 29,625 Amortization of intangible assets 2,434 2,434 2,360 2,325 554 441 1,338 2,434 Total cost of revenue 28,744 23,754 29,805 25,434 13,756 12,873 27,071 32,059 Gross profit 40,726 32,396 33,445 35,596 30,824 28,037 37,720 40,806 Operating expenses: Research and development 18,243 18,308 16,304 20,001 15,579 17,297 15,355 16,053 Sales and marketing 12,438 12,771 12,302 10,729 9,485 7,989 15,327 12,275 General and administrative 7,406 7,429 4,419 6,838 4,926 6,131 6,808 7,154 Amortization of intangible assets 127 32 31 11 127 127 127 127 Restructuring charge — — — 1,075(c) — 159 209 67 Total operating expenses 38,214 38,540 33,056 38,654 30,117 31,703 37,826 35,676 Income/(loss) from operations 2,512 (6,144) 389 (3,058) 707 (3,666) (106) 5,130 Interest and other income/(expense), net (284) (174) (152) (134) (130) (24) (340) (978) Income/(loss) before income taxes 2,228 (6,318) 237 (3,192) 577 (3,690) (446) 4,152 Income tax benefit/(provision) (1,104) 809 (79) 234 (444) (78) 10,850(d) (2,773) Net income /(loss) $1,124 $(5,509) $158 $(2,958) $133 $(3,768) $10,404 $1,379 Net income/(loss) per share Basic $0.01 $(0.05) $0.00 $(0.02) $0.00 $(0.04) $0.11 $0.01 Diluted $0.01 $(0.05) $0.00 $(0.02) $0.00 $(0.04) $0.10 $0.01 (a)Includes an impairment of prepaid royalties and guarantees charge of $1,555 in the third quarter of 2015.(b)Includes an impairment of prepaid royalties and guarantees charge of $858 in the fourth quarter of 2015.(c)Includes $1,075 of restructuring charges relating to employee termination costs in the Company’s China and Washingtonoffices.(d)The income tax benefit of $10,850 in the third quarter of 2014 was due primarily to the release of a portion of theCompany’s valuation allowance of $8,352 resulting from the acquisition of Cie Games in August 2014, and the release ofan $810 liability of uncertain tax positions relating to 2011, and as the Company received a closure notice for anongoing tax return inquiry in July 2014. NOTE 14 – RELATED PARTY TRANSACTIONS The Company and an affiliate of one of the Company’s principal stockholders entered into an agreement inNovember 2015 pursuant to which, the Company agreed, subject to certain conditions, to pay in the aggregate, up to $15,000in recoupable advanced royalties and non-recoupable license fees. NOTE 15 – SUBSEQUENT EVENTS In January 2016, the Company announced that it would invest up to $7,500 in promissory notes convertible into aminority equity stake in Plain Vanilla Corp., the Icelandic developer behind the globally popular game QuizUp. As part ofthis investment, the Company has a call option to acquire Plain Vanilla Corp. for 15 months from the closing of the initialinvestment at a pre-agreed price. In January 2016, the Company’s Board of Directors authorized a share repurchase program of up to $50,000 of itsoutstanding common stock. The timing and amount of any stock repurchases will be determined based on market conditions,share price and other factors. The program does not require the Company to repurchase any specific number of shares ofcommon stock, and may be modified, suspended or terminated at any time without notice.111 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated theeffectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing andevaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter howwell designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition,the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management isrequired to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31,2015, our disclosure controls and procedures are designed to provide reasonable assurance and are effective to providereasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that suchinformation is accumulated and communicated to our management, including our Chief Executive Officer and Chief FinancialOfficer, as appropriate, to allow timely decisions regarding required disclosure. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, assuch term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of ourmanagement, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of theeffectiveness of our internal control over financial reporting as of December 31, 2015 based on the guidelines established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). Based on the results of this evaluation, our management has concluded that our internal control overfinancial reporting was effective as of December 31, 2015 to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external reporting purposes in accordance with generally acceptedaccounting principles. The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited byPricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on page72. Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting during our fourth quarter of fiscal 2015 that hasmaterially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. OTHER INFORMATION None 112 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate GovernanceThe information required for this Item is incorporated by reference from our Proxy Statement to be filed for our 2016Annual Meeting of Stockholders. For information with respect to our executive officers, see “Executive Officers” at the endof Part I, Item 1 of this report. We maintain a Code of Business Conduct and Ethics that applies to all employees, officers and directors. Our Codeof Business Conduct and Ethics is published on our website at www.glu.com/investors. We disclose on our websiteamendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of such provisions granted toexecutive officers and directors. Item 11. Executive CompensationThe information required for this Item is incorporated by reference from our Proxy Statement to be filed for our 2016Annual Meeting of Stockholders. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information set forth in the section titled “Security Ownership of Certain Beneficial Owners and Management”contained in our Proxy Statement to be filed for our 2016 Annual Meeting of Stockholders is incorporated herein by reference.Equity Compensation Plan Information The following table sets forth certain information, as of December 31, 2015, concerning securities authorized forissuance under all of our equity compensation plans: our 2001 Second Amended and Restated Stock Option Plan (the “2001Plan”), which terminated when we adopted the 2007 Equity Incentive Plan (the “2007 Plan”), 2007 Employee Stock PurchasePlan (the “ESPP”) and 2008 Equity Inducement Plan (the “Inducement Plan”). The ESPP contains an “evergreen” provision,pursuant to which on January 1st of each year we automatically added 1% of our shares of common stock outstanding on thepreceding December 31st to the shares reserved for issuance under the ESPP; this evergreen provision expired after theincrease on January 1, 2015. In addition, pursuant to a “pour over” provision in our 2007 Plan, options that are cancelled,expired or terminated under the 2001 Plan are added to the number of shares reserved for issuance under our 2007 Plan. Number of Securities to be Weighted Number of Securities Issued Upon Average Remaining Available for Exercise of Outstanding Exercise Price of Future Issuance Under Options, Outstanding Options, (Excluding Securities Warrants and Rights Warrants and Rights (1) Reflected in Column (a)) (a) (b) (c) Equity compensation plans approved by security holders $12,814,615 3.81 11,195,121(2)Equity compensation plans not approved by securityholders 1,692,726(3) 3.04 417,173(4)Total 14,507,341 $3.73 11,612,294 (1)The weighted average exercise price does not take into account the shares subject to outstanding restricted stock units,which have no exercise price.(2)Represents 9,266,463 shares available for issuance under our the 2007 Plan, which plan permits the grant of incentive andnon-qualified stock options, stock appreciation rights, restricted stock, stock awards and restricted stock units; and1,928,658 shares available for issuance under the ESPP. (3)Represents outstanding options under the Inducement Plan. (4)Represents shares available for issuance under the Inducement Plan, under which we may only grant non-qualified stockoptions and restricted stock units. 113 Table of Contents Our Board of Directors adopted the Inducement Plan in March 2008 to augment the shares available under our 2007 Plan. We have not sought stockholder approval for the Inducement Plan. As such, awards under the Inducement Plan are granted inaccordance with NASDAQ Listing Rule 5635(c)(4) and only to persons not previously an employee or director, or following abona fide period of non-employment, as an inducement material to such individuals entering into employment with us. As ofDecember 31, 2015, we had reserved a total of 3,969,245 shares of our common stock for grant and issuance under theInducement Plan since its inception, of which, 1,692,726 shares were subject to outstanding stock options and restricted stockunits and 417,173 shares remained available for issuance. The remaining 1,859,346 shares represent shares that were subject topreviously granted stock options or restricted stock units under the Inducement Plan that have been exercised by the optionholders or settled for shares of our common stock. The Inducement Plan initially permitted us to grant only non-qualified stock options. However, effective November2013, the Compensation Committee amended the Inducement Plan to permit the award of restricted stock units under the plan. We may grant non-qualified stock options under the Inducement Plan at prices less than 100% of the fair value of the shareson the date of grant, at the discretion of our Board of Directors. The fair value of our common stock is determined by the lastsale price of our stock on The NASDAQ Global Market on the date of determination. If any option or RSU granted under theInducement Plan expires or terminates for any reason without being exercised in full, are used to satisfy tax withholdingobligations with respect to the award, or otherwise terminate without the underlying shares being issued, such unexercised,tax-settled, or otherwise terminated shares will be available for grant under the Inducement Plan. All outstanding awards aresubject to adjustment for any future stock dividends, splits, combinations, or other changes in capitalization as described inthe Inducement Plan. If we were acquired and the acquiring corporation did not assume or replace the awards granted underthe Inducement Plan, or if we were to liquidate or dissolve, all outstanding awards will expire on such terms as our Board ofDirectors determines.For more information regarding the Inducement Plan, see Note 9 of Notes to Consolidated Financial Statements inItem 8 of this report. Item 13. Certain Relationships and Related Transactions, and Director Independence.The information required for this Item is incorporated by reference from our Proxy Statement to be filed for our 2016Annual Meeting of Stockholders. Item 14. Principal Accounting Fees and Services.The information required for this Item is incorporated by reference from our Proxy Statement to be filed for our 2016Annual Meeting of Stockholders. PART IV Item 15. Exhibits and Financial Statement Schedules (a)(1) Financial Statements: The financial statements filed as part of this report are listed on the index to financialstatements on page 71. (2) Financial Schedules: All schedules have been omitted because they are not required, not applicable, not presentin amounts sufficient to require submission of the schedule, or the required information is otherwise included. (b) Exhibits. The exhibits listed on the Exhibit Index (following the Signatures section of this report) are included, orincorporated by reference, in this report. 114 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GLU MOBILE INC. Date: March 4, 2016By:/s/ Niccolo M. de Masi Niccolo M. de Masi, President and Chief ExecutiveOfficer Date: March 4, 2016By:/s/ Eric R. Ludwig Eric R. Ludwig, Executive Vice President, ChiefOperating Officer and Chief Financial Officer 115 Table of Contents POWER OF ATTORNEY By signing this Annual Report on Form 10-K below, I hereby appoint each of Niccolo M. de Masi, Eric R. Ludwig andScott J. Leichtner as my attorney-in-fact to sign all amendments to this Form 10-K on my behalf, and to file this Form 10-K(including all exhibits and other documents related to the Form 10-K) with the Securities and Exchange Commission. Iauthorize each of my attorneys-in-fact to (1) appoint a substitute attorney-in-fact for himself and (2) perform any actions thathe believes are necessary or appropriate to carry out the intention and purpose of this Power of Attorney. I ratify and confirmall lawful actions taken directly or indirectly by my attorneys-in-fact and by any properly appointed substitute attorneys-in-fact. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacity and on the dates indicated. SignatureTitleDate /s/ Niccolo M. de Masi President, Chief Executive Officer March 4, 2016Niccolo M. de Masi and Chairman (Principal Executive Officer) /s/ Eric R. Ludwig EVP, Chief Operating Officer and Chief FinancialOfficerMarch 4, 2016Eric R. Ludwig (Principal Financial Officer) /s/ Gregory J. Cannon Vice President of Financeand Investor RelationsMarch 4, 2016Gregory J. Cannon (Principal Accounting Officer) /s/ Lorne Abony Lead DirectorMarch 4, 2016Lorne Abony /s/ Eric R. Ball DirectorMarch 4, 2016Eric R. Ball /s/ Greg Brandeau DirectorMarch 4, 2016Greg Brandeau Director Steven Ma Director Ann Mather /s/ William J. Miller DirectorMarch 4, 2016William J. Miller /s/ Hany M. Nada DirectorMarch 4, 2016Hany M. Nada /s/ Benjamin T. Smith, IV DirectorMarch 4, 2016Benjamin T. Smith, IV 116 Table of ContentsExhibit Index Incorporated by Reference Exhibit FilingFiledNumberExhibit DescriptionFormFile No.ExhibitDateHerewith 2.01 Agreement and Plan of Merger, dated as of August 2, 2011 by andamong Glu Mobile Inc., Granite Acquisition Corp., Foundation 9Entertainment, Inc. and Griptonite, Inc.8-K001-333682.01 08/02/11 2.02 Amendment No. 1 to Agreement and Plan of Merger, dated as ofAugust 2, 2011 by and among Glu Mobile Inc., Granite AcquisitionCorp., Foundation 9 Entertainment, Inc. and Griptonite, Inc.8-K001-333682.01 08/15/11 2.03 Share Purchase Agreement, dated as of August 1, 2011, by andamong Glu, Blammo Games Inc. and each of the owners of theoutstanding share capital of Blammo.8-K001-333682.02 08/02/11 2.04 Agreement and Plan of Merger, dated as of August 2, 2012 by andamong Glu Mobile Inc., Galileo Acquisition Corp, IGNEntertainment, Inc. and GameSpy Industries, Inc.10-Q001-333682.01 11/09/12 2.05 Agreement and Plan of Merger, dated as of April 30, 2014 by andamong Glu Mobile Inc., Midas Acquisition Corp., PlayFirst, Inc. andFortis Advisors LLC8-K001-333682.01 05/02/14 2.06 Agreement and Plan of Merger and Reorganization, dated as of July30, 2014 by and among Glu Mobile Inc., Cardinals AcquisitionMerger Corporation, Cardinals Acquisition Merger LLC, Cie DigitalLabs, LLC, Cie Games, Inc. and Shareholder RepresentativeServices, LLC8-K001-333682.01 07/30/14 3.01 Restated Certificate of Incorporation of Glu Mobile Inc.S-1/A333-1394933.02 02/14/07 3.02 Amended and Restated Bylaws of Glu Mobile Inc., adopted onMarch 7, 2014.8-K001-3336899.01 03/13/14 4.01 Form of Registrant’s Common Stock Certificate.S-1/A333-1394934.01 02/14/07 10.01# Form of Indemnity Agreement entered into between Glu Mobile Inc.and each of its directors and executive officers, effective as ofOctober 24, 2013.8-K001-3336899.01 10/29/13 10.02# 2001 Stock Option Plan, form of option grant used fromDecember 19, 2001 to May 2, 2006, form of option grant used fromDecember 8, 2004 to May 2, 2006 and forms of option grant usedsince May 2, 2006.S-1/A333-13949310.02 01/22/07 10.03(A)# Amended & Restated 2007 Equity Incentive Plan, as amendedthrough June 4, 2015.10-Q001-3336810.03 08/07/15 117 Table of Contents 10.03(B)# For the 2007 Equity Incentive Plan, forms of (a) Notice of StockOption Grant, Stock Option Award Agreement and Stock OptionExercise Agreement, (b) Notice of Restricted Stock Award andRestricted Stock Agreement, (c) Notice of Stock Appreciation RightAward and Stock Appreciation Right Award Agreement and(d) Notice of Stock Bonus Award and Stock Bonus Agreement.S-1/A333-13949310.03 02/16/07 10.03(C)# For the 2007 Equity Incentive Plan, form of Notice of RestrictedStock Unit Award and Restricted Stock Unit Agreement10-Q001-3336810.08 08/09/13 10.04# 2007 Employee Stock Purchase Plan, as amended and restated onAugust 1, 2011.10-K001-3336810.04 03/14/12 10.05(A)# 2008 Equity Inducement Plan, as amended effective December 9,2015.8-K001-3336899.01 12/11/15 10.05(B)# For the 2008 Equity Inducement Plan, forms of Notice of StockOption Grant, Stock Option Award Agreement and Stock OptionExercise Agreement.10-K001-3336810.05 03/21/10 10.05(C)# For the 2008 Equity Inducement Plan, form of Notice of RestrictedStock Unit Award and Restricted Stock Unit Award Agreement.10-K001-3336810.05 03/14/14 10.06# Forms of Stock Option Award Agreement (Immediately Exercisable)and Stock Option Exercise Agreement (Immediately Exercisable)under the Glu Mobile Inc. 2007 Equity Incentive Plan.10-Q001-3336810.05 08/14/08 10.07# Employment Agreement between Glu Mobile Inc. and Niccolo M.de Masi, dated December 28, 2009.8-K001-3336899.02 01/04/10 10.08# Summary of Compensation Terms of Niccolo M. de Masi.8-K001-3336899.01 12/24/15 10.09# Change of Control Severance Agreement, dated as of December 28,2009, by and between Glu Mobile Inc. and Niccolo M. de Masi.8-K001-3336899.03 01/04/10 10.10# Amendment, dated as of July 7, 2011, to Change of Control andSeverance Agreement between Glu Mobile Inc. and Niccolo M. deMasi, dated as of December 28, 2009.10-Q001-3336810.01 11/14/11 10.11# Summary of Compensation Terms of Eric R. Ludwig.8-K001-3336899.01 10/24/15 10.12# Change of Control Severance Agreement, dated as of October 10,2008, between Glu Mobile Inc. and Eric R. Ludwig.10-K001-3336810.09 03/13/09 10.13# Amendment, dated as of July 7, 2011, to Change of Control andSeverance Agreement between Glu Mobile Inc. and Eric R. Ludwig,dated as of October 10, 2008.10-Q001-3336810.02 11/14/11 10.14# Summary of Compensation Terms of Chris Akhavan.8-K001-3336899.01 12/24/15 10.15# Change of Control Severance Agreement between Glu Mobile Inc.and Chris Akhavan, dated as of April 22, 2013.10-Q001-3336810.02 08/09/13 118 Table of Contents 10.16# Summary of Compensation Terms of Scott J. Leichtner.8-K001-3336899.01 12/24/15 10.17# Summary of Change of Control Severance Arrangement betweenGlu Mobile Inc. and Scott J. Leichtner, dated as of July 7, 2011.10-K001-3336810.15 03/15/13 10.18# Offer Letter between Glu Mobile Inc. and Nick Earl, dated as ofNovember 2, 2015. X 10.19# Summary of Compensation Terms of Nick Earl.8-K001-3336899.01 12/24/15 10.20# Summary of Change of Control Severance Arrangement betweenGlu Mobile Inc. and Nick Earl, dated as of February 8, 2016. X 10.21# Glu Mobile Inc. 2015 Executive Bonus Plan8-K001-3336899.01 12/19/14 10.22# Glu Mobile Inc. 2016 Executive Bonus Plan8-K001-3336899.01 12/24/15 10.23# Non-Employee Director Compensation Program, effective as ofOctober 1, 2013.10-K001-3336810.23 03/14/14 10.24 Sublease between Oracle America, Inc. and Glu Mobile Inc., dated asof April 16, 2013.8-K001-3336899.01 04/22/13 10.25 Common Stock Warrant, between Glu Mobile Inc. and MGMInteractive Inc., dated as of July 15, 2013.S-3333-1905454.03 08/09/13 10.26 iOS Developer Program License Agreement between Glu Games Inc.and Apple Inc., as amended to date.10-K001-3336810.27 03/15/13 10.27 Android Market Developer Distribution Agreement between GluGames Inc. and Google Inc., as amended to date.10-K001-3336810.28 03/15/13 10.28+ License Agreement, dated as of March 31, 2012, by and betweenGlu Mobile Inc. and Atari, Inc.10-Q/A001-3336810.01 10/12/12 10.29+ Trademark and Domain Name Assignment and License Agreement,dated as of March 31, 2012, by and between Glu Mobile Inc. andAtari Inc.10-Q001-3336810.02 08/09/12 10.30+ Unity Technologies Software License Agreement between GluMobile Inc. and Unity Technologies ApS, dated as of October 29,2012, as amended effective October 29, 2014 and December 18,2014.10-K001-3336810.33 03/13/15 10.31+ License Agreement, dated as of November 5, 2013, by and betweenGlu and Kimsaprincess, Inc., as amended June 13, 2014 andSeptember 2, 2014.10-Q001-3336810.01 11/10/14 10.32 Earnout Agreement and Amendment to Share Purchase Agreement,effective as of July 2, 2014, by and amount Glu, Blammo GamesInc., each of the former shareholders of Blammo and MichaelHaines.8-K001-3336899.01 07/16/14 21.01 List of Subsidiaries of Glu Mobile Inc. X 119 Table of Contents 23.01 Consent of PricewaterhouseCoopers LLP, independent registeredpublic accounting firm. X 24.01 Power of Attorney (see the Signature Page to this report). 31.01 Certification of Principal Executive Officer Pursuant to SecuritiesExchange Act Rule 13a-14(a). X 31.02 Certification of Principal Financial Officer Pursuant to SecuritiesExchange Act Rule 13a-14(a). X 32.01 Certification of Principal Executive Officer Pursuant to 18 U.S.C.Section 1350 and Securities Exchange Act Rule 13a-14(a)/15d-14(a).* X 32.02 Certification of Principal Financial Officer Pursuant to 18 U.S.C.Section 1350 and Securities Exchange Act Rule 13a-14(a)/15d-14(a). * X 101.INS XBRL Report Instance Document X 101.SCH XBRL Taxonomy Extension Schema Document X 101.CAL XBRL Taxonomy Calculation Linkbase Document X 101.LAB XBRL Taxonomy Label Linkbase Document X 101.PRE XBRL Presentation Linkbase Document X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document X #Indicates a management compensatory plan or arrangement. +Certain portions of this exhibit have been omitted and have been filed separately with the SEC pursuant to an order granting confidentialtreatment issued by the SEC under Rule 24b-2 as promulgated under the Exchange Act.*This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to theliability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of1933 or the Securities Exchange Act of 1934, except to the extent that Glu Mobile Inc. specifically incorporates it by reference. 120Exhibit 10.18November 2, 2015 Nick Earl________________________ Re: Offer of Employment Dear Nick: Glu Mobile Inc. (the “Company”) is pleased to offer you a full-time regular exempt position withthe Company as EVP, President of Studios reporting to Niccolo de Masi. We would like youremployment to begin on November 9, 2015 (“Start Date”) or such later Start Date as may be mutuallyagreeable. We are pleased to find someone with your vision and commitment to work as an integralpart of our team. This offer is contingent on the Company’s satisfactory acceptance of reference andbackground checks.You will be entitled to receive a biweekly salary of $13,461.54 (annual equivalent to$350,000.00) (the “Base Salary”) to be paid in accordance with the Company’s normal payrollprocedures. You will also be eligible to participate in a Company bonus plan for the Company’s 2015fiscal year (the “Bonus Plan”). Payments under the Bonus Plan will be based on the achievement ofspecific Company objectives related to the Studio organization under your supervision (the“Objectives”). The Bonus Plan will have a target payout of 50% of your annual Base Salary, with anysuch bonus payment under the Bonus Plan prorated for the 2015 fiscal year based on your Start Date.The specific Objectives will be determined by Niccolo de Masi, after consultation with you, after yourStart Date and, if required, will be approved by the Company’s Board of Directors or a committee ofthe Company’s Board. We will recommend that the Compensation Committee of the Company’s Board of Directors (the“Compensation Committee”) grant you a restricted stock unit award covering 500,000 shares of theCompany’s common stock (the “RSU”). We expect that the Compensation Committee will grant yourRSU on the second Tuesday of the month following your Start Date; accordingly, if your Start Date isNovember 9, 2015 then we would expect that your RSU would be granted to you on December 8,2015. The RSU will vest as follows: 25% of the shares will vest on the first Company RSU VestingDate following the first anniversary of your Start Date (the “First Vesting Date”) and the remaining75% of the shares will vest in equal quarterly installments over the next three years following the FirstVesting Date on each Company RSU Vesting Date. The Company RSU Vesting1 Dates are each February 15, May 15, August 15 and November 15. Notwithstanding the abovedescription, the actual terms of the RSU will be governed by the Company’s 2007 Equity Incentive Planor the Company’s 2008 Equity Inducement Plan, as applicable, and a Restricted Stock Unit Agreement,which agreement will be provided to you for electronic signature after the Compensation Committeeapproves the RSU. Additionally, we will recommend that the Compensation Committee grant you an option topurchase up to 300,000 shares of the common stock of the Company at the then current fair marketvalue, which will be the closing price of the Company’s common stock on The NASDAQ Global Marketon the date of grant. We expect that the Compensation Committee will grant you your option on thesecond Tuesday of the month following your Start Date on the same date that the CompensationCommittee grants your RSU. Your stock option will vest over four years, with 25% of the totalnumber of shares subject to the option vesting on the one-year anniversary of the date of grant andthe remainder vesting in equal installments on the monthly date of grant anniversary each monththereafter. All stock options issued to you shall be governed by the terms and conditions of the 2007Equity Incentive Plan and the Company’s 2008 Equity Inducement Plan or (as applicable) and StockOption Agreement, which agreement will be executed by you and the Company upon CompensationCommittee approval of the grant of the stock options hereunder. We will also recommend to the Compensation Committee that it approve the followingseverance arrangement in the event that your employment with the Company is terminated withoutCause or as a result of an Involuntary Termination at any time within 12 months after a Change ofControl, and you deliver to the Company a signed general release of claims: receipt of (i) six monthsof your then-current annual base salary, (ii) 50% of your annual bonus for such calendar year, basedon your target potential bonus (not the amount actually payable), (iii) an additional 36 months ofvesting with respect to each of your then-outstanding and not fully vested equity awards and (iv) up tosix months of continuation coverage for you (and any eligible dependents) pursuant to theConsolidated Omnibus Budget Reconciliation Act of 1985.“Cause” means (i) your committing of an act of gross negligence, gross misconduct ordishonesty, or other willful act, including misappropriation, embezzlement or fraud, that materiallyadversely affects the Company or any of the Company’s customers, suppliers or partners, (ii) yourpersonal dishonesty, willful misconduct in the performance of services for the Company, or breach offiduciary duty involving personal profit, (iii) your being convicted of, or pleading no contest to, anyfelony or misdemeanor involving fraud, breach of trust or misappropriation or any other act that theCompany’s Board reasonably believes in good faith has materially adversely affected, or upondisclosure will materially adversely affect, the Company, including the Company’s public reputation,(iv) any material breach of any agreement with the Company by you that remains uncured for 30 daysafter written notice by the Company to you, unless that breach is incapable of cure, or any othermaterial unauthorized use or disclosure of the Company’s confidential information or trade secretsinvolving personal benefit or (v) your failure to follow the lawful directions of the Company’s chiefexecutive officer, in the scope of your employment unless you reasonably believe in good faith thatthese directions are not lawful and notify the chief executive officer of the reasons for your belief.“Involuntary Termination” means your resignation of employment from the Companyexpressly based on the occurrence of any of the following conditions, without your informed writtenconsent, provided, however, that with respect to each of the following conditions, you must (a) within90 days following its occurrence, deliver to the Company a written notice explaining the specific basisfor your belief that you are entitled to terminate your employment due to an Involuntary Terminationand (b) give the Company an opportunity to cure any of the following within 30 days following deliveryof such notice and explanation (i) a material reduction in your2 duties, position or responsibilities, or your removal from these duties, position and responsibilities,unless you are provided with a position of substantially equal or greater organizational level, duties,authority and compensation; provided, however, that a change of title, in and of itself, or a reductionof duties, position or responsibilities solely by virtue of the Company’s being acquired and made partof a larger entity will not constitute an “Involuntary Termination,” (ii) a greater than 15% reduction inyour then-current annual base compensation that is not applicable to the Company’s other executiveofficers, or (iii) a relocation to a facility or a location more than 30 miles from your then-currentlocation of employment. “Change of Control” means the closing of (i) a merger or consolidation in one transaction or aseries of related transactions, in which the Company’s securities held by the Company’s stockholdersbefore the merger or consolidation represent less than 50% of the outstanding voting equity securitiesof the surviving corporation after the transaction or series of related transactions, (ii) a sale or othertransfer of all or substantially all of the Company’s assets as a going concern, in one transaction or aseries of related transactions, followed by the distribution to the Company’s stockholders of anyproceeds remaining after payment of creditors or (iii) a transfer of more than 50% of the Company’soutstanding voting equity securities by the Company’s stockholders to one or more related persons orentities other than the Company in one transaction or a series of related transactions. As a Company employee, you will also be eligible to receive certain employee benefits, asmodified by the Company from time to time, including medical, dental, and vision insurance coverage;sixteen days personal time off per year, plus such additional holiday time as is provided to theCompany’s other regular employees; this currently includes the period between Christmas and NewYear's Day. Your employment with the Company is for no specified period and constitutes an “AT-WILL”employment arrangement. As a result, you are free to resign at any time, with or without notice, forany reason or for no reason. Similarly, the Company is free to conclude its employment relationshipwith you at any time, with or without notice and with or without cause. For purposes of federal immigration law, you will be required to provide to the Companydocumentary evidence of your identity and eligibility for employment in the United States. Suchdocumentation must be provided to us within three (3) business days of the Start Date, or ouremployment relationship with you may be terminated.As a condition of your employment, you will be required to sign and comply with the EmployeeProprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A. Inaddition, you agree that you will not engage in any other employment, occupation, consulting or otherbusiness activity related to the business in which the Company is now involved or becomes involvedduring the term of your employment, nor will you engage in any activities that conflict with yourobligations to the Company. This letter, along with the Employee Proprietary Information and Information Agreement, setsforth the terms and conditions of your employment with the Company and supersede any priorrepresentations or agreements, whether written or oral. This letter may not be modified or amendedexcept by a written agreement, signed both by an officer of the Company and you.3  To accept the Company's offer of employment, please sign and date this letter in the spaceprovided below and return it to Sheila Ryan, VP of Global Human Resources, no later than November 3,2015. We’ve included a duplicate original for your records. We believe Glu Mobile is poised to achieve great success. We anticipate that you will be acritical component of that success. We look forward to working with you.Sincerely, ACCEPTED AND AGREED TOGLU MOBILE INC.this 3rd day of November, 2015 Ric R./s/ Nick Earl/s/ Eric R. LudwigNick EarlEric R. LudwigEVP, COO & CFO EMPLOYEE ACCEPTANCE ADDENDUM I hereby acknowledge that neither the offer of, nor my acceptance of, employment with GluMobile Inc. is contingent upon my disclosure of any information of a proprietary nature obtained fromany protected source, including, but not limited to my previous employers. I represent that myemployment with Glu Mobile Inc. and my performance of my proposed duties with Glu Mobile Inc. inthe development of its business will not violate any obligations I may have to my former employer(s),including the obligation to keep confidential any proprietary information of those employers. Iunderstand that Glu Mobile Inc.’s policy is to strictly prohibit any employee from using or disclosingany confidential or proprietary information from any source. Signature: _/s/ Nick Earl_____________________________ Date: ___11-3-15__________ 4 Print Name: _Nick Earl_________________________________ GLU MOBILE INC.EMPLOYEE INVENTION ASSIGNMENT and CONFIDENTIALITY AGREEMENTIn consideration of, and as a condition of my employment with Glu Mobile Inc., a Delawarecorporation with its principal offices in the State of California (the “Company”), I, as the “Employee”signing this Employee Invention Assignment and Confidentiality Agreement (this “Agreement”),hereby represent to the Company, and the Company and I hereby agree as follows: 1. Purpose of Agreement. I understand that the Company is engaged in a continuousprogram of research, development, production and/or marketing in connection with its current andprojected business and that it is critical for the Company to preserve and protect its proprietaryinformation, its rights in certain inventions and works and in related intellectual propertyrights. Accordingly, I am entering into this Agreement, whether or not I am expected to createinventions or other works of value for the Company. As used in this Agreement, “Inventions” meansinventions, improvements, designs, original works of authorship, formulas, processes, compositions ofmatter, computer software programs, databases, mask works, confidential information and tradesecrets.2. Disclosure of Inventions. I will promptly disclose in confidence to the Company, or toany person designated by it, all Inventions that I make, create, conceive or first reduce to practice,either alone or jointly with others, during the period of my employment, whether or not in the courseof my employment, and whether or not patentable, copyrightable or protectable as trade secrets.3. Work for Hire; Assigned Inventions. I acknowledge and agree that any copyrightableworks prepared by me within the scope of my employment will be “works made for hire” under theCopyright Act and that the Company will be considered the author and owner of such copyrightableworks. I agree that all Inventions that I make, create, conceive or first reduce to practice during theperiod of my employment, whether or not in the course of my employment, and whether or notpatentable, copyrightable or protectable as trade secrets, and that (a) are developed using equipment,supplies, facilities or trade secrets of the Company; (b) result from work performed by me for theCompany; or (c) relate to the Company’s business or actual or demonstrably anticipated research ordevelopment (the “Assigned Inventions”), will be the sole and exclusive property of the Company.4. Excluded Inventions and Other Inventions. Attached as Exhibit A is a list describingall existing Inventions, if any, that may relate to the Company’s business or actual or demonstrablyanticipated research or development and that were made by me or acquired by me prior to theEffective Date (as defined in Section 25 below), and which are not to be assigned to the Company(“Excluded Inventions”). If no such list is attached, I represent and agree that it is5 because I have no rights in any existing Inventions that may relate to the Company’s business oractual or demonstrably anticipated research or development. For purposes of this Agreement, “OtherInventions” means Inventions in which I have or may have an interest, as of the Effective Date orthereafter, other than Assigned Inventions and Excluded Inventions. I acknowledge and agree that if,in the scope of my employment, I use any Excluded Inventions or any Other Inventions, or if I includeany Excluded Inventions or Other Inventions in any product or service of the Company or if my rightsin any Excluded Inventions or Other Inventions may block or interfere with, or may otherwise berequired for, the exercise by the Company of any rights assigned to the Company under thisAgreement, I will immediately so notify the Company in writing. Unless the Company and I agreeotherwise in writing as to particular Excluded Inventions or Other Inventions, I hereby grant to theCompany, in such circumstances (whether or not I give the Company notice as required above), aperpetual, irrevocable, nonexclusive, transferable, world-wide, royalty-free license to use, disclose,make, sell, offer for sale, import, copy, distribute, modify and create works based on, perform, anddisplay such Excluded Inventions and Other Inventions, and to sublicense third parties in one or moretiers of sublicenses with the same rights.5. Exception to Assignment. I understand that the Assigned Inventions will not include,and the provisions of this Agreement requiring assignment of inventions to the Company do not applyto, any invention that qualifies fully for exclusion under the provisions of Section 2870 of the CaliforniaLabor Code, which are attached as Exhibit B.6. Assignment of Rights. I agree to assign, and do hereby irrevocably transfer andassign, to the Company: (a) all of my rights, title and interests in and with respect to any AssignedInventions; (b) all patents, patent applications, copyrights, mask works, rights in databases, tradesecrets, and other intellectual property rights, worldwide, in any Assigned Inventions, along with anyregistrations of or applications to register such rights; and (c) to the extent assignable, any and allMoral Rights (as defined below) that I may have in or with respect to any Assigned Inventions. I alsohereby forever waive and agree never to assert any Moral Rights I may have in or with respect to anyAssigned Inventions and any Excluded Inventions or Other Inventions licensed to the Company underSection 4, even after termination of my employment with the Company. “Moral Rights” means anyrights to claim authorship of a work, to object to or prevent the modification or destruction of a work,to withdraw from circulation or control the publication or distribution of a work, and any similar right,regardless of whether or not such right is denominated or generally referred to as a “moral right.”7. Assistance. I will assist the Company in every proper way to obtain and enforce forthe Company all patents, copyrights, mask work rights, trade secret rights and other legal protectionsfor the Assigned Inventions, worldwide. I will sign and deliver any documents that the Company mayreasonably request from me in connection with providing such assistance. My obligations under thissection will continue beyond the termination of my employment with the Company; provided that theCompany agrees to compensate me at a reasonable rate after such termination for time and expensesactually spent by me at the Company’s request in providing such assistance. I hereby appoint theSecretary of the Company as my attorney-in-fact to sign documents on my behalf for this purpose. Iagree that this appointment is coupled with an interest and will not be revocable.8. Proprietary Information. I understand that my employment by the Company createsa relationship of confidence and trust with respect to any information or materials of a confidential orsecret nature that may be made, created or discovered by me or that may be disclosed to me by theCompany or a third party in relation to the business of the Company or to the business of any parent,subsidiary, affiliate, customer or supplier of the Company, or any other party with whom the Companyagrees to hold such information or materials in confidence (the “Proprietary Information”). Withoutlimitation as to the forms that Proprietary Information may take, I acknowledge that ProprietaryInformation may be contained in tangible material such as writings, drawings, samples, electronicmedia, or computer programs, or may be in the nature of6 unwritten knowledge or know-how. Proprietary Information includes, but is not limited to, AssignedInventions, marketing plans, product plans, designs, data, prototypes, specimens, test protocols,laboratory notebooks, business strategies, financial information, forecasts, personnel information,contract information, customer and supplier lists, and the non-public names and addresses of theCompany’s customers and suppliers, their buying and selling habits and special needs.9. Confidentiality. At all times, both during my employment and after its termination, Iwill keep and hold all Proprietary Information in strict confidence and trust. I will not use or discloseany Proprietary Information without the prior written consent of the Company in each instance, exceptas may be necessary to perform my duties as an employee of the Company for the benefit of theCompany. Upon termination of my employment with the Company, I will promptly deliver to theCompany all documents and materials of any nature pertaining to my work with the Company, and Iwill not take with me or retain in any form any documents or materials or copies containing anyProprietary Information.10. Physical Property. All documents, supplies, equipment and other physical propertyfurnished to me by the Company or produced by me or others in connection with my employment willbe and remain the sole property of the Company. I will return to the Company all such items whenrequested by the Company, excepting only my personal copies of records relating to my employmentor compensation and any personal property I bring with me to the Company and designate assuch. Even if the Company does not so request, I will upon termination of my employment return tothe Company all Company property, and I will not take with me or retain any such items.11. No Breach of Prior Agreements. I represent that my performance of all the terms ofthis Agreement and my duties as an employee of the Company will not breach any inventionassignment, proprietary information, confidentiality, non-competition, or other agreement with anyformer employer or other party. I represent that I will not bring with me to the Company or use inthe performance of my duties for the Company any documents or materials or intangibles of my ownor of a former employer or third party that are not generally available for use by the public or havenot been legally transferred to the Company.12. “At Will” Employment. I understand that this Agreement does not constitute acontract of employment or obligate the Company to employ me for any stated period of time. Iunderstand that I am an “at will” employee of the Company and that my employment can beterminated at any time, with or without notice and with or without cause, for any reason or for noreason, by either the Company or by me. I acknowledge that any statements or representations tothe contrary are ineffective, unless put into a writing signed by the Company. I further acknowledgethat my participation in any stock option or benefit program is not to be construed as any assurance ofcontinuing employment for any particular period of time.13. Company Opportunities; Duty Not to Compete. During the period of myemployment, I will at all times devote my best efforts to the interests of the Company, and I will not,without the prior written consent of the Company, engage in, or encourage or assist others to engagein, any other employment or activity that: (a) would divert from the Company any businessopportunity in which the Company can reasonably be expected to have an interest; (b) would directlycompete with, or involve preparation to compete with, the current or future business of the Company;or (c) would otherwise conflict with the Company’s interests or could cause a disruption of itsoperations or prospects.14. Non-Solicitation of Employees/Consultants. During my employment with theCompany and for a one (1) year period thereafter, I will not directly or indirectly solicit awayemployees or consultants of the Company for my own benefit or for the benefit of any other person orentity, nor will I encourage or assist others to do so.7 15. Use of Name & Likeness. I hereby authorize the Company to use, reuse, and to grantothers the right to use and reuse, my name, photograph, likeness (including caricature), voice, andbiographical information, and any reproduction or simulation thereof, in any form of media ortechnology now known or hereafter developed, both during and after my employment, for anypurposes related to the Company’s business, such as marketing, advertising, credits, andpresentations.16. Notification. I hereby authorize the Company, during and after the termination of myemployment with the Company, to notify third parties, including, but not limited to, actual or potentialcustomers or employers, of the terms of this Agreement and my responsibilities hereunder.17. Injunctive Relief. I understand that a breach or threatened breach of this Agreementby me may cause the Company to suffer irreparable harm and that the Company will therefore beentitled to injunctive relief to enforce this Agreement.18. Governing Law; Severability. This Agreement is intended to supplement, and not tosupersede, any rights the Company may have in law or equity with respect to the duties of itsemployees and the protection of its trade secrets. This Agreement will be governed by and construedin accordance with the laws of the State of California without giving effect to any principles of conflictof laws that would lead to the application of the laws of another jurisdiction. If any provision of thisAgreement is invalid, illegal or unenforceable in any respect, such provision will be enforced to themaximum extent possible, given the fundamental intentions of the parties when entering into thisAgreement. To the extent such provision cannot be so enforced, it will be stricken from thisAgreement and the remainder of this Agreement will be enforced as if such invalid, illegal orunenforceable provision had never been contained in this Agreement.19. Counterparts. This Agreement may be signed in any number of counterparts, each ofwhich when so signed and delivered will be deemed an original, and all of which together willconstitute one and the same agreement.20. Entire Agreement. This Agreement and the documents referred to herein constitutethe entire agreement and understanding of the parties with respect to the subject matter of thisAgreement, and supersede all prior understandings and agreements, whether oral or written, betweenthe parties hereto with respect to such subject matter.21. Amendment and Waiver. This Agreement may be amended only by a writtenagreement signed by each of the parties to this Agreement. No amendment or waiver of, ormodification of any obligation under, this Agreement will be enforceable unless specifically set forth ina writing signed by the party against which enforcement is sought. A waiver by either party of any ofthe terms and conditions of this Agreement in any instance will not be deemed or construed to be awaiver of such term or condition with respect to any other instance, whether prior, concurrent orsubsequent.22. Successors and Assigns; Assignment. Except as otherwise provided in thisAgreement, this Agreement, and the rights and obligations of the parties hereunder, will bind andbenefit the parties and their respective successors, assigns, heirs, executors, administrators, and legalrepresentatives. The Company may assign any of its rights and obligations under this Agreement. Iunderstand that I will not be entitled to assign or delegate this Agreement or any of my rights orobligations hereunder, whether voluntarily or by operation of law, except with the prior writtenconsent of the Company.23. Further Assurances. The parties will sign such further documents and instrumentsand take such further actions as may be reasonably necessary to carry out the purposes and intent ofthis Agreement. Upon termination of my employment with the Company, I will sign and deliver8 a document or documents in a form reasonably requested by the Company confirming my agreementto comply with the post-employment obligations contained in this Agreement. 24. Acknowledgement. I certify and acknowledge that I have carefully read all of theprovisions of this Agreement and that I understand and will fully and faithfully comply with thisAgreement.25. Effective Date of Agreement. This Agreement is and will be effective on and afterthe first day of my employment by the Company, which is November 9, 2015 (the “Effective Date”).IN WITNESS WHEREOF, the parties have signed this Employee Invention Assignment andConfidentiality Agreement with the intent that it be effective as of the Effective Date. Glu Mobile Inc.:Employee:By:/s/ Eric R. Ludwig/s/ Nick Earl SignatureName:Eric R. LudwigNick Earl Name (Please Print)Title:EVP, COO & CFO 9 Exhibit 10.20Summary of Change of Control Severance Arrangement between Glu Mobile Inc. and Nick Earl Effective as of February 8, 2016 In the event that the employment of Nick Earl (the “Employee”), the President of Global Studios of Glu Mobile Inc. (the“Company”), is terminated without Cause or as a result of an Involuntary Termination at any time within 12 months after aChange of Control, and the Employee delivers to the Company a signed general release of claims, then he will receive (i) sixmonths of his then-current annual base salary, (ii) 50% of his annual bonus for such calendar year, based on the target potentialamount (not the amount actually payable), (iii) an additional 36 months of vesting with respect to each of his then-outstandingand not fully vested equity awards and (iv) up to six months of continuation coverage for him (and any eligible dependents)pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985.The defined terms used above have the following meanings:“Cause” means (i) the Employee’s committing of an act of gross negligence, gross misconduct or dishonesty, or other willful act,including misappropriation, embezzlement or fraud, that materially adversely affects the Company or any of the Company’scustomers, suppliers or partners, (ii) his personal dishonesty, willful misconduct in the performance of services for the Company,or breach of fiduciary duty involving personal profit, (iii) his being convicted of, or pleading no contest to, any felony ormisdemeanor involving fraud, breach of trust or misappropriation or any other act that the Company’s Board reasonably believesin good faith has materially adversely affected, or upon disclosure will materially adversely affect, the Company, including theCompany’s public reputation, (iv) any material breach of any agreement with the Company by him that remains uncured for 30days after written notice by the Company to him, unless that breach is incapable of cure, or any other material unauthorized useor disclosure of the Company’s confidential information or trade secrets involving personal benefit or (v) his failure to follow thelawful directions of the Company’s chief executive officer, in the scope of his employment unless he reasonably believes ingood faith that these directions are not lawful and notifies the chief executive officer of the reasons for his belief.“Involuntary Termination” means the Employee’s resignation of employment from the Company expressly based on theoccurrence of any of the following conditions, without the Employee’s informed written consent, provided, however, that withrespect to each of the following conditions, the Employee must (a) within 90 days following its occurrence, deliver to theCompany a written notice explaining the specific basis for the Employee’s belief that the Employee is entitled to terminate theEmployee’s employment due to an Involuntary Termination and (b) give the Company an opportunity to cure any of thefollowing within 30 days following delivery of such notice and explanation (i) a material reduction in his duties, position orresponsibilities, or his removal from these duties, position and responsibilities, unless he is provided with a position ofsubstantially equal or greater organizational level, duties, authority and compensation; provided, however, that a change of title,in and of itself, or a reduction of duties, position or responsibilities solely by virtue of the Company’s being acquired and madepart of a larger entity will not constitute an “Involuntary Termination,” (ii) a greater than 15% reduction in his then-currentannual base compensation that is not applicable to the Company’s other executive officers, or (iii) a relocation to a facility or alocation more than 30 miles from his then-current location of employment.“Change of Control” means the closing of (i) a merger or consolidation in one transaction or a series of related transactions, inwhich the Company’s securities held by the Company’s stockholders before the merger or consolidation represent less than 50%of the outstanding voting equity securities of the surviving corporation after the transaction or series of related transactions, (ii) asale or other transfer of all or substantially all of the Company’s assets as a going concern, in one transaction or a series of relatedtransactions, followed by the distribution to the Company’s stockholders of any proceeds remaining after payment of creditors or(iii) a transfer of more than 50% of the Company’s outstanding voting equity securities by the Company’s stockholders to one ormore related persons or entities other than the Company in one transaction or a series of related transactions. 1 Exhibit 21.01 GLU MOBILE INC. Subsidiaries as of March 4, 2016 State or Other Jurisdiction of Incorporation or Name of Subsidiary Organization Beijing Qinwang Technology Co. Ltd. People’s Republic Of China Beijing Zhangzhong MIG Information Technology Co. Ltd. People’s Republic Of China Cie Games LLC Delaware, USA Glu Games Inc. Delaware, USA Glu Mobile K.K. Japan Glu Mobile Korea Limited Korea Glu Mobile Limited United Kingdom Glu Mobile Limited Hong Kong Glu Mobile (Russia) Ltd. United Kingdom Glu Mobile Technology (Beijing) Co. Ltd. People’s Republic Of China Glu Mobile Washington Inc. (f/k/a Griptonite Inc.) Washington, USA Glu Toronto Inc. (f/k/a Blammo Games Inc.) Ontario, Canada Griptonite Games Inc. Delaware, USA Griptonite Games India Private Limited India Maverick Mobile Entertainment (Beijing) Limited People’s Republic Of China Winterfell Acquisition Corp. Delaware, USA We have omitted certain subsidiaries which, if considered in the aggregate as a single subsidiary, would not constitute asignificant subsidiary as of December 31, 2015. Exhibit 23.01 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-141487, 333-149996, 333-157959, 333-165813, 333-172983, 333-176318, 333-180110, 333-187311, 333-190544, 333-194604, and333-206230) and in the Registration Statements on Form S-3 (Nos. 333-169131, 333-176325, 333-176327, 333-190545,333-195590, and 333-198816) of Glu Mobile Inc. of our report dated March 4, 2016 relating to the financial statements andthe effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaMarch 4, 2016 EXHIBIT 31.01 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A) OF THE SECURITIESEXCHANGE ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Niccolo M. de Masi, certify that: 1.I have reviewed this Annual Report on Form 10-K of Glu Mobile Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 4, 2016/s/ Niccolo M. de Masi Niccolo M. de Masi President and Chief Executive Officer (Principal Executive Officer) EXHIBIT 31.02 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)/15D-14(A) OF THESECURITIES EXCHANGE ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Eric R. Ludwig, certify that: 1.I have reviewed this Annual Report on Form 10-K of Glu Mobile Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules13a-15(f) and 15d-15(f)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely tomaterially affect, the registrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalentfunctions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 4, 2016 /s/ Eric R. Ludwig Eric R. Ludwig Executive Vice President, Chief Operating Officer and Chief Financial Officer (Principal Financial Officer)  EXHIBIT 32.01 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO 18 U.S.C. §1350 The undersigned, Niccolo M. de Masi, the President and Chief Executive Officer of Glu Mobile Inc. (the “Company”),pursuant to 18 U.S.C. §1350, hereby certifies that: (i) the Annual Report on Form 10-K for the year ended December 31, 2015 of the Company (the “Report”) fully complieswith the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. Date: March 4, 2016By: /s/ Niccolo M. de MasiNiccolo M. de Masi President and Chief Executive Officer (Principal Executive Officer)  EXHIBIT 32.02 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO §18 U.S.C. SECTION 1350 The undersigned, Eric R. Ludwig, the Executive Vice President, Chief Operating Officer and Chief Financial Officer of GluMobile Inc. (the “Company”), pursuant to 18 U.S.C. §1350, hereby certifies that: (i) the Annual Report on Form 10-K for the year ended December 31, 2015 of the Company (the “Report”) fully complieswith the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and. (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. Date: March 4, 2016 By: /s/ Eric R. LudwigEric R. LudwigExecutive Vice President, Chief Operating Officerand Chief Financial Officer (Principal Financial Officer) 

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