Glu Mobile, Inc.
Annual Report 2016

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, 2016 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, 2016, 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 $206,369,770. 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 28, 2017 was 134,716,760. 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, 2016 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 18 Item 1B. Unresolved Staff Comments 45 Item 2. Properties 45 Item 3. Legal Proceedings 45 Item 4. Mine Safety Disclosures 46 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities 46 Item 6. Selected Financial Data 48 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 49 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 72 Item 8. Financial Statements and Supplementary Data 74 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 119 Item 9A. Controls and Procedures 119 Item 9B. Other Information 120 PART III Item 10. Directors, Executive Officers and Corporate Governance 120 Item 11. Executive Compensation 120 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters 120 Item 13. Certain Relationships and Related Transactions, and Director Independence 121 Item 14. Principal Accountant Fees and Services 121 PART IV Item 15. Exhibits and Financial Statement Schedules 121 Item 16. Form 10-K summary 122 Signatures 123 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, or the Securities Act, and Section 21E of the Securities Exchange Actof 1934, as amended, or 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, or 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 free-to-play mobile games designed to appeal to a broadcross section of users who download and make purchases within our games through direct-to-consumer digital storefronts,such as the Apple App Store, Google Play Store, Amazon Appstore and others. Free-to-play games are games that a player candownload and play for free, but which allow players to access a variety of additional content and features for a fee and toengage with various advertisements and offers that generate revenue for us. We have a portfolio of compelling games basedon our own intellectual property such as Contract Killer, Cooking Dash, Covet Fashion, Deer Hunter, Design Home, QuizUp, Racing Rivals, and Tap Sports Baseball, as well as games based on third party licensed brands including GordonRamsay DASH, Kendall & Kylie, and Kim Kardashian: Hollywood. We are headquartered in San Francisco, California, withU.S. offices in California in the cities of Burlingame, San Mateo, and Long Beach and in Portland, Oregon, and internationallocations in Canada, China, India, Japan, 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, 2016 may also be obtained, without charge, by contacting Investor Relations, GluMobile Inc., 500 Howard Street, Suite 300, San Francisco, California 94105 or by emailing IR@glu.com.3 Table of Contents Strategy and Business Developments Our Strategy Our goal is to become the leading developer and publisher of free-to-play mobile games. Our strategy for achievingthis goal is comprised of three parts:·Building Blue Ocean Platforms;·Attracting and Fostering Creative Leaders; and·Cultivating Highly Creative Environments.Building Blue Ocean PlatformsThe first prong of our strategy is to build blue ocean platforms for smartphones and tablets. Platforms are titles that wecontinue to update with additional content and features and which grow revenue year over year. We believe a key componentof driving revenue growth year over year from a platform title is the inclusion of community features which may involve userscompeting with each other, forming clubs or groups to cooperate in completing goals or events, or contributing their ownoriginal content to the game. Covet Fashion, Design Home and Tap Sports Baseball are examples of our existing titles thatare, or have the potential to be, platforms. We are focused on building platforms in what we refer to as “blue oceans,” meaningthat we seek to identify genres that are not oversaturated with competitive titles and where we believe we can become theleader in that genre. We currently publish titles in five genres: fashion and celebrity, sports and action, food, home and socialnetworking. We believe these are genres in which we have already established a leadership position, are otherwise alignedwith our strengths or are conducive to the establishment of a strong platform.In addition, we have also focused our efforts on turning our existing games with a significant daily active user baseinto what we call evergreen titles. Evergreen titles are similar to platforms in that we continue to update them with additionalcontent and features, but differ from platforms in that our focus is to reduce and potentially reverse their year over year revenuedeclines; to the extent that we succeed in our efforts to grow annual revenue from an evergreen title, we would then considersuch evergreen title to be a platform. Cooking Dash 2016, Deer Hunter 2017, Gordon Ramsay DASH, Kim Kardashian:Hollywood, and Racing Rivals are examples of our existing evergreen titles.While we have generally designed our games to incorporate social features that enhance the user’s gameplayexperience, as part of our platform strategy we have further prioritized adding new social and community-based features,systems, and modes into our platform and evergreen titles. For example, Covet Fashion allows users to join “Fashion Houses”with other users and then borrow each others’ clothes, receive advice on their looks, chat and work together to unlockadditional rewards in special style challenges, Racing Rivals enables players across Apple’s iOS and Google’s Androidplatforms to compete against each other in real-time, synchronous racing, and our Tap Sports Baseball titles allow players tochallenge their friends to head-to-head matchups. We intend to continue to innovate to further enable our titles’ ability tofunction as successful platforms or evergreen titles. Many of our games also leverage technologies such as Apple’s GameCenter or Facebook Connect, which enables players to compare their high scores and achievements with their friends andagainst the global leaderboard. Another prong of our platform strategy is the inclusion and utilization of key brands and celebrity licensors withinour titles. For example, we have worked with our celebrity licensors to engage their social media audiences and build gamesthat will resonate with their unique fan bases. In particular, Kim Kardashian: Hollywood utilizes transmedia storytelling,leveraging Ms. Kardashian West’s built-in social media fan base to drive installs and awareness of the game, and then attemptsto surprise and delight those fans with real-world events and other game content based on her life. Our Gordon Ramsay DASHtitle utilizes Gordon Ramsay’s personality to guide users to become a restaurateur in the image of Mr. Ramsay. Our goal is forthe game content to become entwined with the celebrity’s persona and social media presence, and to otherwise enhanceinteraction with the celebrity’s fans. We believe that we can continue to drive installs and4 Table of Contents awareness of our games through our licensing efforts with celebrities, social influencers, organizations and brands thatresonate with potential players of our games. In 2017, the latest offering in our Tap Sports Baseball franchise will featurelicensed content from Major League Baseball, or MLB, for the first time, together with current and former MLB playerspursuant to our continuing agreements with the Major League Baseball Players Association, or MLBPA, and Major LeagueBaseball Players Alumni Association, or MLBPAA. Partnering with desirable licensing partners and renewing our existinglicenses requires that we continue to develop successful games based on licensed content and are able to compete with othermobile gaming companies on financial and other terms in signing such partners. We also plan to continue introducing third-party licensed brands, properties and personalities into our games as additional licensed content, for cameo appearances or forlimited time events in order to drive awareness and monetization.We also plan to continue monitoring the successful aspects of our games to drive downloads and enhancemonetization and retention as part of our platform strategy, whether by optimizing advertising revenue within each title,securing additional compelling licensing arrangements, building enhanced and more complex core gameplay, addingadditional social features, tournaments and events or otherwise. Creative LeadersThe second prong of our strategy is to attract, cultivate and retain proven creative leaders who will develop andupdate our platform and evergreen titles and also work to prototype new ideas that have the potential to become platformsprior to committing larger investments in terms of headcount and resources. Each creative leader is responsible for the long-term planning of his or her platform and evergreen titles and to identify and invest in long-term opportunities and conceptsthat have the potential to become top grossing hit titles. We have made, and plan to make, significant investment in ourcreative leaders. Our talent model is to attract the industry’s finest and provide them with world-class infrastructure, tools,funding and the support to create innovative and polished games. In 2016 and early 2017 we made the following key hires aspart of our creative leader strategy, and intend to make additional creative leader hires in 2017:·in July 2016, we hired former Vice President and Chief Operating Officer of EA Mobile, Mark van Ryswyk, asour Senior Vice President of Global Studios. Mr. van Ryswyk has more than 15 years of gaming experience andexpertise and currently manages our Crowdstar Inc., or Crowdstar, studio that we acquired in November 2016;and·in January 2017, we hired Mike Olsen as Senior Vice President of Studios. Mr. Olsen served in various rolesduring his 20 years at Electronic Arts where he led the design and creative direction for 25 titles including StarWars: Galaxy of Heroes, The Godfather, Tiger Woods PGA Tour Golf, NCAA March Madness, NCAA Footballand more. Mr. Olsen brings to us an extensive background in creative direction, game design, studiomanagement and live game operations.Highly Creative EnvironmentsWe believe a key part of building platforms and attracting and cultivating creative leaders is providing them withhighly creative environments that are optimal for creating hit games. We intend to build out studios that enable small teams torapidly prototype a game concept and then move on to developing a game or to building another prototype. Creativeenvironments that support our creative leaders and other game development personnel are also needed to attract the level oftalent that will support our growing platforms and build new platforms. During 2017, we intend to consolidate our teams tofewer locations, including a new larger headquarters in San Francisco. Our goal is to create a state-of-the-art facility in SanFrancisco that is optimal for the creation of innovative designs and successful platform and evergreen games.Business DevelopmentsSince January 1, 2016, 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. 5 Table of Contents Our significant achievements related to these efforts include the following:·In December 2016, we had approximately 4.4 million daily active users and 35.9 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, 2016, we had approximately 1.5 billion cumulative installs of our games on our primarydistribution platforms, including approximately 60.4 million installs during the fourth quarter of 2016.·We globally released seven free-to-play games that we developed during 2016, including three titles that weconsider to be platform or evergreen titles – Design Home, Gordon Ramsay DASH and Tap Sports Baseball2016.·In December 2016, we completed the acquisition of Crowdstar, a leading developer of fashion and décor homegames. Crowdstar’s portfolio includes platform title, Covet Fashion, and the recently launched Design Hometitle. We intend to leverage their successful platforms as part of our platform strategy and learn from theirhistorical success.·In December 2016, we acquired substantially all of the intangible assets and certain other assets of Plain VanillaCorp., or Plain Vanilla, including their existing trivia-based title, QuizUp. We have transitioned daily operationsand development of QuizUp to our Hyderabad, India location and believe QuizUp has the potential to become aplatform title.·We partnered with MLB to incorporate its brands and properties into our forthcoming title MLB Tap SportsBaseball 2017. MLB Tap Sports Baseball 2017 will also include current and former MLB players pursuant toour continuing agreements with the MLBPA and MLBPAA, including featuring current National League MostValuable Player Kris Bryant.·In February 2016, we announced that we had partnered with award-winning artist, Taylor Swift, on thedevelopment of a new mobile game. We expect to release our Taylor Swift title during 2017 and believe it hasthe potential to be a platform title.·We successfully transitioned our Chief Executive Officer role, as our former President and Chief ExecutiveOfficer, Niccolo de Masi, became our Executive Chairman in November 2016, and our former President of GlobalStudios, Nick Earl, was appointed President and Chief Executive Officer in November 2016 and joined ourBoard of Directors in December 2016.·In January 2017, we began transitioning the maintenance and daily operations of Racing Rivals to CarbonatedInc., or Carbonated, a mobile game studio managed by game industry veteran Travis Boatman, as part of ourefforts to consolidate our studio locations and increase revenue from this title. Across the globe our industry is experiencing a trend where hit titles generally remain higher in the top grossingcharts for longer. We believe this is due to the continued specialization and investment of teams and companies in their hittitles, and the live, social nature of certain games. Our strategy and the measures we have implemented during the past year tosupport our business position us to take advantage of these trends. We plan to focus on regularly updating and otherwisesupporting our platform and evergreen titles in order to ensure that those games monetize and retain users for even longerperiods of time. In addition, we plan to continue to invest in our creative leaders and the creative environments in which theyand their teams work to increase our likelihood of creating significant hit platform titles in 2017 and beyond.6 Table of Contents Our ProductsWe develop and publish a portfolio of mobile games designed to appeal to a broad cross section of the users ofsmartphones and tablet devices. Our portfolio of mobile games is spread across the following genres:·Fashion and CelebrityoCovet Fashion, which we acquired as part of our acquisition of Crowdstar, is a top grossing fashion title thathas grown annual revenue each year since its launch in 2013. Covet Fashion features continually changingcontent and daily events to help drive engagement and monetization of its users. oWe released Kim Kardashian: Hollywood in June 2014 and it continues to be one of our top five revenue-generating titles on an annual basis, demonstrating its continuing strength as an evergreen title. This titleremained a top 200 grossing game on the Apple App Store’s U.S. iPhone games rankings throughout 2016on a monthly basis. ·FoodoCooking Dash 2016, launched in June 2015, continued to be one of our top revenue-generating titles for2016. We intend to release a significant update to this title during 2017 and believe that we have thepotential to increase revenue from this title and for it to become a platform.oGordon Ramsay DASH, launched in June 2016, continued the success of Cooking Dash 2016 whileincreasing user retention and average revenue per daily active user. We intend to release a significantupdate to this title during 2017 and believe that we have the potential to increase revenue from this title andfor it to become a platform.·Sports and ActionoTap Sports Baseball 2016, launched in March 2016, was the third installment in our popular Tap SportsBaseball franchise in which we partnered with the MLBPA and MLBPAA to include real-world baseballstars from each of the MLB’s 30 teams. Tap Sports Baseball 2016 was the highest ranked baseball title inthe Apple App Store’s U.S. iPhone top grossing games rankings during 2016.oDeer Hunter 2016, launched in September 2015, which we recently rebranded Deer Hunter 2017, remainedone of our top action titles during 2016. We recently released two major updates to this title, one whichadded hunting dogs and the other which added an underwater hunting feature, which updates have helpedincrease revenue from this title. We believe that this is a good example of our ability to increase revenuefrom our evergreen titles and intend to apply these learnings to other titles.oOur Racing Rivals game, originally released in the summer of 2013, was one of our top revenue–generatingtitles for 2016 and remained one of the highest ranked racing titles in the Apple App Store’s U.S. iPhone topgrossing games rankings during 2016. In January 2017, we began transitioning the maintenance and dailyoperations of Racing Rivals to Carbonated and believe that Carbonated has the potential to increase revenuefrom this title during 2017.·Social NetworkingoQuizUp, released in 2013 by Plain Vanilla and acquired by us in December 2016, is a multiplayer triviagame where users can challenge friends to trivia games and create their own trivia competitions. It is one ofthe titles we believe has the potential to become a platform that generates growing and consistent revenue.·HomeoDesign Home, launched in November 2016, was built on the Covet Fashion engine and we believe has theopportunity to become a successful platform title. It peaked at #28 on the Apple App Store’s U.S. iPhone topgrossing games rankings during 2016 and remains the top home design game in the Apple App Store. 7 Table of Contents The table below sets forth the title, release date, and genre for each of the games we developed and launchedworldwide in 2016: Title Release Date Genre Kendall & Kylie February 2016 Fashion andCelebrity Tap Sports Baseball 2016 April 2016 Action & Sports Britney Spears: American Dream May 2016 Fashion andCelebrity Gordon Ramsay DASH June 2016 Food Rival Fire July 2016 Action and Sports Design Home November2016 Home Nicki Minaj: The Empire December2016 Fashion andCelebrity As part of our platform strategy, we plan to release fewer games in 2017 as compared to prior years and plan to focusour efforts on developing titles that have the potential to become platforms. During 2017, we plan to release: ·a title featuring singer and songwriter Taylor Swift, which will be a departure from our previous celebrity titlesand instead will be an innovative and novel platform for users and fans of Taylor Swift; and·MLB Tap Sports Baseball 2017, an update of Tap Sports Baseball 2016, which will feature current and formerMLB players, as well as MLB clubs and uniforms, through partnerships with the MLB, MLBPA and MLBPAAand will incorporate platform features such as allowing users to form clans or clubs with other users and advancetheir progression through their clans.We may release additional titles during 2017 depending on their performance during beta testing.We work to ensure that our games have consistently high production values, are visually appealing and haveengaging core gameplay. These characteristics have typically helped to drive installs and awareness of our games and resultedin highly positive consumer reviews. We continued to improve monetization in our games, with our most popular games remaining successful for longerperiods of time. The longevity of our most successful games derives from strong core gameplay, regular content updates andsocial and community features, such as tournaments, player-versus-player gameplay and live events.Our games historically have had “thick clients” due to their high production values and, in some cases, 3-Dgraphics. 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. Our Revenue We generate the majority of our revenue through “in-app-purchases,” with the balance of our revenue generated byoffers and in-game advertising. For certain of our games in which we incorporate licensed content, we share a portion of ourrevenue with the licensors featured in these titles. In-App Purchases 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 more8 Table of Contents challenging as the player advances through the game. For a game like Cooking Dash 2016, players can purchasehigher-quality ingredients and various boosts that can help them complete increasingly difficult levels moreeasily.·Play Longer Through Energy Replenishment – We design some of our games, such as Deer Hunter 2017 and KimKardashian: Hollywood, to have short playing sessions, the duration of which are limited by the energyavailable for each session. Players of Deer Hunter 2017 and Kim Kardashian: Hollywood 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, our Tap SportsBaseball titles enable players to spend their virtual currency to upgrade their roster of players and boost theeffectiveness 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, theworld the character inhabits or a room. For example, Covet Fashion and Design Home each allow users tocustomize the look of their avatar or room, respectively, by purchasing clothing or home design elements. Whilein Covet Fashion users own a clothing or accessory item indefinitely after it is purchased and can use it inmultiple events, Design Home limits the player to five uses of any purchased design element. 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. Offers and In-Game Advertising In addition to in-app purchases of virtual currency, we also monetize our games through offers and in-gameadvertising. Optimizing advertising revenue within our games requires us to continue taking advantage of positive trends inthe mobile advertising space, particularly as brands continue to migrate budgets from web to mobile. Offers enable users toacquire virtual currency without paying cash but by instead taking specified actions, such as downloading anotherapplication, watching a short video, subscribing to a service or completing a survey. We work with third parties to providethese offers to players of our free-to-play games, and we receive a payment from the third party offer provider based onconsumer response to these offers. We also work with third party advertising aggregators who embed advertising, such as adsappearing within the game between content transitions and as pop-up ads; the aggregators typically pay us based on thenumber of impressions, which is the number of times an advertisement is shown to a player. In addition, from time to time wework directly with other application developers to include advertising for their applications in our games, and the developerspay us based on either the number of impressions in our games or the number of users who download the developer’sapplication. We have also begun to include virtual product integrations of goods directly into certain of our celebrity titlessuch as Kim Kardashian: Hollywood and expect that we may generate increasing advertising revenue from these types ofproduct integrations in the future. Licensed Content Following the success of Kim Kardashian: Hollywood and games incorporating licensed third-party brands andproperties, like Racing Rivals and our Tap Sports Baseball 2016 titles, we increased our licensing efforts, both in terms ofsecuring licenses to develop games based upon or significantly featuring specific licensed third-party intellectual propertyand for cameo appearances or to otherwise incorporate third-party intellectual property into our games. In 2016, 2015, and2014, games based on our own intellectual property accounted for approximately 39.7%, 42.1%, and 62.7% of our revenue,respectively. The decrease from 2015 to 2016 was due to a higher percentage of our revenue being generated9 Table of Contents from titles that include third-party licensed brands, properties or other content, such as Kim Kardashian: Hollywood, Kendall& Kylie, Gordon Ramsay DASH, Tap Sports Baseball 2016 and Racing Rivals, and lower revenue from our titles based on ourown intellectual property. The decrease from 2014 to 2015 was due to higher revenue from our Kim Kardashian: Hollywoodand Racing Rivals titles, and lower revenue from certain of our titles based on our own intellectual property, including DeerHunter, Dino Hunter: Deadly Shores and Frontline Commando. We expect that most, if not all, of our new titles launched in2017 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 revenue with the respective licensors. The average royalty rate that we paid on games based on licensed content (such asKim Kardashian: Hollywood, Gordon Ramsay DASH and Kendall & Kylie) or significantly incorporating licensed content(such as Racing Rivals and Tap Sports Baseball 2016) was approximately 21.9% in 2016, 21.9% in 2015, and 21.3% in 2014of gross revenue. However, the individual royalty rates that we pay can be significantly above or below the average based ona variety of factors, such as the strength of the licensed brand, our development and porting obligations, and the platforms forwhich we are permitted to distribute the licensed content. Additionally, the individual royalty rate for our platform titles mayincrease in 2017 with the inclusion of additional licensed properties, such as we expect with our title featuring Taylor Swiftand MLB Tap Sports Baseball 2017, due to the addition of licensed content from the MLB. 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 revenue has historically been derived from Apple’s iOS platform, whichaccounted for approximately 62.4%, 60.5%, and 61.8% of our total revenue in 2016, 2015 and 2014, respectively. Wegenerated the majority of these iOS-related revenue from the Apple App Store, which represented 52.7%, 51.7%, and 52.2% ofour total revenue in 2016, 2015 and 2014, respectively, with the significant majority of such revenue derived from in-apppurchases. We generated the balance of our iOS-related revenue from offers and advertisements in games distributed on theApple App Store and, to a far lesser extent, sales of premium games. In addition, we generated approximately 36.1%, 38.1%,and 35.4% of our total revenue in 2016, 2015 and 2014, respectively, from the Android platform. We generated the majorityof our Android-related revenue from in-app purchases and sales of premium games made through the Google Play Store, whichrepresented 27.6%, 27.4%, and 24.8% of our total revenue in 2016, 2015 and 2014, respectively. No other customer or digitalstorefront accounted for more than 10% of our total revenue in 2016, 2015 or 2014. 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;10 Table of Contents ·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 digitalstorefront;·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. The majority of our games have been featured on the Apple and Google storefronts when they were commerciallyreleased, which we believe is in part due to our efforts to be a consistently good partner with Apple and Google. In addition toour efforts to secure prominent featuring or placement for our games, we have also undertaken a number of marketinginitiatives designed to acquire players and increase downloads of our games and increase sales of virtual currency, 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 gamesin our competitors’ games;·having our celebrity partners market their games to their fans through their social media channels; and·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. We have also made significant investments in our proprietary analytics and in the development and implementationof various monetization techniques in our titles. With our enhanced analytics capabilities, we intend to devote resourcestowards segmenting and learning more about the players of each of our franchises and further monetizing our highest spendingand most engaged players. We aim to connect the data, insights and knowledge gained from our analytics and monetizationtechniques to every element of our business – from marketing to merchandising – in order to improve player retention andmonetization. Development StudiosThe internal studios that develop our games are located across the globe, including studio teams in San Francisco,Burlingame, San Mateo, and Long Beach, California; Portland, Oregon; Toronto, Canada; and Moscow,11 Table of Contents Russia. Our creative leaders have primary responsibility for overseeing game development for our platform and evergreentitles. In addition, as part of our restructuring activities in 2016, as well as the acquisition of the QuizUp application fromPlain Vanilla in December 2016, we moved certain of our catalog titles to our Hyderabad, India and Moscow, Russia locationsto run live operations and produce content updates for such games. In addition, in 2017 we started to reduce the number ofstudios that operate outside of the San Francisco Bay Area. As part of these efforts, in January 2017 we began to transitiondevelopment and live operations of our Racing Rivals title to Carbonated while reducing headcount in our Long Beach,California studio. We believe that Carbonated has the skills and experience necessary to make Racing Rivals a platform andreverse revenue declines that were experienced by the title during 2016. 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. 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. During 2017, we plan to hire additionalcreative leaders and invest in technical studio expertise to drive content and features in our platform and evergreen titles andto prototype ideas that we believe can become hit platform titles.Despite our actions in early 2017 to reduce our geographical footprint and consolidate studios, our developmentpersonnel are located in four different countries across three continents, which results in certain inherent complexities. Toaddress these issues, we instituted our Glu University training program. Glu University is designed to increase interactionamong our studio teams, including having international studio team members regularly spend time in our U.S. studios. Thegoal of this program is to ensure that we increase the uniformity, quality and commercial success of our games. In addition, webelieve that our strategy of focusing our development efforts on building and maintaining platform and evergreen titles in thefashion and celebrity, food, sports and action, social networking and home genres will help ensure more efficient use of ourtalent and resources across 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; ·application hosting; ·provisioning and billing capabilities; ·localization capabilities, including supporting multiple languages and customization for specific markets, suchas China; ·capabilities for integrating and configuring third-party advertising plug-ins, including for maximization ofadvertising revenue through placements that complement game flow; 12 Table of Contents ·networking technologies for supporting game saves, guilds, matchmaking, leaderboards, and in-gamemessaging; 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 ChiefTechnology Officer has primary responsibility for ensuring our development studios have the technology they need to buildhigh-quality games in a timely and efficient manner. We have continued to utilize measures designed to ensure that we publish and launch games that have a greaterlikelihood of being commercially successful, while identifying earlier in the development process game concepts and designsthat are unlikely to produce hits. Central technical and product oversight now comes via three mechanisms: ·A rigorous greenlight process that includes a review of complex engineering modules, detailed plans for long-term retention 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 executivesis considered 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 $81.9 million, $72.9 million, and $64.3 million for 2016, 2015 and 2014,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 new devices,we generally experience seasonal sales increases based on the holiday selling period. Although we believe that the majorityof this holiday impact occurs during the fourth quarter, some of this seasonality also occurs for us in our first calendar quarterdue to some lag between device purchases and game purchases. However, the impact of this seasonality on our operatingresults is significantly affected by our title release schedule. In addition, companies’ advertising budgets are generally highestduring the fourth quarter and decline significantly in the first quarter of the following year, which affects the revenue wederive from advertisements and offers in our games. Conversely, our marketing expenses also increase in the fourth quarter,since demand for marketing is higher during the holiday season and this increased demand drives up marketing costs. 13 Table of Contents Competition Developing, distributing and selling mobile games is a highly competitive business, characterized by frequentproduct introductions and rapidly emerging new platforms, technologies and storefronts. For players, we compete primarilyon the basis of game quality, brand and customer reviews. We also compete more generally for the time and attention of usersof smartphones and tablet devices who are spending ever-increasing amounts of time on social media, messaging, and music,movie and television streaming applications. We compete for promotional and digital storefront placement based on ourrelationship with the digital storefront owner, historical performance, game quality, perception of sales potential, customerreviews, and relationships with celebrities and other licensors of brands and other content. For celebrities, brands and othercontent licensors, we compete based on royalty and other economic terms, historical financial performance of celebrity andother third-party licensed brand and property games, perceptions of development quality, porting abilities, speed of execution,distribution breadth and relationships with storefront owners. We also compete for experienced and talented employees.We compete with a continually increasing number of companies, including Activision (the parent company of KingDigital Entertainment), DeNA, Disney, Electronic Arts (EA Mobile), Gameloft, Gamevil, GREE, GungHo OnlineEntertainment, Netmarble, Nexon, Warner Brothers, and Zynga and many well-funded private companies, includingDoubleDown, Jam City, Machine Zone, Miniclip, Niantic, Pocket Gems, Rovio, Scopely, Storm 8/Team Lava, andSupercell. In addition, we face competition from online game developers and distributors who are primarily focused onspecific international markets. We could also face increased competition if those companies choose to compete more directlyin the United States or the other markets that are significant to us or if large companies with significant online presences suchas Apple, Google, Amazon, Facebook, Microsoft or Yahoo, choose to enter or expand in the games space or developcompeting games. We also compete for downloads and time spent on mobile devices with companies that develop popularsocial media and messaging applications, such as Facebook (with its Facebook, Facebook Messenger, Instagram, WhatsAppand other applications), Pinterest, Reddit, Snapchat, Twitter, Vevo and YouTube, companies that develop streaming music,movie and television applications, such as Pandora, Spotify, Tidal, HBO Go, Netflix, Amazon Prime or Hulu, and withcompanies 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 relativelylow barriers 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 3.0 millionapplications, including more than 750,000 active games, were available on Apple’s U.S. App Store as of February 28, 2017. 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, building and maintaining platform or evergreen titles, and buildingsocial and community features 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;14 Table of Contents ·larger installed user bases from related platforms, such as console gaming or social networking websites, to whichthey 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., or 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 revenue. Our trademarks that have been registered with the U.S. Patent and Trademark Office include Glu, Crowdstar, our 2-D‘g’ character logo, our 3-D ‘g’ character logo and several of our game titles, including Blood & Glory, Contract Killer,Cooking Dash, Deer Hunter, Diner Dash, Eternity Warriors, Frontline Commando, Gun Bros, Heroes of Destiny, QuizUp,Racing Rivals and Tap Sports. In addition, we have trademark applications pending with the U.S. Patent and TrademarkOffice for other of our game titles. For certain titles we do not yet have, and do not intend to seek, trademark registration. Wealso own, or have applied to own, one or more registered trademarks in certain foreign countries, depending on the relevanceof each brand to other markets. Registrations of both U.S. and foreign trademarks are renewable every ten years. We have five patents issued by the U.S. Patent and Trademark Office and have seven patent applications pending. Inaddition, we have two international patents issued through the Patent Cooperation Treaty (PCT), which correspond to two ofour five issued U.S. patents, and we have four international patent applications pending with the PCT, which correspond tofour of our seven 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. 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.15 Table of Contents 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 reportable segment. Financial information about oursegment and geographic areas is incorporated into this section by reference to Note 12 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, 2016, 2015 and 2014 and our totalassets as of December 31, 2016 and 2015, is included in our Consolidated Financial Statements contained in Item 8 of thisreport.Employees As of December 31, 2016, we had 754 employees, of which 507 were based in the United States and Canada, 129 werebased in Europe and 118 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, 2017 and their areas of responsibility. Theirbiographies follow the table. Name Age Position Niccolo M. de Masi 36 Executive Chairman Nick Earl 51 President and Chief Executive Officer Eric R. Ludwig 47 Executive Vice President, Chief Operating Officer and Chief FinancialOfficer Chris Akhavan 34 Chief Revenue Officer Tim Wilson 61 Chief Technology Officer Scott J. Leichtner 46 Vice President, General Counsel and Corporate Secretary Niccolo M. de Masi has served as our Executive Chairman since November 2016, President and Chief ExecutiveOfficer from January 2010 to November 2016, as one of our directors since January 2010, as interim Chairman of our board ofdirectors from July 2014 to December 2014 and as the Chairman of our board of directors since December 2014. Mr. de Masicurrently serves as the President and Chief Operating Officer of Essential, a mobile phone hardware company. Prior to joiningGlu, Mr. de Masi was the Chief Executive Officer and President of Hands-On Mobile, a mobile technology company anddeveloper and publisher of mobile entertainment, from October 2009 to December 2009, and previously served as thePresident of Hands-On Mobile from March 2008 to October 2009. Prior to joining Hands-On Mobile, Mr. de Masi was theChief Executive Officer of Monstermob Group PLC, a mobile entertainment company, from June 2006 to February 2007. Mr.de Masi joined Monstermob in 2004 and, prior to becoming its Chief Executive Officer, held positions as its ManagingDirector and as its Chief Operating Officer, where he was responsible for formulating and16 Table of Contents implementing Monstermob’s growth and product strategy. Prior to joining Monstermob, Mr. de Masi worked in a variety ofcorporate finance and operational roles within the technology, media and telecommunications (TMT) sector, beginning hiscareer with JP Morgan on both the TMT debt capital markets and mergers and acquisitions teams in London. He has alsoworked as a physicist with Siemens Solar and within the Strategic Planning and Development divisions 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 anMSci. degree in Electronic Engineering—both from Cambridge University. Nick Earl has served as our President and Chief Executive officer since November 2016 and prior to that was ourPresident of Global Studios from November 2015 to November 2016. Before joining us, from November 2014 to September2015, Mr. Earl served as President of Worldwide Studios at Kabam. From September 2001 to October 2014, Mr. Earl served inseveral management positions at Electronic Arts, including most recently as Senior Vice President & General Manager of EAMobile. From 1999 to 2001, Mr. Earl served as VP Product Development at Eidos. From April 1993 to March 1999, Mr. Earlserved as an executive producer / GM at The 3DO Company. Mr. Earl holds a B.A. in Economics from the University ofCalifornia at Berkeley. 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). Chris Akhavan has served as our Chief Revenue Officer since May 2016. Prior to this, Mr. Akhavan served as ourPresident of Publishing from April 2013 to May 2016. Before joining us, from January 2010 to April 2013, Mr. Akhavanserved in several management positions at Tapjoy, Inc., a provider of incentivized offers, most recently as Senior VicePresident, Partnerships. From April 2009 to January 2010, Mr. Akhavan was a Manager, Publisher Network at RockYou!, asocial gaming company, and from October 2007 to November 2008, he served as a Strategic Partner Manager at VideoEgg(now SAY Media), an advertising inventory and platform provider. Mr. Akhavan holds a B.A. in Economics from theUniversity of California at Santa Cruz. Tim Wilson has served as our Chief Technology Officer since October 2015. Before joining us, from October 2012 toJuly 2015, Mr. Wilson served in several management positions at Electronic Arts, including as Chief Technology Officer ofone of their largest studios. From January 2011 to July 2012, Mr. Wilson served as the Executive Vice President of StrategicRelationships and later as an Advisory Board Member for Gaikai, a cloud gaming company that was acquired by SonyComputer Entertainment. Prior to that, he served in various positions at Electronic Arts from January 1995 to January 2011,including as Chief Technology Officer. Mr. Wilson holds a B.S. in both Engineering and Geology from California StateUniversity, Sacramento. 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. 17 Table of Contents Item 1A. Risk FactorsOur business is subject to many risks and uncertainties, which may affect our future financial performance. If any ofthe events or circumstances described below occurs, our business and financial performance could be harmed, our actualresults could differ materially from our expectations and the market value of our stock could decline. The risks anduncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currentlyknown to us or that we currently do not believe are material that may harm our business and financial performance. Becauseof the risks and uncertainties discussed below, as well as other variables affecting our operating results, past financialperformance should not be considered as a reliable indicator of future performance and investors should not use historicaltrends to anticipate results or trends in future periods. 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 and a net loss of$87.4 million in 2016. As of December 31, 2016, we had an accumulated deficit of $338.7 million. While we have conductedseveral restructurings between December 2015 and January 2017 aimed at reducing our fixed costs and operating moreefficiently, our costs may continue to rise as we implement additional initiatives designed to increase revenue, including:investing more heavily in our existing titles as part of our platform strategy; hiring additional staff in our San Francisco BayArea and Hyderabad, India locations, including new creative leaders and their teams; developing new games with greatercomplexity, higher production values and deeper social features; running live operations on our games; and taking other stepsto strengthen our company. We anticipate that the costs of acquiring new players and otherwise marketing our new titles willcontinue to rise (particularly since advertising costs in our industry have generally been rising and downloads of our gamesare decreasing as users spend more time on alternative software applications, such as social media, messaging, and streamingapplications), and we may continue to incur significant costs to acquire rights to third party intellectual property, includingincurring significant minimum guaranteed royalty payments. If our revenue does not increase at a rate sufficient to offset theseadditional expenses, if the launch dates for our games are delayed, if we experience unexpected significant increases inoperating expenses or if we are required to take additional charges related to impairments or restructurings we will continue toincur losses. For example during the fiscal year ended December 31, 2016 we recorded a $14.5 million royalty impairmentrelated to the prepaid guaranteed royalty and license fee payments that we have made to an affiliate of Tencent HoldingsLimited, or Tencent, related to our Rival Fire game and a $20.2 million impairment related to certain contractual minimumguarantee payments made to certain of our celebrity licensors and other prepaid royalties. We have also taken restructuringcharges in the past, including $2.3 million during 2016 following our headcount reductions initiated in April 2016 and weexpect further restructuring charges of approximately $4.3 million to $4.7 million in total during the first and second quartersof 2017 related to our January 2017 restructuring. Additionally, during the year ended December 31, 2016 we recorded acharge of $2.4 million due to a decline in the fair market value of our call option for Plain Vanilla and a charge of $1.9 milliondue to a decrease in the fair value of the promissory notes issued to us by Plain Vanilla. Furthermore, given the declines inoverall downloads of mobile gaming applications, the marked decline in gaming applications as compared to all mobilegaming applications generally, and the significant amount of time and attention users are dedicating to social media and othernon-gaming applications, increasing revenue has been, and may continue to be, challenging. This industry trend has beennegatively impacting us, as the number of downloads of sequels to certain of our most successful franchises, including thelaunches of Deer Hunter 2016 (which we have recently rebranded Deer Hunter 2017) and Eternity Warriors 4, as well as forour more recent titles, such as Nicki Minaj: The Empire, Britney Spears: American Dream, Gordon Ramsay DASH, and RivalFire have downloaded at significantly lower rates as compared to predecessor versions and previous new titles.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 make18 Table of Contents decisions 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 and the number of applications theyare willing to download to and maintain on their devices, competing gaming and non-gaming related applications, newmobile platforms and the availability of other entertainment activities. If our games do not meet consumer expectations, orthey are not brought to market in a timely and effective manner, our business, operating results and financial condition wouldbe harmed. Historically, we have focused on developing and publishing shooters and other action games primarily directed atmale audiences. However, our recent releases in this genre, which includes Deer Hunter 2017 and Rival Fire, have failed todownload or monetize at the same rates as some of our legacy titles, including Deer Hunter 2014 (which we have recentlyrebranded Deer Hunter Classic). While our Kim Kardashian: Hollywood, Cooking Dash 2016 and Gordon Ramsay DASHtitles have been commercially successful, our Katy Perry Pop, Britney Spears: American Dream and Nicki Minaj: The Empiregames have not been, and meeting consumer expectations could prove more challenging for us in the future as we releaseadditional games that are primarily targeted toward female audiences, such as our upcoming title featuring Taylor Swift. Evenif our games are successfully introduced and initially adopted, a failure to continually update them with compelling content ora subsequent shift in the entertainment preferences of consumers could cause a decline in our games’ popularity that couldmaterially reduce our revenue and harm our business, operating results and financial condition, which effect would bemagnified for our most successful games. It is difficult to predict when and how quickly the popularity and revenue of one ofour games will decline. In particular, in connection with our platform and evergreen games strategy, we expect to commitmore resources to updating, adding new features to and enhancing our existing titles as opposed to launching as many newtitles as we have in prior years. However, we may not be successful in updating our existing titles in our efforts to createplatform and evergreen titles, such as the case with our recent updates of Covet Fashion and Racing Rivals which werereceived poorly by some of our players and, in the case of Racing Rivals, resulted in decreased revenue. As a result of the lifecycle of our games, our business depends on our ability to consistently and timely launch new games and updates to existinggames that achieve significant popularity, and have the potential to become platforms. If, as we anticipate, we launch fewertitles in 2017 as compared to prior years, we may be less likely to launch a game that achieves significant commercial success,and if the titles we expect to launch in 2017 are not launched on time or do not meet consumer expectations, our ability togrow revenue and our financial performance will be negatively affected. For example, we experienced delays in theintroduction of Rival Fire and our upcoming Taylor Swift title, which had a negative impact on our financial results during2016. If rates of revenue decline are higher than expected in a particular quarterly period, the new games we launch fail todownload and/or monetize as we anticipate, or the enhancements we make to existing titles do not result in decreased rates ofrevenue decline, we may not meet our expectations or the expectations of securities analysts or investors for a givenquarter. In addition, our Kim Kardashian: Hollywood game benefitted significantly from awareness of the game throughmedia coverage and social media channels, and such viral success can be difficult to predict or to repeat in the future, or as inthe case of Kendall & Kylie, may not translate into the level of sustained commercial success we experienced with KimKardashian: Hollywood. Furthermore, we compete for the discretionary spending of consumers, who face a vast array ofentertainment choices, including social media and other non-gaming related apps, games played on personal computers andconsoles, television, movies, sports and the Internet. If we are unable to sustain sufficient interest in our games compared toother forms of entertainment, our business and financial results would be seriously harmed.In addition to the market factors noted above, our ability to successfully develop games for mobile devices and theirability to achieve commercial success will depend on our ability to:·achieve a positive return on investment from our marketing and user acquisition efforts;·minimize launch delays and cost overruns on the development of new games;·effectively monetize our games;·release games compatible with an increasingly diverse set of mobile devices;·minimize and quickly resolve bugs or outages; and·acquire and successfully integrate high quality mobile game assets, personnel or companies.19 Table of Contents These and other uncertainties make it difficult to know whether we will succeed in continuing to develop successfulmobile games and launch these games in accordance with our operating plan. If we do not succeed in doing so, our business,financial condition, results of operations and reputation will suffer. Successfully developing and monetizing free-to-play games is a challenging business model.We face significant challenges in achieving our goal of become the leading developer and publisher of free-to-playmobile games. The most successful launches of free-to-play games tend to include socio-competitive gameplay, player versusplayer activities, regularly updated content and other complex technological and creative attributes associated with ourplatform and evergreen offerings. While we are working to include such features in our games through our platform andevergreen strategy, we may not successfully update our games to include these features. For example, the significant update toRacing Rivals that we released in the fourth quarter of 2016 was poorly received by players and led to a significant decline inrevenue from this title. Additionally, our existing games compete with our new offerings and the offerings of our competitors,and revenue from our existing games have declined over time, a trend that we have limited experience reversing on aconsistent basis. In addition, following the success of our Kim Kardashian: Hollywood game, we expanded our efforts tobuild the premier celebrity gaming platform and partnered with A-list celebrities to selectively collaborate on future games. In2015 and 2016, we released Katy Perry Pop, Kendall & Kylie, Britney Spears: American Dream and Nicki Minaj: TheEmpire. However, these titles ultimately did not achieve the level of success we experienced with Kim Kardashian:Hollywood which has resulted in a shift in our strategy away from celebrity games that are primarily role playing games. If weare unable to create innovative games that surprise and delight our players, we may continue to experience similar results withour forthcoming title featuring Taylor Swift, our revenue could be limited, and our business and operating results wouldsuffer. We are also focusing our efforts on making our existing successful games into platforms or evergreen titles by addingnew features, modes and community-enhancing features. However, this is a strategy with which we have limited experienceand have not always successfully implemented as evidenced by our recent Covet Fashion and Racing Rivals updates. If we areunable to successfully implement this strategy, or if we incur excessive expenses in this effort, our financial performance andability to grow revenue would be negatively affected, and we may be unable to launch successful new titles due to a diversionof talent and resources to our existing platform and evergreen titles. Our efforts to develop free-to-play games, celebrity andother licensed property games, enhance our existing titles and our transition towards focusing on creating and maintainingsuccessful platforms may prove unsuccessful or, even if successful, it may take more time than we anticipate to achievesignificant 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 not only with other mobile games but also with social media and other non-gaming related applications;·limits on the number of mobile applications players are willing to download to and maintain on theirdevices;·poor consumer reviews or other negative publicity;·ineffective or insufficient marketing efforts;·lack of sufficient social and community features;·lack of prominent storefront featuring;·failure to reach and maintain Top Free App Store rankings;20 Table of Contents ·the relatively large file size of some of our games, which has been exacerbated due to Apple’srequirement that games released on the Apple App Store include 64-bit support; in particular, our gamesoften utilize a significant amount of the available memory on a user’s device and tend to consumeadditional space as players advance through our games, which may cause players to delete our gamesonce the file size grows beyond the capacity of their devices’ storage limitations; and·the inherent limitations of the smartphone platforms and telecommunications networks, which at mostonly allow applications that are less than 100 megabytes to be downloaded over a carrier’s wirelessnetwork; as a result, players must download our games that exceed 100 megabytes either via a wirelessInternet (wifi) connection or initially to their computer and then side-load them to their device;·even if our games are widely downloaded, we may fail to retain users or optimize the monetization of thesegames, such as has been the case with our Kendall & Kylie title, which may occur for a variety of reasons,including poor game design or quality, lack of socio-competitive features, gameplay issues such as gameunavailability, long load times or an unexpected termination of the game due to data server or other technicalissues, lack of differentiation from predecessor games or other competitive games, lack of innovative featuresthat surprise and delight our players, differences in user demographics and purchasing power or our failure toeffectively 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 minimumguaranteed royalty payments to our celebrity licensors and due to the need to differentiate gameplay amongtitles featuring celebrities. It is unclear whether future celebrity-based games have the potential to generaterevenue at levels similar to our Kim Kardashian: Hollywood title or whether these games can be successful at all,including that the number of social media followers for a particular celebrity may have limited impact on thefinancial success of a title (as occurred with our Katy Perry Pop, Britney Spears: American Dream and NickiMinaj: The Empire titles) or the number of initial downloads may not result in significant financial success on asustained basis (as occurred with our Kendall & Kylie title);·we intend to continue to develop games based upon our own intellectual property, rather than celebrities or well-known licensed brands and properties, and we may encounter difficulties in generating sufficient consumerinterest 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, includinggames incorporating celebrities or other well-known licensed brands or properties, and this competition willmake it more difficult for us to differentiate our games and derive significant revenue from them; ·we may have difficulty hiring proven creative leaders and the experienced monetization, live operations, servertechnology, user experience and product management personnel that we require to support our platform andevergreen gaming strategy, or may face difficulties in developing our technology platform and incorporating itinto 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, or the FTC, has indicated that it intends to review issues related to in-apppurchases, particularly with respect to games that are marketed primarily to minors (for example, the FTC reacheda settlement with Apple in January 2014 and with Google in September 2014 on this issue, and in April 2016, afederal court granted summary judgment in favor of the FTC finding Amazon liable for unfairly billingconsumers for unauthorized in-app purchases by minors), and the FTC might issue rules significantly restrictingor even prohibiting in-app purchases or name us as a defendant in a future class-action lawsuit.21 Table of Contents If we do not achieve a sufficient return on our investment with respect to our free-to-play business model, it willnegatively affect 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 (asopposed to advertisements and incentivized offers) and installation rates and user-growth have declined for us with many ofour recent product launches. Since the launch of our first free-to-play titles in the fourth quarter of 2010, the percentage ofunique paying players for our largest revenue-generating free-to-play games has typically been less than 2%, when measuredas the number of unique paying users on a given day divided by the number of unique users on that day, though thispercentage fluctuates, and it may be higher than 2% for some of our games during specific, relatively short time periods, suchas immediately 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 or enrolling in subscriptions, increase the amount thatour paying players spend in our games and/or increase the length of time our players generally play our games. We might notsucceed in our efforts to increase the monetization rates of our users, particularly if we do not increase the amount of socialfeatures in our games or otherwise succeed in our platform and evergreen gaming strategy. We have also encountereddifficulties in retaining our players as the average monthly active users, or MAU, for our games declined 27% from 49.4million in the fourth quarter of 2015 to 35.9 million in the fourth quarter of 2016. If we are unable to convert non-payingplayers into paying players, or if we are unable to retain our paying players or if the average amount of revenue that wegenerate from our players does not increase or declines, our business may not grow, our financial results will suffer, and ourstock price may decline. 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 accountedfor 62.4% of our total revenue for 2016 compared with 60.5% and 61.8% of our total revenue for 2015 and 2014,respectively. We generated the majority of this iOS-related revenue from the Apple App Store, which represented 52.7%,51.7% and 52.2% of our total revenue 2016, 2015 and 2014, respectively, with the significant majority of such revenuederived from in-app purchases. We generated the balance of our iOS-related revenue from offers and advertisements in gamesdistributed on the Apple App Store and, to a far lesser extent, sales of premium games. In addition, we derived approximately36.1%, 38.1% and 35.4% of our total revenue for 2016, 2015 and 2014, respectively, from the Android platform. We generatedthe majority of our Android-related revenue from the Google Play Store, which represented 27.6%, 27.4% and 24.8% of ourtotal revenue for 2016, 2015 and 2014, respectively, with the significant majority of such revenue derived from in-apppurchases. We believe that we have good relationships with each of Apple and Google, which have contributed to the majorityof our games released in the last several years being featured on their respective storefronts upon commercial release. If we donot continue 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. For example, in the second half of 2016, Apple began displaying paid searchadvertisements for applications in the Apple App Store search results for the first time. We have purchased, and may continueto purchase, such advertising to ensure the prominence of our games in the Apple App Store which could result in ourmarketing expenses increasing significantly. Additionally, our efforts to advertise through search advertisements in the AppleApp Store may not be successful and may not result in additional users or monetization. In addition, currently neither Applenor Google charge a publisher when it features one of their apps. If either Apple or Google were to charge publishers to featurean app, it could cause our marketing expenses to increase considerably. Accordingly, any change or deterioration in ourrelationship with Apple or Google could materially harm 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 global22 Table of Contents outage, which resulted in players and potential players of our games being unable to both download our games and make in-app purchases 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 termsand conditions are often “click through” agreements that we are not able to negotiate with the storefront operator. Forexample, we are subject to each of Apple’s and Google’s standard click-through terms and conditions for applicationdevelopers, which govern the promotion, distribution and operation of apps, including our games, on their storefronts. Eachof Apple and Google can unilaterally change its standard terms and conditions with no prior notice to us. In addition, theagreement terms can be vague and subject to changing interpretations by the storefront operator. Further, these storefrontoperators typically have the right to prohibit a developer from distributing its applications on its storefront if the developerviolates its standard terms and conditions. For example, in the second quarter of 2011, Apple began prohibiting virtualcurrency-incented advertising offers in games that directed users to download other applications from the Apple App Store inorder to complete the offer. These offers accounted for approximately one-third of our smartphone revenue during the threemonths ended June 30, 2011, and our inability to subsequently use such offers negatively impacted our smartphone revenuethereafter. In addition, Apple informed us early in the fourth quarter of 2012 that we could no longer include links to Tapjoy’sHTML5 website 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 violence receiving a 17+ rating, and prohibiting some depictions of guns in gameicons and other storefront art; these restrictions, could potentially negatively impact the number of people playing these“shooter” games and the revenue we generate from these games. During the second quarter of 2014, there were reports thatApple was considering prohibiting some types of virtual currency-incented video advertising in games that promoted otherapplications available on the Apple App Store. These incented video advertisements generate a meaningful percentage of ouroverall revenue, and any prohibition of these advertisements would have had a negative impact on our revenue. In the fourthquarter of 2014, Apple informed developers that 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 notpreviously build our games to include 64-bit support nor did the Unity development engine that we utilize to create many ofour games support 64-bit development; however, we worked with Unity to ensure that we met Apple’s requirement. Buildingour games to support 64-bit development has increased the file sizes of our games making it more difficult for players todownload our games and potentially negatively impacting the number of downloads and active users of our titles, particularlyfor those games where we are unable to keep file sizes below 100 megabytes, which is the maximum file size that can currentlybe downloaded over any carrier’s wireless network (requiring download over wifi networks). In addition, we believe that Applemay have made changes to its algorithms that determine the App Store’s Top Free application rankings, as games currentlyhave a more difficult time achieving and maintaining Top Free rankings than has historically been the case. The Top Freerankings are one of the primary means for consumers to discover our games, and to the extent that algorithm changes haveoccurred that make it more difficult for mobile games to reach and maintain Top Free spots, it would contribute to fewerinstalls of our games. If Apple or Google, or any other key storefront operator, determines that we or one of our key vendorsare violating its standard terms and conditions, by a new interpretation or otherwise, or prohibits us from distributing ourgames on its storefront, 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 not23 Table of Contents adversely 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.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 ofwhich are outside of our control. As a result, comparing our operating results on a period-to-period basis may not bemeaningful. In addition, we may not be able to accurately predict our future revenue or results of operations. We base ourcurrent and future expense levels on our internal operating plans and sales forecasts, and our operating costs are to a largeextent 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 ourgames;·the popularity and monetization rates of our new games released during the quarter and the ability of gamesreleased in prior 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 mayrepresent a significant portion of revenue in a quarter, which timing can be impacted by internal developmentdelays, shifts in product strategy and how quickly digital storefront operators review and approve our games forcommercial release, a factor which may be particularly important in 2017 as we may release as few as two newtitles this year;·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 gameofferings;·fluctuations in the size and rate of growth of overall consumer demand for smartphones, tablets, games andrelated content;·the amount and timing of charges related to any future impairments of goodwill, intangible assets, prepaidroyalties and guarantees; for example, in 2016, we impaired $14.5 million related to prepaid royaltycommitments and license fees paid to an affiliate of Tencent in connection with our Rival Fire title, $20.2million related to contractual minimum guarantee royalty payments made to certain celebrity licensors and otherprepaid royalties, $2.4 million related to the impairment of our call option in Plain Vanilla, and $1.9 millionrelated to a decline in the fair value of the promissory notes issued to us by Plain Vanilla, and in future periodswe may be required to impair our goodwill due to further declines in our business and/or stock price, especiallyas our fair value increasingly approaches our carrying value (See Note 7 to our condensed consolidated financialstatements), or take additional large impairments related to contractual minimum guarantee commitments if theassociated games we are developing are not successful;24 Table of Contents ·changes in the mix of revenue derived from games based on original intellectual property versus licensedintellectual property (including that we currently anticipate that a majority, and potentially all, of our titlelaunches in 2017 will be based on or will significantly incorporate licensed intellectual property rather thanbeing wholly original Glu intellectual property games);·changes in the mix of revenue derived from in-app purchases, advertisements and offers, which mix oftendepends on the nature of new titles launched during the quarter;·changes in the mix of revenue derived from first party titles and third party titles, including revenue from RacingRivals now that we have transitioned development for this title to Carbonated;·changes in the amount of money we spend marketing our titles in a particular quarter, including the averageamount we pay to acquire each new user, as well as changes in the timing of these marketing expenses within thequarter;·decisions by us to incur additional expenses, such as increases in research and development, restructuringexpenses, or unanticipated increases in 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 overwhich we recognize revenue for in-app purchases of virtual currency and goods within some of our games, aswell as estimates of average playing periods and player life; and·macro-economic fluctuations in the United States and global economies, including those that impactdiscretionary consumer spending.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 frequentproduct introductions and rapidly emerging new platforms, technologies and storefronts. For players, we compete primarilyon the basis of game quality, brand and customer reviews. We compete for space on user’s smartphones and tablet devices interms of the number of applications on their device and the amount of storage consumed by such applications. We alsocompete more generally for the time and attention of users of smartphones and tablet devices who are spending ever-increasing amounts of time on social media, messaging and music, movie and television streaming 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, which competition we expect to encounter as weexecute on our strategy to hire creative leaders that have proven track record of success in 2017. We compete with a continually increasing number of companies, including Activision (the parent company of KingDigital Entertainment), DeNA, Disney, Electronic Arts (EA Mobile), Gameloft, Gamevil, GREE, GungHo OnlineEntertainment, Netmarble, Nexon, Warner Brothers, and Zynga and many well-funded private companies, includingDoubleDown, Jam City, Kabam, Machine Zone, Miniclip, Niantic, Pocket Gems, Rovio, Scopely, Storm 8/Team Lava, andSupercell. In addition, we face competition from online game developers and distributors who are primarily focused25 Table of Contents on specific international markets. We could also face increased competition if those companies choose to compete moredirectly in the United States or the other markets that are significant to us or if large companies with significant onlinepresences such as Apple, Google, Amazon, Facebook, Microsoft or Yahoo, choose to enter or expand in the games space ordevelop competing games. We also compete for downloads and time spent on mobile devices with companies that developpopular social media and messaging applications, such as Facebook (with its Facebook, Facebook Messenger, Instagram,WhatsApp and other applications), Pinterest, Reddit, Snapchat, Twitter, Vevo and YouTube, companies that developstreaming music, movie and television applications, such as Pandora, Spotify, Tidal, HBO Go, Netflix, Amazon Prime andHulu, 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 relativelylow barriers 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 3.0 millionapplications, including more than 750,000 active games, were available on Apple’s U.S. App Store as of February 28,2017. 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, building and maintaining platform or evergreen titles, and buildingsocial and community features 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, to whichthey 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;·broader global distribution and presence; and·greater talent, both in overall headcount and in terms of experience in creating successful titles.If we are unable to compete effectively or we are not as successful as our competitors in our target markets, our salescould decline, our margins could decline and we could lose market share, any of which would materially harm our business,operating results and financial condition.26 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 ofleisure time 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,competition for the attention of players on their mobile devices is intense, as the number of apps on mobile devices isincreasing dramatically. In particular, non-gaming applications for mobile devices, such as social media and messaging,music, movie and television streaming, and dating applications, have become increasingly popular, making it more difficultfor mobile games to generate the same level of consumer interest and number of downloads as in prior periods. In addition,celebrities like Kim Kardashian West, Kendall Jenner and Kylie Jenner have launched their own personal media applications,and those applications, or similar applications launched by other of our celebrity partners could compete with our titles thatfeature such celebrities for the time, attention and spending of our players. If our players do not find our games to becompelling or if other leisure time activities are perceived by our players to offer greater variety, affordability, interactivityand overall enjoyment, our business could be materially and adversely affected.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 partnerships with celebrities and other licensors of third-party brands, properties and content, wehave incurred and expect to continue to incur significant minimum guaranteed royalty and other payments. As of December31, 2016 we have short-term and long-term prepaid royalty balances totaling $43.8 million. As a result, we may incurincreased levels of impairments on such payments if our forecasts for these games are lower than we anticipated at the time weentered into the agreements. For example, in 2016, we impaired $14.5 million related to prepaid royalty commitments andlicense fees paid to an affiliate of Tencent in connection with our Rival Fire title and $20.2 million related to contractualminimum guaranteed royalty payments made to certain of our celebrity licensors and other prepaid royalties. We expect thatmost, and potentially all, of the games we release in 2017 will be based on or otherwise incorporate celebrities and other third-party licensed brands, properties and other content as opposed to our original intellectual property games where we do notincur licensing fees and expenses. As a result, we may be required to take impairments in future periods if the games we aredeveloping that have significant contractual minimum guarantee commitments associated with them are not successful. 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 playerswho purchase our products from direct-to-consumer channels and to maintaining our existing relationships with distributorsand content licensors, as well as potentially developing new such relationships. Increasing awareness of our brand andrecognition of our games is particularly important in connection with our strategic focus of developing games based on ourown intellectual property, games based on our celebrity partners and our other games that incorporate third party brands andproperties. 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 and brands with fan bases that can support successful mobile games. If consumers,digital storefront owners and branded content owners do not perceive our existing games as high-quality or if we introducenew games that are not favorably received by them, then we may not succeed in building brand recognition and brand loyaltyin the marketplace. In addition, globalizing and extending our brand and recognition of our games is costly and involvesextensive management time to execute successfully. Although we make significant sales and marketing expenditures inconnection with the launch of our games, these efforts may not succeed in increasing awareness of our brand or the newgames. If we fail to increase and maintain brand awareness and consumer recognition of our games, our potential revenuecould be limited, our costs could increase and our27 Table of Contents business, operating results and financial condition could suffer. In addition, if a game contains objectionable content, we could experience damage to our reputation and brand. Ourgames may contain violence or other content that some consumers may find objectionable. For example, Apple has assignedeach of our shooter games a 17-and-older rating due to its violence. In addition, Google required us to submit two versions ofour Blood & 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 our games without our knowledge, which might contain profanity, graphic violence, sexuallyexplicit or otherwise objectionable material. If consumers believe that a game we published contains objectionable content, itcould harm our brand, consumers could refuse to download it or demand a refund for any in-app purchases, and could pressurethe digital storefront operators to no longer allow us to publish the game on their platforms. Similarly, if any of our games areintroduced with defects or have playability issues, we may receive negative user reviews and our brand may be damaged. Forexample, our Racing Rivals title experienced playability and user interface issues after the release of an update in the fourthquarter of 2016 that introduced new graphics, which particularly affected users of some Android devices and harmedmonetization of the game. These issues could be exacerbated if our customer service department does not timely andadequately address issues that 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 accountfor a significant portion of industry sales. Similarly, a significant portion of our revenue comes from a limited number ofgames, although the games in that group have shifted over time. Our top four titles for 2016, Kim Kardashian: Hollywood, Cooking Dash 2016, Tap Sports Baseball 2016, and Racing Rivals, each accounted for greater than 10% of our revenue in2016 and collectively generated approximately 56.8% of our revenue during the period, while our top five titles for 2015, KimKardashian: Hollywood, Racing Rivals, Deer Hunter 2014, Contract Killer: Sniper and Cooking Dash 2016, eachaccounted for greater than 10% of our revenue in 2016 and collectively generated approximately 71.6% of our revenue duringthe period; no other game generated more than 10% of our revenue during the respective periods. While we expect that CovetFashion and Design Home, titles we acquired through our acquisition of Crowdstar, will be significant revenue contributorsduring 2017 and help us broaden our product portfolio, we believe our revenue will still be highly dependent on a smallnumber of titles. In particular, Kim Kardashian: Hollywood, which was launched in June 2014, has accounted for a significantportion of our revenue, having generated 17.8% and 30.7% of our revenue in 2016 and 2015, respectively; it was our largestrevenue title in each of 2016, 2015 and 2014. We expect our dependency on a small number of games for a majority of ourrevenue will continue for the foreseeable future as we implement measures to make our successful games into platforms orevergreen titles and plan to release fewer titles in 2017 than we have in past years. Our evergreen titles strategy is one wherewe hope to reduce period over period declines in revenue from our existing successful titles and position ourselves to convertthese into platforms that grow revenue on a year over year basis. However, we have limited experience or success with thisstrategy and may not succeed in implementing or executing on it, which could cause our revenue to decline in 2017. Inaddition, revenue from Kim Kardashian: Hollywood, one of our existing evergreen titles, is in part tied to the continuedpopularity of Kim Kardashian West and her marketing efforts through social media and other channels, and we have little tono control over these matters and they are hard for us to predict. Accordingly, we must continue to launch new games thatgenerate significant revenue to continue to grow revenue in the future, which we have sometimes failed to do. For example,the Katy Perry Pop title we launched in the fourth quarter of 2015, our Britney Spears: American Dream title that we launchedin May 2016 and our Nicki Minaj: The Empire title that we launched in December 2016 all failed to generate meaningfulrevenue, and revenue from our Kendall & Kylie title declined significantly from its peak level following global launch inFebruary 2016. We may similarly fail to generate significant revenue from the title featuring Taylor Swift that we will bereleasing in 2017. In addition, sequels to some of our most successful game franchises have failed to download and monetizeat the levels of predecessor versions, and we have experienced disappointing results from several games based on filmfranchises, including our James Bond: World of Espionage game. Failure to differentiate, innovate and otherwise improve ourgames and game franchises would lead to revenue declines. 28 Table of Contents If our title featuring Taylor Swift does not succeed, our operating results and financial condition could be harmed andinvestors may question the viability of our celebrity product strategy.We intend to launch a title featuring Taylor Swift in 2017, and have entered into agreements with additionalcelebrities to create games featuring their intellectual property. We face a number of risks in our ability to successfullydevelop and monetize games featuring celebrities, have encountered difficulties in doing so with respect to the titles wereleased in 2016 featuring celebrities and may be unable to fully recoup minimum guaranteed royalty payments made to suchcelebrities through the generation of ongoing revenue from our titles. For example, although Kim Kardashian: Hollywood hasbeen by far the most successful mobile game featuring a celebrity and our Kendall & Kylie game achieved initial successfollowing its worldwide launch in February 2016, we and other game developers have failed to achieve success with gamesfeaturing other celebrities, including our Katy Perry Pop, Britney Spears: American Dream and Nicki Minaj: The Empire titles.Further, we have been unable to sustain the initial success experienced by our Kendall & Kylie game while both BritneySpears: American Dream and Nicki Minaj: The Empire failed to attract a significant user base and downloads, resulting inlower monetization. Our failure to generate significant revenue from our celebrity titles since Kim Kardashian: Hollywoodhas resulted in us impairing a significant amount related to certain contractual minimum guarantee payments made to certainof our celebrity licensors. Accordingly, it is possible that there is something unique about Kim Kardashian West, the nature ofher celebrity and the demographics and purchasing power of her fan base that has led to the continued and sustained successof Kim Kardashian: Hollywood that will not be replicable in games featuring other celebrities, particularly musicians. It ispossible that our title featuring Taylor Swift may not be commercially successful in the same manner as our prior gamesfeaturing a female musician, Katy Perry Pop, Britney Spears: American Dream and Nicki Minaj: The Empire. In addition,some of the celebrities with whom we have partnered may have similar fan bases, and any actual overlap in the audiences forour different titles featuring celebrities could result in market saturation or cannibalization of revenue of our own titles. Wemust also differentiate our forthcoming titles in order to ensure our offerings remain fresh and engaging and to satisfy ourcelebrity partners. However, differentiating our various titles that feature celebrities could lead to increased developmentcosts and potential product launch delays and may result in titles that do not monetize as well as Kim Kardashian:Hollywood. If our new titles that feature celebrities, including our upcoming Taylor Swift title, are not successful, our businessand operating results would suffer and investors may question the viability of our 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 otherthird parties’ 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 we expect that our reliance on such third-party infrastructure and ourtechnology platform will increase as we continue to add additional social features and functionality into our games. Inparticular, a significant portion of our game traffic is hosted by Amazon Web Services, which service provides serverredundancy and uses multiple locations on various distinct power grids. Amazon may terminate its agreement with us upon30 days’ notice. In addition, Amazon has experienced brief power outages on occasion during the past several years that haveaffected the availability of certain of our games during such outages. While none of these events adversely impacted ourbusiness, a similar outage of a longer duration could. In addition, the operation of our online-only games depends on thecontinued functionality of our technology platform. As a result, we could experience unexpected technical problems withregard to the operation of our online-only games, particularly if the number of concurrent users playing our games issignificantly more than we anticipate. Any technical problem with, cyber attack on, or loss of access to these third parties’ orour systems, servers or other technologies, including our technology platform, could result in the inability of end users todownload or play our games, cause interruption to gameplay, prevent the completion of billing for a game or result in the lossof users’ virtual currency or other in-app purchases, interfere with access to some aspects of our games or result in the theft ofend-user personal information. For example, in July 2014, users could not play our Kim Kardashian: Hollywood game forabout six hours due to a problem with one of our servers, and on five occasions during the last two years, we experiencedsimilar outages with respect to our Racing Rivals game. Additionally, in October 2016 we experienced a short outage affectingour Tap Sports Baseball 2016 game. In addition, at launch in September 2015, our Eternity Warriors 4 title experiencedintermittent server issues that left the game temporarily inoperable. In the first29 Table of Contents quarter of 2016 we experienced technical issues with our Kendall & Kylie title that caused users to lose their game play data,including accumulated virtual currency and achieved levels. If users are unable to access and play our games for any period oftime, if virtual assets are lost, or if users do not receive their purchased virtual currency, we may receive negative publicity andgame ratings, we may lose players of our games, we may be required to issue refunds, and we may become subject to regulatoryinvestigation or class action litigation, any of which would negatively affect our business. Any of these problems couldrequire us to incur substantial repair costs, distract management from operating our business and result in a loss 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 oursystems in the future. We store sensitive information, including personal information about our employees. In addition, ourgames involve the storage and transmission of players’ personal information in our facilities and on our equipment, networksand corporate systems run by us or managed by third-parties including Apple, Google, and Facebook. Security breaches ofour systems or the systems of third-parties on which we rely could expose us to litigation, remediation costs, increased costsfor security measures, loss of revenue, damage to our reputation and potential liability. Our player data, corporate systems,third-party systems and security measures may be breached due to the actions of outside parties, employee error, 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. In addition, outside parties may attempt to fraudulently induce employees todisclose information in order to gain access to our data, our employees’ data, our players’ data or our advertisers’ data. Wewere the victim of a cyber attack in early November 2014, when an animal rights group took down our main website and userforums, and in January 2016 another cyber attack caused us to take down our user forums for nearly a week. In May 2016, oneof our employees fell victim to a spear phishing attack in which the employee uploaded sensitive employee information to athird party website. In October 2013, we were also the victim of a “CryptoLocker” ransomware attack that temporarilyprevented our access to sensitive company files. Although these incidents did not result in a material loss of revenue, anyfuture incidents, particularly of longer duration, could damage our brand and reputation and result in a material loss ofrevenue. Maintaining an international presence in China and elsewhere, we may place ourselves at increased risk of cyberattacks, such as the denial of service attacks that affected Sony Pictures in the fourth quarter of 2014. The low cost, relativeease and proliferation of internet enabled devices may also place us at increased risk of cyber attacks and, specifically, denialof service attacks, such as the denial of service attacks that affected Dyn in October 2016. In addition, as highlighted byreports that ISIS terrorists may have used Sony’s PlayStation 4 network to plan attacks, the chat and other social features in ourgames could potentially be used by terrorist organizations or other criminals to communicate or for other nefarious purposes,which could severely damage our brand and reputation. If an actual or perceived security breach occurs, the market perceptionof the effectiveness of our security measures could be harmed, we could lose players and advertisers, and we could suffersignificant legal and financial harm due to such events or in connection with remediation efforts and costs, investigation costsor penalties, litigation, regulatory and enforcement actions, changed security and system protection measures. Any of theseactions could have a material and adverse effect on our business, reputation and operating results. In addition, the cost andoperational consequences of investigating, remediating, eliminating and putting in place additional information technologytools and devices designed to prevent actual or perceived security breaches, as well as the costs to comply with anynotification obligations resulting from such a breach, could have a significant impact on our financial 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 tabletsthat run Apple’s iOS or Google’s Android operating system. Unlike the Apple ecosystem in which Apple controls both thedevice (iPhone, iPod Touch and iPad) and the storefront (Apple’s App Store), the Android ecosystem is highly fragmentedsince a large number of OEMs manufacture and sell Android-based devices that run a variety of versions of the Androidoperating system, and there are many Android-based storefronts in addition to the Google Play Store. For us to sell our gamesto the widest possible audience of Android users, we must port our games to a significant portion of the30 Table of Contents more than 1,000 Android-based devices that are commercially available, many of which have different technicalrequirements. Since the number of Android-based smartphones and tablets shipped worldwide is growing significantly, withmore than one billion Android based devices sold worldwide in 2014, it is important that we maintain and enhance ourporting capabilities, which could require us to invest considerable resources in this area. These additional costs could harmour business, operating results and financial condition. In addition, we must continue to increase the efficiency of our portingprocesses or it may take us longer to port games to an equivalent number of devices, which would negatively impact ourmargins. If we fail to maintain or enhance our porting capabilities, our revenue and financial results could suffer. For example,the technical issues we have experienced with our Kendall & Kylie title in the first quarter of 2016 and Racing Rivals title inthe fourth quarter of 2016 appear to be more pronounced on certain Android devices, and this may have harmed the revenuewe are able to generate from users on Android devices.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, we were unable to implement asignificant update to our Racing Rivals title due to programming bugs in the Unity game development engine, which updatewe believe could have helped to increase revenue for that title during the quarter. Further, if one of our competitors acquiredUnity, the acquiring company would be less likely to renew our agreement, which expires in October 2017, which couldimpact our game development efforts in the future, particularly with respect to sequels to games that were created on the Unityengine.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 31 Table of Contents complete the offer. These offers accounted for approximately one-third of our revenue during the three months endedSeptember 30, 2011, and our inability to use such offers has negatively impacted our revenue. In addition, during the secondquarter of 2014, there were reports that Apple was considering prohibiting certain types of virtual currency-incented videoadvertising in games that promoted other applications available on the Apple App Store. These incented videoadvertisements generate a meaningful percentage of our overall revenue, and any prohibition of these advertisements wouldhave had a negative impact on our revenue. Any similar changes in the future that impact our revenue that we generate fromadvertisements and offers could materially harm our business.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, 42.1% in 2015 and 39.7% in 2016, largely due to the majority of our revenue beinggenerated from games that are based on or substantially incorporate third-party intellectual property, such as Kim Kardashian:Hollywood, Kendall & Kylie, Racing Rivals, the Tap Sports Baseball franchise and Gordon Ramsay DASH. We expect ourrevenue derived from games based on or substantially incorporating third-party intellectual property to increase further in2017, as we expect to continue to derive significant revenue from Kim Kardashian: Hollywood, Racing Rivals, Tap SportsBaseball 2016, and Gordon Ramsay DASH, and the majority, or potentially all of the titles, we release in 2017 will feature orotherwise leverage celebrities or other third-party licensed brands, properties or other content, including our Taylor Swift titleand MLB Tap Sports Baseball 2017 which will include licensed content from the MLB in addition to the MLBPA andMLBPAA. Certain of our licenses expire at various times during the next several years, and we may be unable to renew theselicenses on terms favorable to us or at all, and we may have difficulties obtaining licenses from new celebrities on termsacceptable to us, if at all. In addition, these licensors could decide to license to our competitors or develop and publish theirown mobile games, competing with us in the marketplace. We also license certain brands and their assets for our CovetFashion and Design Home titles without the provision of a license fee or royalty. These licensors could decide to no longerlicense their assets under the current terms, and to instead charge a one-time payment, ongoing royalty or both, which mayadversely affect the profitability of these titles. Failure to maintain or renew our existing licenses or to obtain additionallicenses would prevent us from continuing to offer our current licensed games and introducing new mobile games based onsuch licensed content, which could harm our business, operating results and financial condition.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. Forexample, we may be required to provide third party developers with upfront license fees or non-recoupable minimumguaranteed royalties in order to obtain the rights to publish their games, and we may incur significant costs marketing thesegames after they have been commercially launched. For example, we agreed to significant license fee and minimumguaranteed royalty payments to an affiliate of Tencent to license and publish Tencent’s WeFire game in the United States andinternational markets outside of Asia under the title Rival Fire. Due to Rival Fire’s poor performance in terms of downloadsand monetization since its launch in July 2016, we impaired $14.5 million in 2016 related to these payments. Other third-party games that we license and publish may not be commercially successful, particularly if they fail to appeal to Westernaudiences, and may not generate the amount of revenue necessary for us to fully recoup minimum guaranteed royalty andlicense fee payments. We and other mobile gaming companies have failed in the past to achieve commercial success inbringing successful games developed and launched in Asia to Western markets, including with respect to our efforts topublish and monetize Rival Fire. In addition, if any of the games created by third party developers with which we workinfringe intellectual property owned by others, or otherwise violate any third party’s rights or any applicable laws andregulations, such as laws with respect to data collection and privacy, we would be exposed to potential legal risks bypublishing these games. 32 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 attract, retain and motivate our key personnel,namely our management team, creative leaders and experienced game development personnel. In particular, we experienced achange in our management team in November 2016 which included the appointment of Nick Earl as our President and ChiefExecutive Officer and Niccolo de Masi as our Executive Chairman. Each of Mr. Earl and Mr. de Masi is critical to our vision,strategic direction, products and technology and the continued retention of the remaining senior management team isimportant to our continued development. In addition, to grow our business, execute on our business strategy and replacedeparting employees, we must identify, hire and retain qualified personnel, particularly creative leaders and additional gamedevelopment teams to support our new product launches and monetization, live operations, server technology, user experienceand product management personnel to support our platform and evergreen games. Attracting and retaining proven creativeleaders is difficult in a competitive hiring market. We intend to hire two to four additional creative leaders during theremainder of 2017, and we may not be able to attract these creative leaders or retain our existing creative leaders. The gamingand technology industries are also traditionally male dominated, so it may be difficult for us to recruit and retain talentedfemale personnel who may be needed to help us optimize our games that are targeted to a more female-focused audience,including our games in the fashion and celebrity, food and home genres. Recent stock price declines, the lack of success ofmany of our product launches in 2016 and recent headcount reductions may 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 and building and maintaining platform andevergreen titles, our competitors may increasingly seek to recruit our employees, particularly from our developmentstudios. In addition, we do not maintain a key-person life insurance policy on any of our officers. Our business and growthmay 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.During the last several years we have implemented certain restructuring actions and cost reduction initiatives tostreamline operations and improve cost efficiencies. Our most recent restructurings included reductions in personnel inBellevue, Washington, San Francisco, California and Long Beach, California. We plan to continue to manage costs to betterand more efficiently manage our business. This most recent restructuring plan and other such efforts could result indisruptions to our operations and adversely affect our business. In addition, we cannot be sure that the cost reduction andstreamlining initiatives will be as successful in reducing our overall expenses as we expect or that additional costs will notoffset any such reductions or streamlining. If our operating costs are higher than we expect or if we do not maintain adequatecontrol 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, a leading Internet company in China andarguably the world’s largest gaming company. Tencent, through a controlled affiliate, agreed to invest $126.0 million inexchange for approximately 16.3% of our total outstanding common stock on a post-transaction basis. In November 2015, weentered into an agreement with an affiliate of Tencent to license and publish its game, WeFire, in the United States andinternational markets outside of Asia under the name Rival Fire, which we launched in July 2016. In light of the poorperformance of the title in terms of monetization and downloads, and the related contractual prepaid royalty commitments andlicense fees under our agreement with the affiliate of Tencent, we impaired $14.5 million in the third quarter of 2016. Inaddition, we may not succeed in entering into any other agreements or operating partnerships with Tencent in the future. Evenif we do enter into additional operational partnerships, it could take months to years to fully33 Table of Contents realize the benefits of such partnerships and, to the extent such agreements involve publishing our games in China, some ofour platform partners in China and other parts of Asia may view such a partnership negatively, and in fact, some partners inChina may already view the fact that Tencent is a significant investor in us negatively, and we may find it more difficult toobtain featuring of our games from such partners in China going forward. Tencent, through its controlled affiliates, held approximately 20.9% of the aggregate voting power of our commonstock as of February 28, 2017, and could acquire up to 25.0% of the voting power through open-market purchases of ourcommon stock. While Tencent has agreed to cause these shares to be voted with the majority recommendation of theindependent members of our board of directors on most matters, Tencent could have considerable influence over matters suchas approving a potential acquisition of us. Tencent was also granted the right to designate a member of our board of directors,initially appointing Tencent Senior Vice President, Steven Ma, and in January 2017 appointing Ben Feder, Tencent’sPresident of International Partnerships (North America), as Mr. Ma’s replacement on Glu board of directors. Mr. Feder or anyfuture Tencent designee could have an actual or apparent conflict of interest in such matters. Tencent’s investment in andposition with us could also discourage others from pursuing any potential acquisition of us, which could have the effect ofdepriving the holders of our common stock of the opportunity to sell their shares at a premium over the prevailing marketprice.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 accountingstandards bodies and the methods, estimates and judgments that we use in applying our accounting policies. The frequency ofaccounting policy changes may accelerate, including conversion to unified international accounting standards. Policiesaffecting revenue recognition have affected, and could further significantly affect, the way we account for revenue. Forexample, the accounting for revenue derived from smartphone platforms and free-to-play games, particularly with regard torevenue generated from online digital storefronts, is still evolving and, in some cases, uncertain. In particular, we wererequired to file an amendment to our Annual Report on Form 10-K for the year ended December 31, 2012 and our QuarterlyReport on Form 10-Q for the quarter ended March 31, 2013 to restate or revise the financial statements contained in thosereports (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, 2013,34 Table of Contents management, including our Chief Executive Officer and Chief Financial Officer, reassessed the effectiveness of our internalcontrol over financial reporting as of December 31, 2012. Based on this reassessment using the guidelines established inInternal 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 ofDecember 31, 2012 because of a material weakness related to the application of revenue accounting guidance to oursmartphone revenue for sales through digital storefronts. This control deficiency resulted in the misstatement of our revenueand cost of revenue, including gross margin percentages, and the related balance sheet accounts and financial disclosures forthe years ended December 31, 2011 and 2012 (and the restatement of unaudited interim condensed consolidated financialstatements for the quarters ended March 31, June 30, and September 30 for such years). Although we have remediated thismaterial weakness, if we are otherwise unable to maintain adequate internal controls for financial reporting, or if ourindependent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controlsas required pursuant to the Sarbanes-Oxley Act, it could result in another material misstatement of our financial statements thatwould require a restatement, investor confidence in the accuracy and timeliness of our financial reports may be impacted or themarket price of our common stock could be negatively impacted.Conversion of key internal systems and processes, particularly our ERP system, and problems with the design orimplementation of these systems and processes could interfere with, and therefore harm, our business and operations.We have underway a multi-phase project to convert certain key internal systems and processes, including ourenterprise resource planning, or ERP, system to a cloud based system. In August 2016 we implemented major changes to ourERP system, which activities we expect to continue into 2017. In connection with the transition to our new ERP system in thethird quarter of 2016, we shutdown certain of our legacy ERP systems in the third quarter of 2016, which affected certain ofour processes in the second half of 2016 and may impact our processes in 2017. While we have transitioned to our new ERPsystem, we may need to resolve issues that arise in connection with this transition. We have invested, and will continue toinvest, significant capital and human resources in the design and implementation of these systems and processes. Anyproblems, disruptions, delays or other issues in the design and implementation of the new systems or processes, particularlyany that impact our operations, could adversely affect our ability to process payments, record and transfer information in atimely and accurate manner, recognize revenue, file SEC reports in a timely manner, or otherwise run our business. Even if weencounter these adverse effects, as noted above, the design and implementation of these new systems and processes may bemuch more costly than we anticipated and in the event of lengthy project delays, we may experience issues with retention ofthe implementation team. If we are unable to successfully design and implement these new systems and processes as planned,or if the implementation of these systems and processes is more lengthy or costly than anticipated, our business, financialcondition, and results of operations 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 technologiesthat complement 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 negotiationof acquisition or investment terms, integration and administration;·our ability to successfully integrate acquired technologies and operations into our business and maintainuniform standards, controls, policies and procedures;·potential employee morale and retention issues resulting from any reductions in compensation, or changes inmanagement, reporting relationships, or future prospects;35 Table of Contents ·potential product development delays resulting from any changes and disruptions that may follow theacquisition;·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 obtainingalternative financing;·challenges retaining the key employees, customers and other business partners of the acquired or investeebusiness;·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 acharge to earnings in the period in which the write-down occurs, such as the case with each of the charges wetook in the second and third quarters of 2016 for our investments in Plain Vanilla;·the internal control environment of an acquired or investee entity may not be consistent with our standards andmay require significant time and resources to improve;·in the case of foreign acquisitions or strategic investments, the need to integrate operations across differentcultures and languages and to address the particular economic, currency, political and regulatory risks associatedwith specific countries;·liability for activities of the acquired or investee companies before the acquisition or investment, includingviolations of laws, rules and regulations, commercial disputes, tax liabilities, intellectual property and otherlitigation claims or disputes, accounting standards and other known and unknown liabilities;·harm to our brand and reputation; and·harm to our existing business relationships with business partners and advertisers as a result of the acquisition.In particular, we acquired Crowdstar in the fourth quarter of 2016 in a multi-step transaction that did not involve thecooperation of Crowdstar’s management, where the former Chief Executive Officer of Crowdstar did not continue with thecompany post-acquisition and where we did not receive customary representations, warranties or indemnities from theacquired company. While the integration of Crowdstar into our company has to date proceeded relatively smoothly andCrowdstar’s top titles, Covet Fashion and Design Home, are generating significant revenue, we still face risks and uncertaintiesin connection with completing this integration, including the risk of retaining key employees, the loss of whom could affectrevenue derived from Covet Fashion and Design Home. 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. We may also need to raise additional capital inthe event we use a significant amount of cash as consideration in an acquisition. Because acquisitions and strategicinvestments are inherently risky, our transactions may not be successful and may, in some cases, harm our operating results orfinancial condition. 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. 36 Table of Contents Conducting business in currencies other than U.S. Dollars subjects us to fluctuations in currency exchange rates that couldhave a negative impact on our reported operating results. We experienced significant fluctuations in currency exchange ratesin 2015 and 2016, 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, economic issues in Russia led to asignificant devaluation of the Ruble compared to the U.S. Dollar through the second quarter of 2016. While the Ruble hasrecovered somewhat since historic lows in the second quarter of 2016, it remains significantly devalued, which has reducedthe effective salaries of our employees in our Moscow studio. As a result, we may be at risk of losing key employees tocompetitors who are willing to offer higher effective wages. To date, we have not engaged in exchange rate hedging activities,and we do not expect to do so in the foreseeable future.We face additional risk if a currency is not freely or actively traded. Some currencies, such as the Chinese Renminbiin which 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 25.7%, 31.3% and 40.6% of our revenue during 2016, 2015 and 2014,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 and Russia. We expect toincrease our international presence, as we intend to increase the number of our employees in our Hyderabad, Indiaoffice. 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 as aresult of distance, language, and cultural differences;·multiple and conflicting laws and regulations, including complications due to unexpected changes in these lawsand 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 a betterunderstanding 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 in Chinawhere multiple governmental bodies must review and approve of any gaming application before it may bepublished;·foreign exchange controls that might prevent us from repatriating income earned in countries outside the UnitedStates, particularly China;37 Table of Contents ·potential adverse foreign tax consequences, since due to our international operations, we must pay income tax innumerous foreign jurisdictions with complex and evolving tax laws;·political, economic and social instability, including the ongoing hostilities in Syria and the Crimea region and,in particular, any continued economic issues in Russia, which could potentially negatively impact us given thatwe have a development 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 ourbusiness, operating results and financial condition. In particular, we have over 100 employees located at our developmentstudio in Moscow, Russia. Continuing economic issues in Russia, including the destabilization of the Ruble, could lead tounstable political 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 operated by our Moscow studio. We may also liquidate or cease operating some of our foreign subsidiaries in the future which may raise additionalrisks. For example, we are in the process of winding down and liquidating certain of our subsidiaries in China. Theseliquidation efforts will require us to obtain approvals from various government agencies in China, which could impose taxesand penalties upon us related to such liquidations. In addition, we may face difficulties in repatriating cash from oursubsidiaries in China.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,including larger, higher resolution color screens, improved audio quality, and greater processing power, memory, battery lifeand storage. For example, the introduction of new and more powerful versions of Apple’s iPhone and iPad and devices basedon Google’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.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, hasincreased dramatically in the past few years, the mobile market, particularly the market for mobile games, is still emerging, andit may not grow as we anticipate. Our future success is substantially dependent upon the continued growth of use of mobiledevices for games, as opposed to social media applications or other uses. The proliferation of mobile38 Table of Contents devices may not continue to develop at historical rates and consumers may not continue to use mobile Internet-enableddevices as platforms for games. We believe that historic rates of adoption and download of new applications in the UnitedStates will not continue to rise, and will instead decline, as the U.S. mobile application market enters a mature state. 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 theselaws constantly evolving, which could result in their being interpreted in ways that could harm our business, but legislation isalso continually being introduced that may affect both the content of our products and their distribution. In the United States,for example, 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 FTC has also indicated that it intends to reviewissues related to in-app purchases, particularly with respect to games that are marketed primarily to minors; the FTC reachedsettlement agreements with Apple and Google on this subject and recently won a lawsuit against Amazon on this subject. Ifthe FTC issues rules significantly restricting or even prohibiting in-app purchases, it would significantly impact our businessstrategy. In addition, two self-regulatory bodies in the United States (the Entertainment Software Rating Board) and in theEuropean Union (Pan European Game Information (PEGI)) provide consumers with rating information on various productssuch as entertainment software similar to our products based on the content (for example, violence, sexually explicit content,language). Furthermore, the Chinese government has adopted measures designed to eliminate violent or obscene content ingames, along with regulations that may require us to obtain approval from certain government agencies in China, includingthe Ministry of Culture and General Administration of Press and Publication, in order to continue to publish any of our gamesin China. Any one or more of these factors could harm our business by limiting the products we are able to offer to ourcustomers, by limiting the size of the potential market for our products, or by requiring costly additional differentiationbetween products for different territories to address varying regulations.Furthermore, the growth and development of free-to-play gaming and the sale of virtual goods may prompt calls formore stringent 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.We sometimes offer our players various types of sweepstakes, giveaways and promotional opportunities, andlaunched a version of our Frontline Commando: D-Day game utilizing the Skillz technology platform that allowed players tocompete against each other in tournaments for cash prizes. We have also in the past through a partnership with ProbabilityPLC offered a suite of Glu branded mobile slots games in the United Kingdom and might continue to explore opportunitieswith respect to real money gambling. We are subject to laws in a number of jurisdictions concerning the operation andoffering of such activities and games, many of which are still evolving and could be interpreted in ways that39 Table of Contents could harm our business. Any court ruling or other governmental action that imposes liability on providers of online servicescould result in criminal or civil liability and could harm our business.In addition, because our services are available worldwide, certain foreign jurisdictions and others may claim that weare required 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 wecollect regarding our users, which laws are currently in a state of flux and likely to remain so for the foreseeable future. TheU.S. government, including the FTC and the Department of Commerce, is continuing to review the need for greater regulationover collecting information concerning consumer behavior on the Internet and on mobile devices. For example, the EuropeanUnion’s General Data Protection Regulation, which will become effective in May 2018, creates new individual privacy rightsand imposes worldwide obligations on companies handling personal data, which will result in a greater compliance burden forus and other companies with European users. Various U.S. state and federal regulators have also continued to expand the scopeof data elements worthy of, and subject to, privacy protections, creating a multi-layered regulation regime that may beapplicable to our business and will require time and resources to address. Additionally, the Children’s Online PrivacyProtection Act requires companies to obtain parental consent before collecting personal information from children under theage of 13. In January 2014, the FTC announced a settlement with Apple related to in-app purchases made by minors. In April2016, the FTC was also successful in a lawsuit against Amazon, with a Federal District Court granting summary judgment infavor of the FTC, finding Amazon liable for unfairly billing consumers for unauthorized in-app purchases by minors. If we donot follow existing laws and regulations, as well as the rules of the smartphone platform operators, with respect to privacy-related matters, or if consumers raise any concerns about our privacy practices, even if unfounded, it could damage ourreputation 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 failto comply with our posted privacy policy, terms of service or privacy-related laws and regulations, including with respect tothe information we collect from users of our games, it could result in proceedings against us by governmental authorities orothers, which could harm our business. In addition, interpreting and applying data protection laws to the mobile gamingindustry is often unclear. These laws may be interpreted and applied in conflicting ways from state to state, country tocountry, or region to region, and in a manner that is not consistent with our current data protection practices. Complying withthese varying requirements could cause us to incur additional costs and change our business practices. Further, if we fail toadequately protect our users’ privacy and data, it could result in a loss of player confidence in our services and ultimately in aloss of users, which could adversely affect our business.In the area of information security and data protection, many states have passed laws requiring notification to userswhen there is a security breach for personal data, such as the 2002 amendment to California’s Information Practices Act, orrequiring the adoption of minimum information security standards that are often vaguely defined and difficult toimplement. Costs to comply with these laws may increase as a result of changes in interpretation. Furthermore, any failure onour part to comply with these laws may subject us to significant liabilities. The security measures we have in place to protectour data and the personal information of our employees, customers and partners could be breached due to cyber-attacksinitiated by third party hackers, employee error or malfeasance, fraudulent inducement of our employees to disclose sensitiveinformation or otherwise. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotagesystems change frequently and often are not recognized until launched against a target, we may be unable to anticipate thesetechniques or to implement adequate preventative measures. Any breach or unauthorized access could materially interferewith our operations or our ability to offer our services or result in significant legal and financial exposure, damage to ourreputation and a loss of confidence in the security of our data, which could have an adverse effect on our business andoperating results.40 Table of Contents 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 thefuture, as a result of a number of factors, many of which are outside our control, such as changes in the operating performanceand stock market valuations of other technology companies generally, or those in our industry in particular, such as ElectronicArts and Zynga. 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 ofour games. In addition, The NASDAQ Global Market on which our common stock is listed has recently and in the pastexperienced extreme price and volume fluctuations that have affected the market prices of many companies, some of whichappear to be unrelated or disproportionate to their operating performance. These broad market fluctuations could adverselyaffect the market price of our common stock. In the past, following periods of volatility in the market price of a particularcompany’s securities, securities class action litigation has often been brought against that company. Securities class actionlitigation against 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 four issued U.S. patents (including a corresponding Patent Cooperation Treaty (PCT)international patent for three of the four U.S. patents) and only seven U.S. patent applications currently outstanding, includingone that we inherited through acquisitions (and we have four corresponding PCT international patent applications), so we willnot be able to protect the majority of our technologies from independent invention by third parties. In addition, we have filedforeign patent applications on three of our eight U.S. patent applications and one of the issued U.S. patents, and an additionalforeign patent application for our one of our issued U.S. patents. Despite our efforts to protect our intellectual property rights,unauthorized parties may attempt to copy or otherwise to obtain and use our technology and games, and some parties havedistributed “jail broken” versions of our games where all of the content has been unlocked and made available forfree. Further, some of our competitors have released games that are nearly identical to successful games released by theircompetitors in an effort to confuse the market and divert users from the competitor’s game to the copycat game. We believethat these tactics were employed by Hothead Games in their game Kill Shot, which we believed infringed certain Glucopyrights and trade dress contained in our Deer Hunter 2014 game. We initiated litigation against Hothead Games inNovember 2014, and we entered into a settlement agreement with Hothead in August 2015 in which Hothead agreed to makepayments to us, including ongoing payments, and we agreed to allow Hothead to continue to publish the Kill Shot game. Tothe extent competitors continue to copy our games, it could reduce the amount of revenue we are able to generate from anyinfringed games. Monitoring unauthorized use of our games is difficult and costly, and we cannot be certain that the steps wehave taken will prevent piracy and other unauthorized distribution and use of our technology and games, particularly incertain international jurisdictions, such as China, where the laws may not protect our intellectual property rights as fully as inthe United States. In the future, we may institute additional litigation to enforce our intellectual property rights, which couldresult in substantial costs and divert our management’s attention and our resources.In addition, although we require our third-party developers to sign agreements not to disclose or improperly use ourtrade secrets, to acknowledge that all inventions, trade secrets, works of authorship, developments and other processesgenerated by them on our behalf are our property and to assign to us any ownership they may have in those works, it may stillbe possible for third parties to obtain and improperly use our intellectual properties without our consent. This could harm ourbrand, business, operating results and financial condition.41 Table of Contents 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), orJust 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 inthe future. We may face claims from companies that incorporate open source software into their products, claiming ownershipof, 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 ordinaryconduct of our business and are not yet resolved and additional claims and inquiries may arise in the future. In addition,events may occur that give rise to a potential risk of litigation. The number and significance of regulatory inquiries haveincreased as our business has grown and evolved. Any proceedings, claims or inquiries initiated by or against us, whethersuccessful or not, may be time consuming; result in costly litigation, damage awards, consent decrees, injunctive relief orincreased costs of doing business, require us to change our business practices or products, require significant amounts ofmanagement time, result in diversion of significant operations resources or otherwise harm our business and future financialresults.“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 and other offerings that may decrease our revenue generated from our virtual economies, divert our players from ourgames or otherwise harm us. Cheating programs enable players to exploit vulnerabilities in our games to obtain42 Table of Contents virtual currency or other items that would otherwise generate in-app purchases for us, play the games in automated ways orobtain unfair advantages over other players who do play fairly. Unrelated third parties attempt to scam our players with fakeoffers for virtual goods or other game benefits. We devote resources to discover and disable these programs and activities, butif we are unable to do so in a prompt and timely manner, our operations may be disrupted, our reputation damaged and playersmay play 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 thevaluation of our deferred tax assets and liabilities, or by changes in tax laws or their interpretation. Determining our worldwideprovision for income taxes requires significant judgments. The estimation process and applicable laws are inherentlyuncertain, and our estimates are not binding on tax authorities. Our effective tax rate could also be adversely affected by avariety of factors, many of which are beyond our control. Recent and contemplated changes to U.S. tax laws, includinglimitations on a taxpayer’s ability to claim and utilize foreign tax credits and defer certain tax deductions until earningsoutside of the United States are repatriated to the United States, could impact the tax treatment of our foreign earnings. Further,the taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developedtechnology or intercompany arrangements, including our transfer pricing, or determine that the manner in which we operateour business is not consistent with the manner in which we report our income to the jurisdictions, which could increase ourworldwide effective tax rate and harm our financial position and results of operations. Foreign tax authorities may alsointerpret or change tax regulations such that we may be subject to tax liabilities upon closure or liquidation of a foreignsubsidiary. In addition, we are subject to the continuous examination of our income tax returns by the Internal RevenueService and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations todetermine if our provision for income taxes is adequate. These continuous examinations may result in unforeseen tax-relatedliabilities, 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, networth, property and goods and services taxes, in both the United States and foreign jurisdiction. If tax authorities assert thatwe have taxable nexus in a jurisdiction, they may seek to impose past as well as future tax liability and/or penalties. Any suchimpositions could also cause significant administrative burdens and decrease our future sales. Moreover, state and federallegislatures have 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, implementchanges to our operating structure or undertake intercompany transactions in light of changing tax laws, our tax expensecould 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 alsovulnerable to damage from other types of disasters, including power loss, fires, explosions, floods, communications failures,terrorist attacks and similar events. If any natural or other disaster were to occur, our ability to operate our business could beimpaired.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 analystspublish about our business. We do not have any control over these analysts. If one or more of the analysts who43 Table of Contents cover us downgrade our shares or lower their opinion of our shares, our share price would likely decline. If one or more ofthese analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financialmarkets, which in turn could cause our share price or trading volume to decline. In addition, our share price and the volatilityof our shares can be 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 ourgames, daily and monthly active users and estimated revenue generated by our games. These metrics can be volatile,particularly for specific games, and in many cases do not accurately reflect the actual levels of usage of our games across allplatforms or the revenue generated by our games. To the extent that securities analysts or investors base their views of ourbusiness or prospects on such third-party data, the price of our common stock may be affected by such third party data andmay not reflect the 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, Tencent is free to sellthe 21,000,000 shares it acquired from us in the second quarter of 2015 on the open-market, subject only to our black-outperiods and other limitations under our insider trading policy. In addition, we issued 9,982,886 shares in connection with ouracquisition of Cie Games, Inc. in August 2014. We filed a Registration Statement on Form S-3 covering the resale of suchshares. Accordingly, the shares issued in the Cie Games acquisition are subject to only limited re-sale restrictions and sales ofsubstantial amounts of such shares may occur. 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 be establishedand 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.44 Table of Contents In addition, as a Delaware corporation, we are subject to provisions of Delaware law, including Section 203 of theDelaware General Corporation Law, which prevents certain stockholders holding more than 15% of our outstanding commonstock from engaging in certain business combinations without approval of the holders of at least two-thirds of our outstandingcommon stock not held by such 15% or greater stockholder, although our board of directors waived this provision with respectto Tencent’s potential acquisition of greater than 15% of our shares in connection with the transaction in which we initiallysold shares of our common stock to an affiliate of Tencent.We have no plans to pay dividends for the foreseeable future.We have never declared or paid any cash dividends on our common stock and do not have any plans to pay cashdividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board ofdirectors. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, asthe only way to realize any future gains on their investments. 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 Burlingame, 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; and Beijing, China. These additional domestic and international facilities primarily accommodate developmentstudios, and customer care activities, and total approximately 160,370 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 8 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, or 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., or 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 agreed45 Table of Contents to make payments to us, including ongoing payments, and we agreed to allow Hothead to continue to publish the Kill Shotgame. We filed a dismissal of the case on August 17, 2015, which the Court granted 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 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), or 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 28, 2017was $1.93. High LowYear ended December 31, 2015 First quarter $5.23 $3.36Second quarter $6.99 $4.95Third quarter $6.47 $4.07Fourth quarter $4.43 $2.23Year ended December 31, 2016 First quarter $3.92 $2.01Second quarter $3.02 $2.11Third quarter $2.86 $2.14Fourth quarter $2.36 $1.83 Our 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.46 Table of Contents Stock Price Performance Graph The following graph shows a comparison from December 31, 2011 through December 31, 2016 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 28, 2017, we had approximately 53 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. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.47 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, 2016 2015 2014 2013 2012 (In thousands, except per share amounts)Consolidated Statements of Operations Data: Revenue $200,581 $249,900 $223,146 $105,613 $108,183Cost of revenue: Platform commissions, royalties and other 75,239 95,682 80,736 32,371 29,630Impairment of prepaid royalties and guarantees 30,107 2,502 256 435 -Impairment and amortization of intangible assets 14,792 9,553 4,767 4,238 3,783Total cost of revenue 120,138 107,737 85,759 37,044 33,413Gross profit 80,443 142,163 137,387 68,569 74,770Operating expenses(1): Research and development 81,879 72,856 64,284 46,877 54,275Sales and marketing 48,050 48,240 45,076 26,120 20,893General and administrative 30,225 26,092 25,019 15,550 14,744Amortization of intangible assets - 201 508 1,336 1,980Restructuring charge 2,279 1,075 435 1,448 1,371Impairment of goodwill - - - - 3,613Total operating expenses 162,433 148,464 135,322 91,331 96,876(Loss)/Income from operations (81,990) (6,301) 2,065 (22,762) (22,106)Interest and other (expense) income, net (5,751) (743) (1,472) 10 (347) (Loss)/Income before income taxes (87,741) (7,044) 593 (22,752) (22,453)Income tax benefit (provision) 301 (141) 7,555 2,843 1,994Net (loss)/income (87,440) (7,185) 8,148 (19,909) (20,459)Net (loss)/income per share: Basic $(0.66) $(0.06) $0.09 $(0.28) $(0.32)Diluted $(0.66) $(0.06) $0.08 $(0.28) $(0.32) Weighted average common shares outstanding: Basic 131,804 118,775 91,826 71,453 64,318Diluted 131,804 118,775 96,922 71,453 64,318_________ (1) Includes stock-based compensation expense as follows:Research and development $4,567 $3,563 $7,422 $1,948 $3,491Sales and marketing 1,091 1,082 701 303 386General and administrative 7,605 7,041 3,510 2,034 1,945 As of December 31, 2016 2015 2014 2013 2012 (In thousands)Cash and cash equivalents and short-term investments $102,102 $180,542 $70,912 $28,496 $22,325Total assets 339,504 402,986 251,663 87,011 74,955Total long-term liabilities 22,350 25,932 3,936 2,357 6,190Total stockholder's equity $232,814 $306,428 $171,706 $46,697 $38,887Please see Note 1, Note 3 and Note 8 of our Notes to Consolidated Financial Statements for a discussion of factorssuch as impairment of prepaid royalties and guarantees, business combinations and any material uncertainties that maymaterially affect the comparability of the information reflected in selected financial data, described in Item 6 of this report.48 Table of Contents Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations inconjunction with our consolidated financial statements and the related notes included in Item 8, “Financial Statements andSupplementary Data” of this report. In addition to our historical consolidated financial information, the followingdiscussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results and thetiming of certain events could differ materially from those discussed in the forward-looking statements. Factors that couldcause or contribute to these differences include, but are not limited to, those discussed 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, or MD&A, includesthe following sections: ·An Overview that discusses at a high level our operating results and some of the trends that affect our business; ·Critical Accounting Policies and Estimates that we believe are important to understanding the assumptions andjudgments underlying our financial statements; ·Recent Accounting Pronouncements; ·Results of Operations, including a more detailed discussion of our revenue 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 2016,as well as our future prospects. This summary is not intended to be exhaustive, nor is it intended to be a substitute for thedetailed discussion and analysis provided elsewhere in this report, including our consolidated financial statements andaccompanying notes. Financial Results and Trends Revenue for 2016 was $200.6 million, a 19.7% decrease compared to 2015, in which we reported revenue of $249.9million. The decrease in total revenue was primarily related to a $43.7 million decrease in our revenue from micro-transactions(in-app purchases) and a $5.7 million decrease in our revenue from advertisements and offers. The decrease was primarilyrelated to declining revenue on a year-over-year basis from catalog titles such as Kim Kardashian: Hollywood, Racing Rivals,Deer Hunter 2014 and Contract Killer: Sniper and our inability to fully replace such declining revenue with revenue fromnew title launches, such as Katy Perry Pop, Kendall & Kylie, Britney Spears: American Dream, and Nicki Minaj: The Empire,which have not generated enough revenue or retained users at the rates necessary to offset the declining catalog revenue. Revenue for 2015 was $249.9 million, a 12.0% increase compared to 2014, in which we reported revenue of $223.1million. The increase in total revenue was primarily related to a $26.1 million increase in our revenue from micro-transactions(in-app purchases) and a $1.9 million increase in our revenue from advertisements and offers. These increases were partiallyoffset by a $1.2 million decrease in premium and feature phone revenue 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.49 Table of Contents 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 62.4%, 60.5%, and 61.8%of our total revenue for the years ended December 31, 2016, 2015, and 2014, respectively. We generated the majority of thisiOS-related revenue through the Apple App Store, which represented 52.7%, 51.7%, and 52.2% of our total revenue for theyears ended December 31, 2016, 2015, and 2014, respectively, with the significant majority of such revenue derived from in-app purchases. We generated the balance of our iOS-related revenue from offers and advertisements in games distributed onthe Apple App Store. In addition, we generated approximately 36.1%, 38.1%, and 35.4% of our total revenue for the yearsended December 31, 2016, 2015, and 2014, respectively, from the Android platform. We generated the majority of ourAndroid-related revenue through the Google Play Store, which represented 27.6%, 27.4%, 24.8% of our total revenue for theyears ended December 31, 2016, 2015,and 2014, respectively, with the significant majority of such revenue derived from in-app purchases. We generated the balance of our Android-related revenue from other platforms that distribute apps that run theAndroid operating system (e.g., the Amazon App Store) and through offers and advertisements in games distributed throughthe Google Play Store and other Android platforms. We currently publish titles in five genres: fashion and celebrity, sports and action, food, home and social networking.We believe these are genres in which we have already established a leadership position, are otherwise aligned with ourstrengths or are conducive to the establishment of a strong platform. Platforms are titles that we continue to update withadditional content and features and which grow revenue year over year. Evergreen titles are similar to platforms in that wecontinue to update them with additional content and features, but differ from platforms in that our focus is to reduce andpotentially reverse their year over year revenue declines; to the extent that we succeed in our efforts to grow annual revenuefrom an evergreen title, we would then consider such evergreen title to be a platform.We established our leadership in the fashion and celebrity gaming genre when we launched Kim Kardashian:Hollywood in June 2014, and extended our leadership position through our acquisition of Crowdstar in November 2016 andits successful Covet Fashion title. Our leadership in the sports and action category remains strong with our Tap SportsBaseball, Racing Rivals and Deer Hunter franchises, and we hope to expand that leadership in 2017 with the launch of MLBTap Sports Baseball 2017 which will include licensed content from Major League Baseball, or MLB, for the first time togetherwith current and former MLB players pursuant to our continuing agreements with the Major League Baseball PlayersAssociation, or MLBPA, and Major League Baseball Players Alumni Association, or MLBPAA. The food genre includes ourCooking Dash and Diner Dash franchises, and our leadership position in this genre was bolstered by our successful release ofGordon Ramsay DASH in June 2016. We established our leadership position in the home genre with our release of DesignHome in November 2016, which was the first title launched by Crowdstar following the acquisition. Our social networkinggenre includes QuizUp, a title we acquired in our purchase of substantially all of the assets of Plain Vanilla Corp. 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. The majority of our games have been featured on Apple and Google storefronts when they werecommercially released, which we believe is the result of us being a good partner of Apple and Google. We work closely with our celebrity and brand licensors to engage their social media audiences and build games thatwill resonate with their unique fan bases. For example, our celebrity games utilize transmedia storytelling, leveraging thecelebrity’s built-in social media fan base to drive installs and awareness of the game, and then attempting to surprise anddelight those fans with real-world events and other game content based on the celebrity’s life. Our goal is for the game contentto become entwined with the celebrity’s persona and social media presence, and to otherwise enhance interaction with thecelebrity’s fans. We also leverage the strength of well known brands and licensors to provide users with more realisticexperiences, such as the case with our forthcoming title MLB Tap Sports Baseball 2017 which will feature all MLB clubs anduniforms and current and former MLB players. We also plan to work to build and nurture social communities in and aroundthe games themselves, creating a new vehicle for strong, personal engagement with the brand or celebrity’s fan base. In orderto capitalize on the impact of our brand and celebrity licensors, we need to differentiate each game we release and space outour launch dates in order to avoid cannibalization of revenue from our existing games and to ensure that each game resonateswith our players. While we believe our strategy has proven to be50 Table of Contents successful in certain areas, we have not experienced the level of success with Katy Perry Pop, Kendall & Kylie, BritneySpears: American Dream and Nicki Minaj: The Empire that we experienced with Kim Kardashian: Hollywood, which hasnecessitated impairments to certain contractual minimum guarantee payments made to certain of our celebrity licensors during2016. We will need to continue our efforts to differentiate and provide innovative features in our future celebrity based titles,including user generated content and social features, if we are to succeed in our strategy. For us to continue driving installs and awareness of our games and to improve monetization and retention of ourplayers, we must ensure that each of our games, whether in development or already live, has compelling gameplay and a coremonetization loop that incentivizes players to make in-app purchases. In addition, we must regularly update our games withcompelling new content, deliver socio-competitive features like tournaments, contests, player-versus-player gameplay andlive events and build and nurture social media communities around our franchises both in-game and holistically viacommunity features such as dedicated social channels. We have also made significant investments in our proprietary analyticsand monetization infrastructure. With our enhanced analytics capabilities, we intend to devote resources towards segmentingand learning more about the players of each of our franchises and further monetizing our highest spending and most engagedplayers. We aim to connect our analytics and monetization infrastructure to every element of our business – from marketing tomerchandising – in order to improve player retention and monetization. We also plan to continue monitoring the successful aspects of our games to drive downloads and enhancemonetization and retention as part of our platform strategy, whether by optimizing advertising revenue within each title,securing additional compelling licensing arrangements, building enhanced and more complex core gameplay, addingadditional social features, tournaments and events, offering subscriptions for in game durables and consumables to players orotherwise. Optimizing advertising revenue within our games requires us to continue taking advantage of positive trends in themobile advertising space, particularly as brands continue to migrate budgets from web to mobile. Continuing to drive installsand awareness of our games through licensing efforts requires that we continue to partner with celebrities, social influencers,organizations and brands that resonate with potential players of our games. Partnering with desirable licensing partners andrenewing our existing licenses with our most successful partners 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 strategy and the measures we have implemented during the past year to supportour business position us to take advantage of these trends, as evidenced by the continued strength of our Kim Kardashian:Hollywood, Cooking Dash 2016 and Tap Sports Baseball 2016 titles. We plan to focus on regularly updating and otherwisesupporting our platform and evergreen titles in order to ensure that those games monetize and retain users for even longerperiods of time and to drive a larger part of our aggregate revenue from our existing titles. In addition, we plan to continue toinvest in our creative leaders and the creative environments in which they and their teams work to increase our likelihood ofcreating significant hit platform titles in 2017 and beyond. Our net loss in the year ended December 31, 2016 was $87.4 million versus net loss of $7.2 million in the year endedDecember 31, 2015. This substantial increase was primarily due to an a decrease in revenue of $49.3 million, an increase incost of revenue of $12.4 million, primarily attributable to $20.2 million in royalty impairments related to certain contractualminimum guarantee payments made to certain of our celebrity licensors and other prepaid royalties and $14.5 million inroyalty impairment related to the prepaid guaranteed royalty and license fee payments that we have made to an affiliateof Tencent related to our Rival Fire game, an increase in operating expenses of $14.0 million, and a net increase in interest andother expenses of $5.0 million, primarily attributable to a $1.9 million charge related to the change in fair value of ourinvestment in promissory notes issued to us by Plain Vanilla, and a $2.4 million impairment charge related to the call optionfor Plain Vanilla, See “—Results of Operations—Comparison of the Years Ended December 31, 2016 and 2015” below forfurther details. Our operating results were also affected by fluctuations in foreign currency exchange rates of the currencies inwhich we incurred meaningful operating expenses (principally the British Pound Sterling, Euro, Chinese Renminbi, RussianRuble, and Indian Rupee), and our customers’ reporting currencies,51 Table of Contents which fluctuated significantly in 2015 and 2016. 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 ability to achieve and sustain profitability depends not only on our ability to grow our revenue, 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 have conductedseveral restructurings since December 2015, including most recently in January 2017, reducing our headcount by more than100 personnel. However, we expect our personnel costs to increase in 2017, primarily due to our acquisition of Crowdstar inthe fourth quarter of 2016 and our plans to bolster our studios by continuing to hire additional development personnel in theSan Francisco Bay Area and Hyderabad, India, including additional proven creative leaders. Cash and cash equivalents at December 31, 2016 totaled $102.1 million, a decrease of $78.4 million from the $180.5million balance at December 31, 2015. This decrease was primarily due to $51.5 million of cash used in investing activitiesrelated to our acquisition of Crowdstar, investments in Plain Vanilla Corp. and Dairy Free Games, Inc., purchases of intangibleassets, and purchases of property and equipment. In addition, we used $19.8 million of net cash in operations, which wasprimarily related to a $16.7 million increase in prepaid royalties associated with minimum guaranteed royalty payments madeto our celebrity and other licensors and used $6.8 million of cash in financing activities, primarily related to $4.7 million paidto acquire non-controlling interest in Crowdstar. 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 total free-to-play smartphone revenue – consisting of micro-transactions, advertisements and offers – for themeasurement 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 this revenue over theestimated average playing period of a user, but our methodology for calculating our DAU does not align52 Table of Contents with our revenue recognition policy for micro-transactions and offers, under which we defer revenue. For example, if a title isintroduced in the last month of a quarter, we defer a substantial portion of the micro-transaction and offer revenue to futuremonths, but the entire 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. We have estimated the DAU and MAU for certain older titles because the analytics tools incorporated into those titlesare incompatible with newer device operating systems (e.g., iOS 10), preventing us from collecting complete data. For thesetitles, we estimate DAU and MAU by extrapolating from each affected title’s historical data in light of the behavior of similartitles for which complete data is available. The table below sets forth our aggregate DAU, MAU and ARPDAU for all of ourthen-active smartphone titles for the periods specified, followed by a qualitative discussion of the changes in these metrics.Aggregate DAU and MAU include users of both our free-to-play and premium titles, whereas aggregate ARPDAU is calculatedbased only on revenue from our free-to-play games. Aggregate DAU and MAU for each period presented represents theaggregate metric for the last month of the period. For example, DAU for the three months ended December 31, 2015 isaggregate daily DAU for the month of December 2015 calculated for all active smartphone free-to-play and premium titles inthat month across the distribution platforms for which we calculate the metric. Three Months Ended 2016 2015 March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31 (In thousands, except aggregate ARPDAU) Aggregate DAU 4,935 4,126 3,476 4,418 5,986 6,107 5,490 5,085 Aggregate MAU 42,391 35,830 29,591 35,861 54,065 59,565 52,982 49,421 Aggregate ARPDAU $0.12 $0.14 $0.16 $0.14 $0.13 $0.10 $0.12 $0.13 The decrease in aggregate DAU and MAU for the three months ended December 31, 2016 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 2016 ascompared to the fourth quarter of 2015 and lower retention of users for existing titles, particularly for our Kim Kardashian:Hollywood, Racing Rivals and Deer Hunter 2016 titles. Our aggregate ARPDAU increased for the three months endedDecember 31, 2016 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 revenue 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 unique53 Table of Contents paying users on a given day divided by the number of unique users on that day, though this percentage fluctuates, and it maybe higher than 2% for certain of our games during specific, relatively short time periods, such as immediately followingworldwide launch or the week following content updates, marketing campaigns or certain other events. Significant Transactions Plain Vanilla Corp. Acquisition In January 2016, we announced an investment of up to $7.5 million in promissory notes convertible into a minorityequity stake in Plain Vanilla of which $5.0 million was paid in January 2016 and the remaining $2.5 million was paid in May2016. As part of the investment, we also received a call option to acquire all outstanding equity of Plain Vanilla for 15 monthsfrom the closing of the initial investment, unless earlier terminated by the Company, at a pre-agreed price. Plain Vanilla is theIcelandic developer of the mobile game QuizUp. On December 19, 2016, we acquired substantially all of the intangible assets and certain other assets of Plain Vanilla,including all rights to QuizUp and approximately $1.2 million in cash. In exchange, we agreed to forgive and cancel $7.5million in aggregate principal amount of convertible promissory notes of Plain Vanilla held by us, and all interest thereon,with $2.5 million in aggregate principal amount of the notes forgiven and cancelled at the closing of the acquisition. Theremaining $5.0 million in aggregate principal amount of the notes and all outstanding interest thereon is expected to beforgiven and cancelled on March 31, 2017. Crowdstar Acquisition On November 2, 2016, we, through a wholly owned subsidiary, acquired shares representing approximately 80.6% of theissued and outstanding voting power of Crowdstar, for consideration of approximately $40.8 million in cash pursuant to atransfer agreement by and among us, Crowdstar and certain stockholders of Crowdstar. Crowdstar, which is based inBurlingame, California, employs approximately 90 people and develops fashion and home decor genre games for mobiledevices. Following the initial acquisition of shares of Crowdstar by us, we exercised the right, as the holder of a majority of eachof the preferred stock and the capital stock of Crowdstar, to appoint each of the five members of the board of directors ofCrowdstar. In addition, certain drag-along provisions specified in a voting agreement by and among Crowdstar and certainstockholders of Crowdstar were triggered. Pursuant to the drag-along provisions, certain other stockholders of Crowdstar wererequired to tender their Crowdstar capital stock to us on the same terms as those specified in the transfer agreement. On December 6, 2016, we acquired the remaining issued and outstanding shares of Crowdstar pursuant to a short-formmerger and now have 100% ownership of Crowdstar. We paid an aggregate of approximately $45.5 million of cash ($40.8million for the initial purchase of shares and an aggregate of $4.7 million in connection with purchasing shares in connectionwith exercising the drag-along provisions and effecting the short-form merger) to acquire 100% ownership of Crowdstar. Our first title created by Crowdstar, Design Home, was released in November 2016. 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. 54 Table of Contents 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. InMarch 2016, we released the 2,139,190 shares that were heldback for 18 months and 30 days from the closing of theacquisition to satisfy potential indemnification claims under the merger agreement for the acquisition. All outstanding CieGames capital stock and stock options were cancelled at the closing of the 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. In July 2016, we released all 1,500,000 shares that were held in escrow for 24 months and 60 days from the closing dateto satisfy potential indemnification claims under the PlayFirst merger agreement. In addition, we assumed approximately $3.5million 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, Cooking Dash 2016 was released in June 2015 and Gordon RamsayDASH was released in June 2016. Related Party Transaction In November 2015, we entered into an agreement with an affiliate of Tencent pursuant to which we agreed, subject tocertain conditions, to pay in the aggregate, up to $15.0 million in recoupable advanced royalties and non-recoupable licensefees. As of December 31, 2016, we had paid the full amount of $15.0 million, as all payment milestones were achieved. During the year ended December 31, 2016, we recorded an impairment of approximately $14.5 million for un-recoupedadvanced royalties and non-recoupable license fees that were paid to an affiliate of Tencent, due to the underperformance ofthe our Rival Fire title which launched during the third quarter of 2016 and the negligible cash flows anticipated for theremaining contractual life of these assets. 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 revenue 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,55 Table of Contents which could affect our 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; ·variable interest entities; ·prepaid or guaranteed licensor royalties; ·business combinations – purchase accounting; ·goodwill; ·stock-based compensation; and ·income taxes. Revenue Recognition We generate revenue 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 end customers through digital storefronts such as Apple’s AppStore 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 revenue 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 seven months. If a new game is launched and only a limited period of paying playerdata is available, then we also consider other qualitative factors, such as the playing patterns for paying users for other gameswith similar characteristics. 56 Table of Contents 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 representative sampleof our games across various genres. To compute the estimated average playing period for paying users, we group the dailypopulations of paying players, or the daily cohort, from the date of their first installation of the game and track each dailycohort to understand the number of players from each daily cohort who played the game after their initial purchase. For titleswith a year or more of data, we compute a weighted average playing period for paying users using this dataset. For titles withless than a year of data, or new titles, we use a linear interpolation model to estimate the average playing period of payingusers. The measured average playing periods of games with at least one year of player data are mapped against the retentionpercentages of those same games at 150 days, generating a linear interpolation curve. The 150 day retention rate of a new titleis then inputted into that curve to estimate an average playing period for that new title. Ninety day retention rates are used fornew titles that do not have 150 days of data to interpolate their respective average playing period. We then compute arevenue-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. For titles with greater thantwo years of data and that generate meaningful revenue, we use a second calculation model in which the average lifespan ofusers from their install date to last date of play is measured. This model is effective for titles with enough historical data toreasonably estimate the useful life in this manner. The average lifespan model is not appropriate for titles that have beenplayed for less than two years, as that timespan is insufficient to estimate the average lifespan of users using actual and notforecasted data. While we believe our estimates to be reasonable based on available game player information, we may revisesuch estimates in the future as the games’ operation periods change. Any adjustments arising from changes in the estimates ofthe lives of these virtual goods would be applied to the current quarter and prospectively on the basis that such changes arecaused by new information indicating a change in game player behavior patterns compared to historical titles. Any changes inour estimates of useful lives of these virtual goods may result in revenue being recognized on a basis different from priorperiods’ 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 revenue from digital storefronts and advertising networks in the current period when reasonableestimates of these amounts can be made. Certain digital storefronts and advertising service providers provide reliable interimpreliminary reporting and others report sales data within a reasonable time frame following the end of each month, both ofwhich allow us to make reasonable estimates of revenue and therefore to recognize revenue during the reportingperiod. Determination of the appropriate amount of revenue recognized involves judgments and estimates that we believe arereasonable, but it is possible that actual results may differ from our estimates. When we receive the final reports, to the extentnot received within a reasonable time frame following the end of each month, we record any differences between estimatedrevenue and actual revenue in the reporting period. Historically, the revenue on the final revenue report have not differedsignificantly from the reported revenue 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 determine57 Table of Contents whether or not we are acting as the principal or as an agent when selling our games or when selling advertisements within ourgames, 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 ·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. Variable Interest Entities We have interests in other entities that are variable interest entities, or VIEs. Our assessment of whether we are theprimary beneficiary of our VIEs requires significant assumptions and judgment. Determining whether to consolidate a VIErequires judgment in assessing (i) whether an entity is a VIE and (ii) if we are the entity’s primary beneficiary and thus requiredto consolidate the entity. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have (i) the power todirect the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses orthe right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identificationof significant activities and an assessment of our ability to direct those activities based on governance provisions and otherapplicable agreements and circumstances. 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 revenue at the greater of the revenue derived from the relevant gamemultiplied by the applicable contractual rate or an effective royalty rate based on expected net product sales. 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, or 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. The classification of minimum royalty payment obligations betweenlong-term and short-term is determined based on the expected timing of recoupment of earned royalties calculated onprojected revenue for the games that include content licensed from third parties. 58 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 we deem unlikely to be realized through product sales. We use estimates ofundiscounted revenue and net margins to evaluate the future realization of prepaid royalties, license fees, andguarantees. This evaluation is performed at the title level and considers multiple factors, such as, the term of the agreement,forecasted demand, game life cycle status, game development plans, level of social media activity, and current and anticipatedsales levels, as well as other qualitative factors such as the success of similar games and similar genres on mobile devicespublished by us and our competitors and/or other game platforms (e.g., consoles and personal computers) utilizing theintellectual property. To the extent that this evaluation indicates that the remaining prepaid and guaranteed royalty paymentsare not recoverable, we record an impairment charge to cost of revenue in the period that impairment is indicated. Business Combinations — Purchase Accounting We apply ASC 805, Business Combinations, or 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. As a result, during the preliminary purchaseprice allocation period, which may be up to one year from the business combination date, we may record adjustments to theassets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase priceallocation period, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocationperiod in our operating results in the period in which the adjustments were determined. Goodwill In accordance with ASC 350, Intangibles – Goodwill and Other, or 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.59 thTable of Contents We performed our annual goodwill impairment assessment as of September 30, 2016 and determined a Step 1 analysiswas necessary due to a significant decline in our market capitalization and the significant impairment of prepaid royaltiesrecorded during the three months ended September 30, 2016. Based on the results of the Step 1 analysis, we concluded that thefair value of the reporting unit was greater than the carrying value of the reporting unit based on a methodology that utilizedboth an income approach and a market approach. The income approach was based on projected future (debt-free) cash flowsthat were discounted to present value. For the market approach, we used both the guideline company and similar transactionmethods. The guideline company method analyzed market multiples of bookings for a group of comparable public companies.Under the similar transactions method, valuation multiples were calculated utilizing actual transaction prices andrevenue/EBITDA data from target companies deemed similar to us.The revenue and profitability forecasts used in valuation considered recent performance and trends, strategic initiatives andrelevant industry trends. Assumptions used in the valuation were similar to those that would be used by market participantsperforming independent valuations of similar businesses. Key assumptions used in the quantitative analysis included:·4% long-term revenue growth rate and the Gordon Growth model to calculate the terminal value;·A gradual return to historical profitability rates over the remaining forecast period;·Royalty rates based on active license agreements of the brand; and·A market-based discount rate of 12% which takes into consideration the characteristics of relevant peercompanies, market observable data, and company-specific risk factors. Based on this quantitative analysis, we determined that the fair value of our equity exceeded its carrying value byapproximately 17%. We performed a sensitivity analysis which included an increased discount rate of 200 basis points. Basedon the results of that sensitivity analysis, the goodwill was at risk of failing Step 1 impairment analysis. We believe theestimates and assumptions used in the calculations were reasonable. However, if there was an adverse change in the facts andcircumstances which caused the fair value of our equity to fall below its carrying amount because of reduced operatingperformance, market declines, changes in the discount rate, or other conditions, then an impairment charge may be necessaryin the future. As of December 31, 2016, there had been no triggering events or indicators of impairment that would require anupdated impairment review. Any material impairment of prepaid royalty and license fee assets in the future periods may require us to perform agoodwill impairment assessment. Such assessment could result in impairments to our goodwill, which could adversely impactour results of operations. 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 variablessuch as expected employee exercise behavior and expected stock price volatility over the expected term of the award.Generally, these assumptions are based on historical information and judgment is required to determine if historical trendsmay be indicators of future outcomes. Employee stock-based compensation expense is calculated based on awards ultimatelyexpected to vest and is reduced for estimated forfeitures. Forfeitures are revised, if necessary, in subsequent periods if actualforfeitures differ from those estimates and an adjustment to stock-based compensation expense is recognized at that time.Changes to the assumptions used in the Black-Scholes option valuation calculation and the forfeiture rate, as well as futureequity granted or assumed through acquisitions could significantly impact the compensation expense we recognize in relationto the future grants. 60 Table of Contents 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. RSU 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. RSUs typically vest and are settled overapproximately a four-year period with 25% of the shares vesting on or around the one-year anniversary of the grant date andthe remaining shares vesting quarterly thereafter. Compensation cost is amortized on a straight-line basis over the requisiteservice period. Income Taxes We account for income taxes in accordance with ASC 740, Income Taxes, or ASC 740, which requires recognition ofdeferred tax assets and liabilities for the expected future tax consequences of events that have been included in our financialstatements or tax returns. Under ASC 740, we determine deferred tax assets and liabilities based on the temporary differencebetween the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in whichwe expect the differences to reverse. We establish valuation allowances when necessary to reduce deferred tax assets to theamount we expect to realize. We account for uncertain tax positions in accordance with ASC 740, which requires companies to adjust their financialstatements to reflect only those tax positions that are more-likely-than-not to be sustained. ASC 740 prescribes acomprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain taxpositions taken or expected to be taken in income tax returns. Our policy is to recognize interest and penalties related tounrecognized 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, 2016 and 2015 Revenue Year Ended December 31, 2016 2015 Revenue by Type (In thousands) Micro-Transactions $164,569 $208,281 Advertisements 10,345 13,126 Offers 23,393 26,289 Other 2,274 2,204 Total revenue $200,581 $249,900 Our revenue decreased $49.3 million, or 19.7%, from $249.9 million for the year ended December 31, 2015 to $200.6million for the year ended December 31, 2016, which was primarily related to a $43.7 million decrease in our revenue frommicro-transactions (in-app purchases) and a $5.7 million decrease from advertisements and offers. These decreases wereprimarily related to a $41.0 million decline in revenue from our Kim Kardashian: Hollywood game, as well as declines inrevenue from our Deer Hunter 2014, Racing Rivals, and Contract Killer: Sniper games of $20.2 million, $19.4 million, and$14.8 million, respectively. These decreases were partially offset by increased revenue from new title launches such as thereleases of Gordon Ramsay DASH in June 2016, Tap Sports Baseball 2016 in March 2016, Kendall & Kylie in February 2016,and Deer Hunter 2016 in September 2015. We generate revenue from micro-transactions, advertisements and, offers, and we sometimes change the focus of ourmonetization efforts among methods within a given game over the life of the title in an attempt to maximize revenue. Forexample, we may elect to disable advertisements within a game if we believe doing so will encourage users to play61 Table of Contents the game longer and thus increase the chance that they will make micro-transactions or complete offers, which generally resultin higher revenue for us than advertisements. We rely on a very small portion of our total users for nearly all of our revenuederived from in-app purchases. Since the launch of our first free-to-play titles in the fourth quarter of 2010, the percentage ofunique paying users for our largest revenue-generating free-to-play games has typically been less than 2%, when measured asthe number 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 certain of our games during specific, relatively short time periods, such asimmediately following a worldwide launch or the week following content updates, marketing campaigns or certain otherevents. Our revenue does not include $44.9 million of revenue as of December 31, 2016 relating primarily to micro-transactions and offers that have been deferred over the weighted average useful lives of paying users. In 2016, Kim Kardashian: Hollywood, Cooking Dash 2016, Racing Rivals, and Tap Sports Baseball 2016, were ourtop four revenue-generating games and comprised 17.8% , 15.7%, 11.7%, and 11.5%, respectively, of revenue for the year. Noother game generated more than 10% of revenue during the year. International revenue (defined as revenue generated from distributors and advertising service providers whoseprincipal operations are located outside the United States or, in the case of the digital storefronts, the revenue generated fromend-user purchases made outside of the United States) decreased by $26.5 million, from $78.1 million in the year endedDecember 31, 2015 to $51.6 million in the year ended December 31, 2016. This was primarily related to a $12.3 milliondecrease in our APAC revenue and an $11.8 million decrease in our EMEA revenue, due to a significantly lower number ofnew distribution contracts signed in our EMEA and APAC regions and due to the fact that our new games have a greaterappeal in the United States than in international markets. Cost of Revenue Year Ended December 31, 2016 2015 (In thousands) Cost of revenue: Platform commissions, royalties and other $75,239 $95,682 Impairment of prepaid royalties and minimum guarantees 30,107 2,502 Impairment and amortization of intangible assets 14,792 9,553 Total cost of revenue $120,138 $107,737 Revenue $200,581 $249,900 Gross margin 40.1% 56.9% Our cost of revenue increased by $12.4 million, or 11.5%, from $107.7 million in the year ended December 31, 2015to $120.1 million in the year ended December 31, 2016. This increase was primarily due to $14.5 million of impairmentsrelated to prepaid guaranteed royalty and license fee payments made to an affiliate of Tencent related to our RivalFire game, and $20.2 million of aggregate impairments related to royalties to certain of our celebrity licensors and otherprepaid royalties during 2016. These charges were partially offset by a $12.7 million decrease in platform commission fees dueto a lower volume of revenue transactions through the digital storefronts, a $4.5 million decrease in royalties associated with adecrease in royalty-burdened revenue, and a $1.9 million decrease in non-cash warrant expense. Revenue attributable to games based upon original intellectual property decreased as a percentage of revenue from42.1% in the year ended December 31, 2015 to 39.7% in the year ended December 31, 2016. We expect this trend to continuesince most, and potentially all, of the games that we will launch in 2017 will be based on or will otherwise incorporatelicensed brands or other content. The average royalty rate that we paid on games based on or significantly incorporatinglicensed brands or other content, excluding royalty impairments, remained consistent at 21.9% in the years ended December31, 2016 and December 31, 2015. Overall royalties, including impairment of prepaid royalties and guarantees, as a percentage of total revenue62 Table of Contents increased from 10.8% in the year ended December 31, 2015 to 25.0% in the year ended December 31, 2016. Research and Development Expenses Year Ended December 31, 2016 2015 (In thousands) Research and development expenses $81,879 $72,856 Percentage of revenue 40.8% 29.2% Our research and development expenses increased $9.0 million, or 12.4%, from $72.9 million in the year endedDecember 31, 2015 to $81.9 million in the year ended December 31, 2016. The increase in research and development costswas primarily due to a $2.9 million increase in variable compensation, a $2.7 million increase in professional and outsideservices primarily related to external development, a $1.0 million increase in allocated charges for equipment, facilities anddepreciation, a $1.0 million increase in stock based compensation, a $570,000 increase in equipment and software expense,and a $344,000 increase in travel and entertainment. As a percentage of revenue, research and development expensesincreased from 29.2% in the year ended December 31, 2015 to 40.8% in the year ended December 31, 2016. Research anddevelopment expenses included $4.6 million of stock-based compensation expense in the year ended December 31, 2016 and$3.6 million in the year ended December 31, 2015. We expect our research and development expenditures to increase in 2017compared with the 2016, despite the restructuring we implemented in January 2017, primarily due to the increase inheadcount related to our recent acquisition of Crowdstar as well as our plan to hire additional development personnel in theSan Francisco Bay Area and Hyderabad, India. Sales and Marketing Expenses Year Ended December 31, 2016 2015 (In thousands) Sales and marketing expenses $48,050 $48,240 Percentage of revenue 24.0% 19.3% Our sales and marketing expenses decreased $190,000, or 0.4%, from $48.2 million in the year ended December 31,2015 to $48.1 million in the year ended December 31, 2016. The decrease was primarily due to a $1.7 million decrease inmarketing promotions associated with our free-to-play games. This decrease was partially offset by a $730,000 increase insalaries and benefits and a $619,000 increase in professional fees related to customer support services. As a percentage ofrevenue, sales and marketing expenses increased from 19.3% in the year ended December 31, 2015 to 24.0% in the year endedDecember 31, 2016. We expect our sales and marketing expenses to increase in 2017 in absolute dollars primarily due to theincrease in headcount and increase in marketing expenditures related to user acquisition spending for both Covet Fashion andDesign Home, titles we acquired from Crowdstar which has historically spent more on sales and marketing as a percentage ofrevenue than we have. General and Administrative Expenses Year Ended December 31, 2016 2015 (In thousands) General and administrative expenses $30,225 $26,092 Percentage of revenue 15.1% 10.4% Our general and administrative expenses increased $4.1 million, or 15.8%, from $26.1 million in 2015 to $30.2million in 2016. The increase in general and administrative expenses was primarily due to a $2.3 million increase inprofessional fees related to our implementation of a cloud based ERP system and external consulting services expensesincurred in connection with the recent acquisition of Crowdstar, a $1.3 million increase in salaries and benefits as63 Table of Contents headcount increased from 88 employees at December 31, 2015 to 94 employees at December 31, 2016, and a $564,000increase in stock based compensation. These increases were partially offset by a $302,000 decrease in consulting fees and a$103,000 decrease in travel and entertainment. As a percentage of revenue, general and administrative expenses increasedfrom 10.4% in the year ended December 31, 2015 to 15.1% in the year ended December 31, 2016. General and administrativeexpenses included $7.6 million of stock-based compensation expense in the year ended December 31, 2016 and $7.0 millionin the year ended December 31, 2015. We expect our general and administrative expenses to continue to increase in terms ofabsolute dollars in 2017 primarily due to the increase in headcount and accounting and professional fees for integrationactivities related to our recent acquisition of Crowdstar. Other Operating Expenses Our restructuring charge increased from $1.1 million in the year ended December 31, 2015 to $2.3 million in the yearended December 31, 2016, primarily due to costs associated with employee termination costs in our Long Beach, SanFrancisco, Bellevue, and Beijing, China offices, and lease termination costs for our Bellevue and Beijing, China offices, in thesecond quarter of 2016. We expect to incur additional restructuring costs in the first half of 2017 due to costs associated withemployee terminations in our San Francisco, Long Beach and Bellevue offices, and lease termination costs for our Long Beachand Bellevue offices. Interest and Other Income/(Expense), Net Interest and other income/(expense), net, increased from net expense of $743,000 in the year ended December 31,2015 to net expense of $5.8 million in the year ended December 31, 2016. This increase in expense was primarily attributableto a $2.4 million impairment charge related to our call option for Plain Vanilla, which was due to a decline in Plain Vanilla’sforecasted revenue and future cash flow outlook, a $1.9 million charge related to the change in fair value of our investment inpromissory notes issued to us by Plain Vanilla, and an $838,000 charge related to the write-off of a cumulative translationadjustment upon liquidation of one of our United Kingdom subsidiaries. Income Tax Expense Our income tax expense changed from an expense of $141,000 in 2015 to an income tax benefit of $301,000 in 2016.The income tax benefit in 2016 was due to the release of a portion of our valuation allowance of $328,000 resulting from theacquisition of Crowdstar Inc. in November 2016, changes in the jurisdictions included in the effective tax rate computation,and changes in pre-tax income in the United States and certain foreign entities. The provision for income taxes differs from theamount computed by applying the statutory U.S. federal rate principally due to the effect of our non-U.S. operations, non-deductible stock-based compensation expense and change in foreign 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, 2016, we anticipated that theliability for uncertain tax positions, excluding interest and penalties, could decrease by approximately $126,000 within thenext twelve months due to the expiration of certain statutes of limitation in foreign jurisdictions in which we do business. 64 Table of Contents Comparison of the Years Ended December 31, 2015 and 2014 Revenue Year EndedDecember 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 revenue 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 revenue 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 revenue 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. Our revenuedoes not include $31.1 million of revenue as of December 31, 2015 relating primarily to micro-transactions and offers thathave been deferred over the weighted average useful lives of paying users. 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 revenue decreased by $12.6 million, from $90.7 million in the year ended December 31, 2014 to $78.1million in the year ended December 31, 2015. This was primarily related to a $7.4 million decrease in our EMEA revenue anda $7.0 million decrease in our APAC revenue. These decreases were partially offset by a $1.8 million increase in our Americas(excluding the United States) revenue. This decrease in our international revenue was offset by an increase of $39.3 million inour United States revenue. Cost of Revenue Year Ended December 31, 2015 2014 (In thousands) Cost of revenue: Platform commissions, royalties and other $98,184 $80,992 Impairment and 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 revenue 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 revenue, 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,65 Table of Contents a $2.2 million increase in prepaid royalty impairments, an $816,000 increase in non-cash warrant expense, and a $775,000increase in hosting fees to support our free-to-play titles. Revenue attributable to games based upon original intellectualproperty decreased as a percentage of revenue from 62.7% in the year ended December 31, 2014 to 42.1% in the year endedDecember 31, 2015, primarily due to an increase in revenue generated from games based on or significantly incorporatinglicensed brands and other content. 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 revenue 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 million increase in outsideservices primarily related to external development. These increases were partially offset by a $3.9 million decrease in stock-based compensation expense, as stock-based compensation expense attributable to the contingent consideration that wasissuable to the employees who were former shareholders of Blammo became fully vested during the third quarter of 2014, anda $2.1 million decrease in variable compensation resulting from lower attainment of employee and executive bonus targets. Asa percentage of revenue, research and development expenses increased from 28.8% in the year ended December 31, 2014 to29.2% in the year ended December 31, 2015. Research and development expenses included $3.6 million of stock-basedcompensation expense in the year ended December 31, 2015 and $7.4 million in the year ended December 31, 2014. 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 revenue,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. 66 Table of Contents 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 revenue, 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. 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. 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 Benefit/(Expense) Our income tax benefit changed from an income tax benefit of $7.6 million in 2014 to an income tax expense of$141,000 in 2015. The income tax benefit in 2014 was due to the release of a portion of our valuation allowance for $6.8million, primarily resulting from our acquisition of Cie Games. The change in 2015 income tax expense was also due tochanges in the jurisdictions included in the anticipated effective tax rate computation and changes in pre-tax income in theUnited States and certain foreign entities. The provision for income taxes differs from the amount computed by applying thestatutory U.S. federal rate principally due to the effect of our non-U.S. operations, non-deductible stock-based compensationexpense and change in foreign withholding taxes. Liquidity and Capital Resources Year Ended December 31, 2016 2015 2014 (In thousands) Consolidated Statement of Cash Flows Data: Cash flows (used in)/provided by operating activities (19,784) (11,465) 30,574 Cash flows used in investing activities (51,544) (6,924) (26,188) Cash flows (used in)/provided by financing activities (6,785) 128,370 38,955 67 Table of Contents Since our inception, we have generally incurred recurring losses and negative annual cash flows from operatingactivities. As of December 31, 2016, we had an accumulated deficit of $338.7 million. Operating Activities In 2016, net cash used in operating activities was $19.8 million, which was primarily due to an $87.4 million net loss,a $16.7 million increase in prepaid royalties and a $2.3 million increase in prepaid expenses and other assets. These amountswere partially offset by a $12.3 million increase in deferred revenue, an increase in accrued compensation of $4.6 million, anda $3.1 million increase in accounts payable and other accrued liabilities. Adjustments for non-cash items included a $30.1million impairment of prepaid royalties and minimum guarantees, a $14.8 million impairment and amortization of intangibleassets, stock-based compensation expense of $13.3 million, impairment of the Plain Vanilla call option of $2.4 million, a $1.9million decrease in fair value of the Plain Vanilla promissory notes, and depreciation expense of $2.9 million. 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 revenue 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 revenue 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. Investing Activities Our primary investing activities have consisted of acquisitions of mobile gaming companies and purchases ofproperty and equipment and leasehold improvements for our offices. In 2016, we used $51.5 million of cash for investing activities primarily related to net cash paid of $36.7 million forthe acquisition of 80.6% of the outstanding voting interest in Crowdstar, investments in Plain Vanilla and Dairy Free of $9.5million in the aggregate, purchases of intangible assets of $2.5 million, and property and equipment purchases of $3.1 million.These increases were partially offset by a decrease in restricted cash of $186,000. 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 acquisitions ofPlayFirst and Cie Games and $3.3 million for property and equipment purchases. 68 Table of Contents Financing Activities In 2016, net cash used in financing activities was $6.8 million due primarily to $4.7 million paid to acquire theremaining outstanding interest in Crowdstar, $2.4 million of taxes paid related to the net share settlement of RSUs, and $1.9million related to payments on an acquired line of credit and term loan from the Crowdstar acquisition. These outflows werepartially offset by $2.2 million in proceeds we received from option exercises and purchases under our employee stockpurchase plan. 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 the net share settlement ofRSUs. 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. Sufficiency of Current Cash and Cash Equivalents Our cash and cash equivalents were $102.1 million as of December 31, 2016. Cash and cash equivalents held outsideof the U.S. in various foreign subsidiaries were $3.1 million as of December 31, 2016, most of which were held by ourCanadian, Indian and Russian subsidiaries. Under current tax laws and regulations, if cash and cash equivalents held outsidethe U.S. are distributed to the U.S. in the form of dividends or otherwise, we may be subject to additional U.S. income taxesand foreign withholding taxes. We have not provided deferred taxes on unremitted earnings attributable to foreignsubsidiaries, excluding China, because their earnings are intended to be reinvested indefinitely. However, if any such balanceswere to be repatriated, additional U.S. federal income tax payments could result. Computation of the potential deferred taxliabilities associated with unremitted earnings deemed to be indefinitely reinvested is not practicable. 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. We believe our cash and cash equivalents will be sufficient to meetour anticipated cash needs for at least the next 12 months from the date of this report; however, our cash requirements for thenext 12 months may be greater than we anticipate due to, among other reasons, revenue that is lower than we currentlyanticipate, greater than expected operating expenses, particularly with respect to our research and development and sales andmarketing initiatives, use of cash to pay minimum guaranteed royalties, use of cash to fund our foreign operations and theimpact of foreign currency rate changes, unanticipated limitations or timing restrictions on our ability to access funds that areheld in our non-U.S. subsidiaries or any investments or acquisitions that we may decide to pursue. We expect to continue touse cash to fund minimum guaranteed royalty payments during 2017 as milestone payments become due on games we publishand/or develop that incorporate licensed property, as well as to fund the purchase price of any acquisitions. If the games wedevelop based on such licensing arrangements fail to perform in accordance with our expectations, we may not fully recoupthese minimum guaranteed royalty payments, 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. 69 Table of Contents Contractual Obligations The following table is a summary of our contractual obligations as of December 31, 2016: Payments Due by Period Total 2017 2018-2019 2020-2021 Thereafter (In thousands) Operating lease obligations $12,229 $4,715 $5,664 $1,850 $ — Guaranteed royalties (1) 26,433 21,097 5,336 — — Developer commitments (2) 1,235 1,235 — — — Total contractual obligations (3) $39,897 $27,047 $11,000 $1,850 $ — (1)We have entered into license and publishing agreements with various celebrities and other owners of brands, propertiesand other content to develop and publish games and other software applications for mobile devices. These agreementstypically require us to make non-refundable, but recoupable payments of minimum guaranteed royalties or license fees asup-front payments or over the term of the agreement.(2)From time to time we enter into contracts with various external software developers to design and develop games andother software applications. We advance funds to these third-party developers, typically payable in installments, upon thecompletion of specific development milestones. (3)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, 2016, we had $718,000 of gross unrecognized tax benefits, included in "Other long-term Liabilities" in theconsolidated balance sheet. Off-Balance Sheet Arrangements At December 31, 2016, 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 August 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU,2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40). This amendment requires management toevaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’sability to continue as a going concern, which evaluation is currently performed by our external auditors. Management will berequired to perform this assessment for both interim and annual reporting periods and must make certain disclosures if itconcludes that substantial doubt exists. This amendment is effective for annual and interim periods ending after December 15,2016. The adoption of this standard did not have any effect on our consolidated financial statements for the year endedDecember 31, 2016 as no substantial doubt exists about our ability to continue as a going concern. 70 Table of Contents In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Testfor Goodwill Impairment. This new accounting standard update simplifies the measurement of goodwill by eliminating theStep 2 impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of goodwill with thecarrying amount of that goodwill. The new guidance requires a comparison of our fair value of with our carrying amount andwe are required to recognize an impairment charge for the amount by which the carrying amount exceeds the fair value.Additionally, we should consider income tax effects from any tax deductible goodwill on the carrying amount whenmeasuring the goodwill impairment loss, if applicable. The new guidance becomes effective for goodwill impairment tests infiscal years beginning after December 15, 2019, though early adoption is permitted. We are currently assessing the impact ofthis new guidance. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), which clarifies thedefinition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (ordisposals) of assets or businesses. The standard will be effective in the first quarter of fiscal 2019. Early adoption is permitted.We are currently evaluating the impact of this standard on our consolidated financial statements. In December 2016, the FASB issued ASU No. 2016-19, Technical Corrections and Improvements. The amendments inASU 2016-19 represent changes to clarify the accounting standard codification, correct unintended application of guidance,or make minor improvements to the accounting standards codification that are not expected to have a significant effect oncurrent accounting practice or create a significant administrative cost to most entities. For public companies, the standard iseffective immediately for amendments that do not have transition guidance. Amendments that are subject to transitionguidance, the effective date is interim and annual reporting periods beginning after December 15, 2016. We are currentlyevaluating the impact of those amendments on our consolidated financial statements. We adopted the standard immediatelyupon issuance for amendments that do not have transition guidance. The adoption of the standard did not have an impact onour consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, whichrequires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cashequivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows.The standard will be effective in the first quarter of fiscal 2018. Early adoption is permitted. We are currently evaluating theimpact of this standard on our consolidated financial statements. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets OtherThan Inventory. ASU 2016-16 requires recognition of the income tax consequences of an intra-entity transfer of an asset otherthan inventory when the transfer occurs. The guidance will be effective for fiscal years, and interim periods within those fiscalyears, beginning after December 15, 2017. We are currently evaluating the effect that the updated standard will haveon our consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of CertainCash Receipts and Cash Payments. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducingexisting diversity in practice. The guidance will be effective for fiscal years, and interim periods within those fiscal years,beginning after December 15, 2017. We are currently evaluating the effect that the updated standard will haveon our consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements toEmployee Share-Based Payment Accounting. The new guidance, which simplifies the accounting and presentation for share-based payments, provides for a number of amendments which impact the accounting for income taxes and the accounting forforfeitures. ASU 2016-09 is effective for annual periods, including interim periods within those annual periods, beginningafter December 15, 2016 and requires varied adoption methods for each respective amendment. We will adopt this standard inthe first quarter of 2017. We are currently working with our stock administrator to determine the exact quantitative impact ofthe revised standard; however we believe that the impact will be limited to a true up entry between additional paid-in capitaland retained earnings with no impact to the income statement. Additionally, we plan to make the policy election to accountfor forfeitures as they occur. 71 Table of Contents In February 2016, the FASB issued ASU 2016-02, Leases. The guidance requires lessees to recognize most leases asassets and liabilities on the balance sheet. Qualitative and quantitative disclosures will be enhanced to better understand theamount, timing and uncertainty of cash flows arising from leases. The guidance is effective for annual and interim periodsbeginning after December 31, 2018. The updated standard mandates a modified retrospective transition method with earlyadoption permitted. We are currently evaluating the effect that the updated standard will have on our consolidated financialstatements. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall - Recognition and Measurement ofFinancial Assets and Financial Liabilities. The guidance requires entities to measure equity investments that do not result inconsolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in netincome unless the investments qualify for a practicability exception. The updated standard is effective for interim and annualreporting periods beginning after December 15, 2017. We are currently evaluating the effect that the updated standard willhave on our consolidated financial statements. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under the standard, revenue isrecognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects theconsideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requiresdisclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Thenew standard is effective for annual reporting periods, and interim periods within those annual periods, beginning afterDecember 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. We do notplan to early adopt, and accordingly, will adopt the new standard effective January 1, 2018. The FASB recently issued severalamendments to the standard, including clarifications on disclosure of prior-period performance obligations and remainingperformance obligations. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (fullretrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the dateof initial application (the cumulative catch-up transition method). We have not yet selected a transition method. We are in the initial stages of evaluating the impact of the new standard on our accounting policies, processes, andsystem requirements. We have assigned internal resources in addition to the engagement of third party service providers toassist in the evaluation. While we are continuing to assess all potential impacts of this standard we will continue to beconsidered the principal in our transactions and are the primary obligor to end-users for smartphone games distributed throughdigital storefronts and advertisements served through our advertising networks. Therefore, revenue related to thesearrangements will continue to be recognized on a gross basis, if the necessary information about the gross amounts or platformfees charged, before any adjustments, are made available to us by the digital storefronts and advertising networks. 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, 2016, we had no short-term investments and substantially all $102.1 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.72 Table of Contents As of December 31, 2016 and December 31, 2015, our cash and cash equivalents were maintained by financialinstitutions in the United States, the United Kingdom, Canada, China, Hong Kong, India, Russia, Japan, Korea and our currentdeposits are likely in excess of insured limits. Our accounts receivable primarily relate to revenue earned from digital storefront operators and advertising platforms.We perform ongoing credit evaluations of our customers’ and the digital storefronts’ financial condition but generally requireno collateral from them. At December 31, 2016, Apple Inc., or Apple, accounted for 43.9%, Google Inc., or Google, accountedfor 22.3%, Jirbo, Inc. (dba AdColony), or Jirbo, accounted for 10.8%, and Fyber GmbH, or Fyber, accounted for 10.5%, of totalaccounts receivable. At December 31, 2015, Apple accounted for 31.4%, Jirbo accounted for 26.2%, and Google accounted for19.2% of total accounts receivable. No other customer or Digital Storefront represented more than 10% of our total accountsreceivable as of these dates. Foreign Currency Exchange Risk We transact business in 100 countries in more than 30 different currencies, and in 2016 and 2015, some of thesecurrencies fluctuated significantly. Our operations outside of the United States are maintained in their local currency, with thesignificant operating currencies consisting of British Pound Sterling, or GBP, Chinese Renminbi, Euro, Indian Rupee andRussian Ruble. Although recording operating expenses in the local currency of our foreign operations mitigates some of theexposure of foreign currency fluctuations, variances among the currencies of our customers and our foreign operations relativeto the United States Dollar, or 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, the Euro versus GBP and the Indian Rupee versus the USD. At month-end, non-functional currency-denominated accounts receivable and intercompany balances are marked to market and unrealized gainsand losses are included in other income (expense), net. Translation adjustments arising from the use of differing exchange ratesare included in accumulated other comprehensive income in stockholders’ equity. We have in the past experienced, and in thefuture expect to experience, foreign currency exchange gains and losses on our accounts receivable and intercompanyreceivables and payables. Foreign currency exchange gains and losses could have a material adverse effect on our business,operating results and financial condition. 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.73 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 75 Consolidated Balance Sheets 76 Consolidated Statements of Operations 77 Consolidated Statements of Comprehensive Income/(Loss) 78 Consolidated Statements of Stockholders’ Equity 79 Consolidated Statements of Cash Flows 80 Notes to Consolidated Financial Statements 81 74 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 (loss)/income, 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, 2016 and December 31, 2015, and the results of theiroperations and their cash flows for each of the three years in the period ended December 31, 2016 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, 2016, 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. As described in Management’s Report on Internal Control over Financial Reporting, management has excludedCrowdstar Inc. from its assessment of internal control over financial reporting as of December 31, 2016 because it was acquiredby the Company in a purchase business combination during 2016. We have also excluded Crowdstar Inc. from our audit ofinternal control over financial reporting. Crowdstar Inc. is a wholly-owned subsidiary whose total assets and total revenuesrepresent 4.1% and 1.0%, respectively, of the related consolidated financial statement amounts as of and for the year endedDecember 31, 2016. /s/ PricewaterhouseCoopers LLPSan Francisco, CaliforniaMarch 10, 201775 Table of Contents GLU MOBILE INC. CONSOLIDATED BALANCE SHEETS(in thousands, except per share data) December 31, December 31, 2016 2015 ASSETS Current assets: Cash and cash equivalents $102,102 $180,542 Accounts receivable, net 21,477 17,956 Prepaid royalties (including prepaid royalties to a related party of $0 and $7,949 as of December 31, 2016and December 31, 2015, respectively) 12,465 23,715 Prepaid expenses and other assets 18,986 14,841 Total current assets 155,030 237,054 Property and equipment, net 5,640 5,447 Restricted cash 1,312 1,498 Long-term prepaid royalties (including long-term prepaid royalties to a related party of $0 and $2,051 as ofDecember 31, 2016 and December 31, 2015, respectively) 31,288 46,944 Other long-term assets 3,506 1,386 Intangible assets, net (including intangible assets acquired from a related party of $0 and $5,000 as ofDecember 31, 2016 and December 31, 2015, respectively) 25,896 22,767 Goodwill 116,832 87,890 Total assets $339,504 $402,986 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $16,298 $9,386 Accrued liabilities 1,788 1,654 Accrued compensation 12,495 7,100 Accrued royalties and license fees (including accrued royalties and license fees to a related party of $0 and$10,449 as of December 31, 2016 and December 31, 2015, respectively) 8,623 21,032 Accrued restructuring 271 342 Deferred revenue 44,865 31,112 Total current liabilities 84,340 70,626 Long-term accrued royalties (including long-term accrued royalties to a related party of $0 and $2,051 as ofDecember 31, 2016 and December 31, 2015, respectively) 20,836 24,347 Other long-term liabilities 1,514 1,585 Total liabilities 106,690 96,558 Commitments and contingencies (Note 8) Stockholders’ equity: Preferred stock, $0.0001 par value; 5,000 shares authorized at December 31, 2016 and December 31,2015; no shares issued and outstanding at December 31, 2016 and December 31, 2015 — — Common stock, $0.0001 par value; 250,000 shares authorized at December 31, 2016 and December 31,2015; 134,001 and 131,580 shares issued and outstanding at December 31, 2016 and December 31, 2015 13 13 Additional paid-in capital 571,243 557,748 Accumulated other comprehensive income/(loss) 246 (85) Accumulated deficit (338,688) (251,248) Total stockholders’ equity 232,814 306,428 Total liabilities and stockholders’ equity $339,504 $402,986 The accompanying notes are an integral part of these consolidated financial statements. 76 Table of Contents GLU MOBILE INC. CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data) Year Ended December 31, 2016 2015 2014 Revenue $200,581 $249,900 $223,146 Cost of revenue: Platform commissions, royalties and other 75,239 95,682 80,735 Impairment of prepaid royalties and minimum guarantees (including impairment of prepaid royaltiesand minimum guarantees paid to a related party of $9,866, $0, and $0 as of December 31, 2016,December 31, 2015, and December 31, 2014, respectively) 30,107 2,502 257 Impairment and amortization of intangible assets (including impairment and amortization ofintangible assets acquired from a related party of $5,000, $0, and $0 as of December 31, 2016,December 31, 2015, and December 31, 2014, respectively) 14,792 9,553 4,767 Total cost of revenue 120,138 107,737 85,759 Gross profit 80,443 142,163 137,387 Operating expenses: Research and development 81,879 72,856 64,284 Sales and marketing 48,050 48,240 45,076 General and administrative 30,225 26,092 25,019 Amortization of intangible assets — 201 508 Restructuring charge 2,279 1,075 435 Total operating expenses 162,433 148,464 135,322 (Loss)/income from operations (81,990) (6,301) 2,065 Interest and other expense, net: Interest income / (expense) (2) 49 30 Other expense (5,749) (792) (1,502) Interest and other expense, net (5,751) (743) (1,472) (Loss)/income before income taxes (87,741) (7,044) 593 Income tax benefit/(provision) 301 (141) 7,555 Net (loss)/income $(87,440) $(7,185) $8,148 Net (loss)/income per common share - basic and diluted Basic (0.66) (0.06) 0.09 Diluted (0.66) (0.06) 0.08 Weighted average common shares outstanding - basic and diluted Basic 131,804 118,775 91,826 Diluted 131,804 118,775 96,922 The accompanying notes are an integral part of these consolidated financial statements.77 Table of Contents GLU MOBILE INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME(in thousands) Year Ended December 31, 2016 2015 2014 Net (loss)/income $(87,440) $(7,185) $8,148 Other comprehensive (loss)/income: Foreign currency translation adjustments (1) 331 (77) (315) Other comprehensive (loss)/income: 331 (77) (315) Comprehensive (loss)/income $(87,109) $(7,262) $7,833 (1) Includes write-off of cumulative translation adjustment upon substantial liquidation of the Company’s United Kingdom entity which isrecognizedin other expense in the Company’s consolidated statement of operations for the year ended December 31, 2016. The accompanying notes are an integral part of these consolidated financial statements. 78 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, 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 issuance costs 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 loss - - - (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 Net loss - - - - (87,440) (87,440) Stock-based compensation expense - - 13,263 - - 13,263 Issuance of common stock upon exercise of stock options 270 - 294 - - 294 Taxes paid related to net share settlement of equity awards 1,401 - (2,405) - - (2,405) Issuance of common stock pursuant to Employee Stock Purchase Plan 750 - 1,878 - - 1,878 Non-cash warrant expense - - 465 - - 465 Other comprehensive income - - - 331 - 331 Balances at December 31, 2016 134,001 $13 $571,243 $246 $(338,688) $232,814 The accompanying notes are an integral part of these consolidated financial statements. 79 Table of ContentsGLU MOBILE INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended December 31, 2016 2015 2014 Cash flows from operating activities: Net (loss)/income $(87,440) $(7,185) $8,148 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 2,947 2,861 2,513 Impairment and amortization of intangible assets (including impairment and amortization ofintangible assets acquired from a related party of $5,000, $0, and $0 as of December 31, 2016,December 31, 2015, and December 31, 2014, respectively) 14,792 9,754 5,275 Change in fair value of investments 1,900 — 835 Non-cash foreign currency translation loss 999 792 1,495 Stock-based compensation 13,263 11,686 11,633 Non-cash warrant (benefit)/expense (55) 2,009 1,192 Other non-cash income tax expense — — 1,531 Impairment of prepaid royalties and minimum guarantees (including impairment of prepaidroyalties and minimum guarantees paid to a related party of $9,866, $0, and $0 as of December31, 2016, December 31, 2015, and December 31, 2014, respectively) 30,107 2,502 257 Impairment of investments 2,600 — — Changes in allowance for doubtful accounts (120) 418 (162) Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable 402 13,408 (9,195) Prepaid royalties (16,675) (31,776) (5,209) Prepaid expenses and other assets (2,336) 2,049 (9,123) Accounts payable and other accrued liabilities 3,135 (1,701) (4,298) Accrued liabilities 65 (259) (20) Accrued compensation 4,577 (3,639) 5,259 Accrued royalties and license fees 55 (5,070) 10,231 Deferred revenue 12,251 (6,208) 18,810 Accrued restructuring (70) 342 — Other long-term liabilities (181) (1,448) (8,598) Net cash (used in)/generated from operating activities (19,784) (11,465) 30,574 Cash flows from investing activities: Purchase of property and equipment (3,070) (2,751) (3,292) Net cash paid for acquisitions (36,660) (1,914) (22,586) (Increase)/decrease in restricted cash 186 492 (60) Investments in Plain Vanilla Corp and Dairy Free Games, Inc. (Note 6) (9,500) — — Purchase of intangible assets (including purchase of intangible assets from a related party of$2,500, $0, and $0 as of December 31, 2016, December 31, 2015, and December 31, 2014,respectively) (2,500) (2,500) — Other investing activities — (251) (250) Net cash used in investing activities (51,544) (6,924) (26,188) Cash flows from financing activities: PlayFirst payments on acquired line of credit and term loan — — (2,340) Crowdstar payments on acquired line of credit and term loan (1,885) — — Proceeds from public offering, net of issuance costs — — 32,058 Proceeds from exercise of stock options and purchases under the ESPP 2,172 5,449 7,347 Taxes paid related to net share settlement of equity awards (2,405) (3,018) (896) Excess tax benefit from stock awards — 107 — Cash paid to acquire non-controlling interest in Crowdstar (4,667) — — Proceeds from exercise of stock warrants and issuance of common stock — 676 2,786 Proceeds from private offering, net of issuance costs — 125,156 — Net cash (used in)/provided by financing activities (6,785) 128,370 38,955 Effect of exchange rate changes on cash (327) (351) (925) Net (decrease)/increase in cash and cash equivalents (78,440) 109,630 42,416 Cash and cash equivalents at beginning of period 180,542 70,912 28,496 Cash and cash equivalents at end of period $102,102 $180,542 $70,912 Supplemental disclosures of cash flow information Common stock issued for acquisitions $ — 61,861 Common stock issued as contingent consideration earned $ — $ — 5,821 Income taxes paid $174 310 303 The accompanying notes are an integral part of these consolidated financial statements.80 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 realizability of deferred tax assets and uncertain tax positions, fair value of stock awards issued, fair value ofwarrants issued, accounting for business combinations, evaluating goodwill, long-lived assets for impairment, realization ofprepaid royalties and fair value of investments. Actual results may differ from these estimates and these differences may bematerial. Variable Interest Entities The Company has interests in other entities that are variable interest entities (“VIEs”). Determining whether toconsolidate a VIE requires judgment in assessing (i) whether an entity is a VIE and (ii) if the Company is the entity’s primarybeneficiary and thus required to consolidate the entity. To determine if the Company is the primary beneficiary of a VIE, theCompany evaluates whether it has (i) the power to direct the activities that most significantly impact the VIE’s economicperformance and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially besignificant to the VIE. The Company’s evaluation includes identification of significant activities and an assessment of itsability to direct those activities based on governance provisions and other applicable agreements and circumstances. TheCompany’s assessment of whether it is the primary beneficiary of its VIEs requires significant assumptions and judgment. 81 Table of Contents Investments The Company’s investments consist of equity investments and investments in financial instruments ofunconsolidated entities. The Company monitors its investments for impairment and makes appropriate reductions in carryingvalues if it determines that an impairment charge is required based on qualitative and quantitative information. Theinvestments are included in other long-term assets in the consolidated balance sheets. Revenue Recognition The Company generates revenue 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 reports in each period. Forthe purposes of determining when the service has been provided to the player, the Company has determined that an impliedobligation exists to the paying user to continue displaying the purchased virtual goods within the game over the estimatedaverage playing period of paying players for the game, which represents the Company’s best estimate of the estimated averagelife 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 revenue from consumable virtual goods have been insignificant over the previousthree years. The Company recognizes the revenue 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. Revenue 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 therevenue 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 eight games for which the estimated weighted average useful life of a paying user has beendetermined to range from four to seven months primarily due to more social features and content updates in these gamesresulting in higher retention rates of users. If a new game is launched and only a limited period of paying player data isavailable, then the Company also considers other quantitative and qualitative factors, such as the playing patterns for payingusers for other games with similar characteristics. While the Company believes its estimates to be reasonable based onavailable game player information, it may revise such estimates in the future as the games’ operation periods change. Anyadjustments arising from changes in the estimates of the lives of these virtual goods would be applied to the current quarterand prospectively on the basis that such changes are caused by new information indicating a change in game player behaviorpatterns. Any changes in the Company’s estimates of useful lives of these virtual goods may result in revenue beingrecognized on a basis different from prior periods’ and may cause its operating results to fluctuate. 82 Table of Contents 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 revenue from Digital Storefronts and advertising service providers in the current period whenreasonable estimates of these amounts can be made. Certain Digital Storefronts and advertising service providers providereliable interim preliminary reporting and others report sales data within a reasonable time frame following the end of eachmonth, both of which allow the Company to make reasonable estimates of revenue and therefore to recognize revenue duringthe reporting period. Determination of the appropriate amount of revenue recognized involves judgments and estimates thatthe Company believes are reasonable, but it is possible that actual results may differ from the Company’s estimates. When theCompany receives the final reports, to the extent not received within a reasonable time frame following the end of each month,the Company records any differences between estimated revenue and actual revenue in the reporting period when theCompany determines the actual amounts. Historically, the revenue on the final revenue report have not differed significantlyfrom the reported revenue for the period. 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. 83 Table of Contents 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 revenue 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 revenue” in the period in which the related sales are recognized as revenue. 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 primarily consists of deposits related to letters of credit to secure obligations under the Company’soperating 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 revenue 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 revenue from customers or aggregate purchases through Digital Storefronts inexcess of 10% of the Company’s revenue: Year Ended December 31, 2016 2015 2014 Apple 52.7% 51.7% 52.2% Google 27.6% 27.4% 24.8% At December 31, 2016, Apple Inc. (“Apple”) accounted for 43.9%, Google Inc. (“Google”) accounted for 22.3%,Jirbo, Inc. (dba AdColony) (“Jirbo”) accounted for 10.8%, and Fyber GmbH accounted for 10.5%, of total accounts receivable.At December 31, 2015, Apple accounted for 31.4%, Jirbo accounted for 26.2%, and Google accounted for 19.2% of totalaccounts receivable. No other customer or Digital Storefront represented more than 10% of the Company’s total accountsreceivable as of these dates.84 Table of Contents 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 and restricted cash, which were held in operating bank accounts, are classified withinLevel 1 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations oralternative pricing sources with reasonable levels of price transparency. The carrying value of accounts receivable andpayables approximates fair value due to the short time to expected payment or receipt of cash. Please refer to Note 4 for furtherdetails. 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 revenue at the greater of the revenue derived fromthe relevant game multiplied by the applicable contractual rate or an effective royalty rate based on expected net productsales. 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 $26,433 and $36,404 as of December 31, 2016 and 2015, 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. When significant performance remains with the licensor, the Company recordsroyalty payments as an asset when actually paid and as a liability when incurred, rather than upon execution of thecontract. The classification of minimum royalty payment obligations between long-term and short-term is determined basedon the expected timing of recoupment of earned royalties calculated on projected revenue for the licensed IP games. Each quarter, the Company evaluates the realization of its royalties as well as any recognized guarantees not yet paidto determine amounts that it deems unlikely to be realized through product sales. The Company uses estimates of revenue,cash flows and net margins to evaluate the future realization of prepaid royalties, license fees, and guarantees. This evaluationconsiders multiple factors, including Level 3 inputs such as the term of the agreement, forecasted demand, game life cyclestatus, game development plans, and current and anticipated sales levels, as well as other qualitative factors such as thesuccess of similar games and similar genres on mobile devices published by the Company and its competitors and/or othergame platforms (e.g., consoles and personal computers) utilizing the intellectual property. To the extent that this evaluationindicates that the remaining prepaid and guaranteed royalty payments are not recoverable, the85 Table of Contents Company records an impairment charge to cost of revenue in the period that impairment is indicated. The Company recordedimpairment charges to cost of revenue of $30,107, $2,502, and $257 related to prepaid guaranteed royalties and license feespaid to an affiliate of one of the Company’s principal stockholders related to the Company’s game, Rival Fire, guaranteedroyalty payments related to certain of its celebrity license agreements, and certain other prepaid royalties during the yearsended December 31, 2016, 2015, and 2014, 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. 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 2016, 2015 and 2014, 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.86 Table of Contents 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, third partydevelopment cost, contractor fees and allocated 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 of the gamethat contains essentially all the functionality and features of the final game and has tested the model to ensure that it works asexpected. To date, the Company has not incurred significant costs between the establishment of technological feasibility andthe release of a game for sale; thus, the Company has expensed all software development costs as incurred. The Companyconsiders the following factors in determining whether costs can be capitalized: the uncertainty regarding a game’s revenue-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”) and ASU 2015-05, Cloud Computing Arrangements. TheCompany capitalizes software development costs, including costs incurred to purchase third-party software, beginning when itdetermines certain factors are present including, among others, that technology exists to achieve the performance requirementsand/or buy versus internal development decisions have been made. The Company capitalized certain internal use softwarecosts totaling approximately $728, $615 and $2,165 during the years ended December 31, 2016, 2015, and 2014,respectively. The estimated useful life of costs capitalized is generally three years. During the years ended December 31, 2016,2015 and 2014, the amortization of capitalized software costs totaled approximately $998, $1,155 and $950, respectively.Capitalized internal use software development 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. 87 Table of Contents 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-basedpayments including stock options and restricted stock units (“RSUs”). ASC 718 requires companies to estimate the fair valueof stock-option awards on the grant date using an option pricing model. The fair value of stock options and stock purchaserights 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. 88 Table of Contents Advertising Expenses The Company expenses the production costs of advertising, including direct response advertising, the first time theadvertising takes place. Advertising expense was $37,408, $38,481 and $35,169 in the years ended December 31, 2016, 2015and 2014, 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 revenue, 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 in other expense 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 in other expense withinthe Company’s consolidated statement of operations in the period during which the disposal occurs. If the Companydetermines 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 in other expense within the Company’s consolidatedstatement 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.89 Table of Contents Recent Accounting Pronouncements In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40). This amendment requires management toevaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’sability to continue as a going concern, which evaluation is currently performed by the external auditors. Management will berequired to perform this assessment for both interim and annual reporting periods and must make certain disclosures if itconcludes that substantial doubt exists. This amendment is effective for annual and interim periods ending after December 15,2016. The adoption of this standard did not have any effect on the Company’s consolidated financial statements for the yearended December 31, 2016 as no substantial doubt exists about the Company’s ability to continue as a going concern. In January 2017, the FASB” issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Testfor Goodwill Impairment. This new accounting standard update simplifies the measurement of goodwill by eliminating theStep 2 impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’sgoodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of areporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amountexceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax deductiblegoodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The newguidance becomes effective for goodwill impairment tests in fiscal years beginning after December 15, 2019, though earlyadoption is permitted. The Company is currently assessing the impact of this new guidance. In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805), which clarifies the definitionof a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) ofassets or businesses. The standard will be effective in the first quarter of fiscal 2019. Early adoption is permitted. TheCompany is currently evaluating the impact of this standard on its consolidated financial statements. In December 2016, the FASB issued ASU No. 2016-19, Technical Corrections and Improvements. The amendments inASU 2016-19 represent changes to clarify the accounting standard codification, correct unintended application of guidance,or make minor improvements to the accounting standards codification that are not expected to have a significant effect oncurrent accounting practice or create a significant administrative cost to most entities. For public companies, the standard iseffective immediately for amendments that do not have transition guidance. Amendments that are subject to transitionguidance, the effective date is interim and annual reporting periods beginning after December 15, 2016. The Company iscurrently evaluating the impact of those amendments on its consolidated financial statements. The Company adopted thestandard immediately upon issuance for amendments that do not have transition guidance. The adoption of the standard didnot have an impact on the Company’s consolidated financial statements. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, whichrequires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cashequivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows.The standard will be effective in the first quarter of fiscal 2018. Early adoption is permitted. The Company is currentlyevaluating the impact of this standard on its consolidated financial statements. In October 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. ASU 2016-16 requires that an entity recognize the income tax consequencesof an intra-entity transfer of an asset other than inventory when the transfer occurs. The guidance will be effective for fiscalyears, and interim periods within those fiscal years, beginning after December 15, 2017. The Company is currently evaluatingthe effect that the updated standard will have on its consolidated financial statements. 90 Table of Contents In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of CertainCash Receipts and Cash Payments. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducingexisting diversity in practice. The guidance will be effective for fiscal years, and interim periods within those fiscal years,beginning after December 15, 2017. The Company is currently evaluating the effect that the updated standard will haveon its consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements toEmployee Share-Based Payment Accounting. The new guidance, which simplifies the accounting and presentation for share-based payments, provides for a number of amendments which impact the accounting for income taxes and the accounting forforfeitures. ASU 2016-09 is effective for annual periods, including interim periods within those annual periods, beginningafter December 15, 2016 and requires varied adoption methods for each respective amendment. The Company will adopt thisstandard in the first quarter of 2017. It is currently working with its stock administrator to determine the exact quantitativeimpact of the revised standard; however the Company believes that the impact will be limited to a true up entry betweenadditional paid-in capital and retained earnings with no impact to the income statement. Additionally, the Company plans tomake a policy election to account for forfeitures as they occur. In February 2016, the FASB issued ASU 2016-02, Leases. The guidance requires lessees to recognize most leases asassets and liabilities on the balance sheet. Qualitative and quantitative disclosures will be enhanced to better understand theamount, timing and uncertainty of cash flows arising from leases. The guidance is effective for annual and interim periodsbeginning after December 31, 2018. The updated standard mandates a modified retrospective transition method with earlyadoption permitted. The Company is currently evaluating the effect that the updated standard will have on its consolidatedfinancial statements. In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall - Recognition and Measurement ofFinancial Assets and Financial Liabilities. The guidance requires entities to measure equity investments that do not result inconsolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in netincome unless the investments qualify for a practicability exception. The updated standard is effective for interim and annualreporting periods beginning after December 15, 2017. The Company is currently evaluating the effect that the updatedstandard will have on its consolidated financial statements. In November 2015, the FASB issued ASU 2015-17 Balance Sheet Classification of Deferred Taxes. The guidancerequires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. Thestandard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Earlyadoption is permitted. The Company early adopted this guidance on a prospective basis as of December 31, 2015. Theadoption 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 May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. Under the standard, revenue isrecognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects theconsideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requiresdisclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Thenew standard is effective for annual reporting periods, and interim periods within those annual periods, beginning afterDecember 15, 2017, with early adoption permitted for annual reporting periods beginning after December 15, 2016. TheCompany does not plan to early adopt, and accordingly, will adopt the new standard effective January 1, 2018. The FASBrecently issued several amendments to the standard, including clarifications on disclosure of prior-period performanceobligations and remaining performance obligations. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (fullretrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the dateof initial application (the cumulative catch-up transition method). The Company has not yet selected a transition method.91 Table of Contents The Company is in initial stages of evaluation of the impact of the new standard on its accounting policies, processes,and system requirements. It has assigned internal resources in addition to the engagement of third party service providers toassist in the evaluation. While the Company is continuing to assess all potential impacts of this standard, it will continue to beconsidered the principal in its transactions and is the primary obligor to end-users for smartphone games distributed throughdigital storefronts and advertisements served through its advertising service providers. Therefore, revenue related to thesearrangements will continue to be recognized on a gross basis, if the necessary information about the gross amounts or platformfees charged, before any adjustments, are made available to the Company by the digital storefronts and advertising serviceproviders. NOTE 2 — NET (LOSS)/INCOME 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), and warrants by application of the treasury stock method. Year Ended December 31, 2016 2015 2014 Net (loss)/income $(87,440) $(7,185) $8,148 Basic and diluted shares used to compute net (loss)/income per share: Weighted average common shares outstanding 132,808 122,414 93,575 Weighted average common shares subject to restrictions (1,004) (3,639) (1,749) Weighted average shares used to compute basic net (loss)/income per share 131,804 118,775 91,826 Dilutive potential common shares — — 5,096 Weighted average shares used to compute diluted net (loss)/income per share 131,804 118,775 96,922 Basic net (loss)/income per share (0.66) (0.06) 0.09 Diluted net (loss)/income per share (0.66) (0.06) 0.08 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) pershare of common stock for the periods presented because including them would have had an anti-dilutive effect: Year Ended December 31, 2016 2015 2014 Warrants to purchase common stock 4,267 3,832 2,362 Unvested common shares subject to restrictions 1,004 3,639 1,596 Options to purchase common stock 8,490 6,804 6,347 RSUs 7,688 5,776 2,746 $21,449 $20,051 $13,051 NOTE 3 — BUSINESS COMBINATIONSCrowdstar Inc.On November 2, 2016, the Company, acquired shares representing approximately 80.6% of the issued and outstandingvoting power of Crowdstar Inc., a Delaware corporation (“Crowdstar”), from Time Warner Inc., Intel Capital Corporation andcertain other stockholders of Crowdstar (the “Participating Stockholders”). Crowdstar is a developer of fashion and homedecor genre games for mobile devices based in Burlingame, California. The Company acquired Crowdstar to leverage itscasual games expertise, assembled workforce and existing mobile games in order to expand the Company’s game offerings onsmartphones and tablets. The Company paid approximately $40,794 in cash to the Participating Holders in exchange for theacquired shares. In addition, certain drag-along provisions specified in a voting agreement by and among Crowdstar andcertain other stockholders of Crowdstar were triggered. Pursuant to the drag-92 Table of Contents along provisions, certain other stockholders of Crowdstar were required to tender their Crowdstar capital stock to theCompany on the same terms as the Participating Holders. Upon acquiring over 90% of the issued and outstanding votingpower of Crowdstar pursuant to the drag-along provisions, on December 6, 2016, the Company acquired the remaining issuedand outstanding shares of Crowdstar in a short-form merger under the laws of the State of Delaware for an additional $4,667 fora total of $45,461, and, for 100% ownership of Crowdstar.The preliminary allocation of the purchase price is based on valuations derived from estimated fair value assessmentsand assumptions used by the Company. While the Company believes that its estimates and assumptions underlying thevaluations are reasonable, different estimates and assumptions could result in different valuations assigned to the individualassets acquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the preliminaryfair values of assets acquired and liabilities assumed at the date of acquisition:Assets acquired: Cash and cash equivalents $4,492Accounts receivable 3,905Prepaid expenses 521Other current assets 34Fixed assets 315Intangible assets: Titles, content and technology 16,000Goodwill 28,776Total assets 54,043 Liabilities assumed: Accounts payable (584)Accrued liabilities (4,284)Deferred revenue (1,500)Note payable - current portion (1,279)Long term liabilities (935)Total liabilities assumed (8,582)Net acquired assets $45,461 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, $16,000 was allocated to identifiable intangibleassets. Pursuant to ASC 805, the Company incurred and expensed a total of $802 in acquisition and transitional costsassociated with the acquisition of Crowdstar during the year ended December 31, 2016, respectively, which were primarilygeneral and administrative related.The Company allocated the residual value of $28,776 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 Crowdstar acquisition is notdeductible for tax purposes. Plain Vanilla, Corp. On December 19, 2016, the Company acquired substantially all of the intangible assets and certain other assets of PlainVanilla Corp., (“Plain Vanilla”), the developer of the QuizUp interactive software application for mobile devices, based inReykjavik, Iceland. The Company acquired Plain Vanilla to leverage its casual games expertise and existing mobile game inorder to expand the Company’s game offerings on smartphones and tablets. The Company agreed to forgive and cancel $7.5 million in aggregate principal amount of convertible promissory notesof Plain Vanilla held by Glu, and all interest thereon, in exchange for acquiring the QuizUp assets and technology and otherreceivables. The deemed fair value of the consideration as of the acquisition date was determined to be $3,200. The acquiredassets represent a business as defined in ASC 805, Business Combinations. The Company has integrated the93 Table of Contents acquired assets into the Company’s existing business. The asset purchase agreement also contains customary representations,warranties and covenants, including non-competition and indemnification provisions. 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. The following table summarizes the preliminary fair values of assets acquired at the date of acquisition: Fair value of purchase consideration: $3,200 Assets acquired: Cash $1,200Accounts receivable 183Intangible assets: Title, content and technology 1,817Total Assets acquired $3,200 Acquisition-related intangibles included in the above table are finite-lived and are being amortized on a straight-line basisover their estimated lives of three years, which approximates the pattern in which the economic benefits of the intangibleassets are expected to be realized. Of the total purchase price, $1,817 was allocated to identifiable intangible assets. Noresidual value was allocated to Goodwill.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. In March 2016 the Company released 2,139 of the 9,983 shares issued inthe acquisition that were heldback for 18 months and 30 days from the closing off the acquisition to satisfy potentialindemnification claims under the merger agreement for the acquisition. All outstanding Cie Games capital stock and stockoptions were cancelled at the closing of the acquisition. Acquisition-related intangible assets are finite-lived and are being amortized on a straight-line basis over their estimatedlives of three to five years, which approximates the pattern in which the economic benefits of the intangible assets areexpected to be realized. Of the total purchase price, $23,500 was allocated to identifiable intangible assets. Pursuant to ASC805, Business Combinations (“ASC 805”), for the twelve months ended December 31, 2016 and 2015, the Company incurred$0 and $0, of acquisition and transitional costs associated with the acquisition of Cie Games. 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. In July 2016, the Company released all1,500 of the 2,849 shares issued in the acquisition were held in escrow for 24 months94 Table of Contents and 60 days from 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.Acquisition-related intangible assets are finite-lived and are being amortized on a straight-line basis over their estimatedlives of three to five years, which approximates the pattern in which the economic benefits of the intangible assets areexpected to be realized. Of the total purchase price, $3,700 was allocated to identifiable intangible assets. Pursuant to ASC805, the Company incurred and expensed a total of $917 in acquisition and transitional costs associated with the acquisitionof PlayFirst during the year ended December 31, 2014, respectively, which were primarily general and administrative related.Valuation MethodologyThe Company engaged a third party valuation firm to aid management in its analyses of the fair value of Crowdstar,Plain Vanilla, Cie Games and Play First. All estimates, key assumptions and forecasts were either provided by or reviewed bythe Company. While the Company chose to utilize a third party valuation firm, the fair value analyses and related valuationsrepresent the conclusions of management and not the conclusions or statements of any third party.The Company valued titles, content and technology, and in-process research and development primarily using theMulti-Period Excess Earnings (“MPEE”) method of the income approach and key assumptions used included: projectedrevenue, cost of goods sold, and operating expenses for Crowdstar, Cie Games and Play First legacy titles, the futureamortization tax benefit of the legacy titles, and a discount rate of between 20% and 35%.The fair value of Crowdstar’s deferred revenue was determined to be $1,500 as of the valuation date. This was valuedusing the estimated costs including hosting fees and salaries and benefits to support the contractual obligations associatedwith these revenue, plus a market participant margin. The deferred revenue will be recognized on a straight-line basisover 9 months.As of the valuation dates, Crowdstar and Playfirst were in process of developing games, which were launched in thefourth quarter of 2016 and the fourth quarter of 2014, respectively.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 Crowdstar and Plain Vanilla 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, 2016 and since the dates of their respective acquisition, Crowdstar and PlainVanilla contributed approximately $2,111 to the Company’s gross revenue and increased net losses by $9,194. The unauditedpro forma financial information in the table below summarizes the combined results of the Company’s operations and those ofCrowdstar and Plain Vanilla for the periods shown as if the acquisition of Crowdstar and Plain Vanilla had each occurred onJanuary 1, 2015. 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. Year ended December 31, (unaudited) 2016 2015Total pro forma revenue $245,484 $287,828Pro forma net loss (98,863) (28,154)Pro forma net loss per share - basic (0.75) (0.24)Pro forma net loss per share - diluted (0.75) (0.24)95 Table of Contents The 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, 2014. 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. December 31, 2014 (unaudited)Total pro forma revenue $243,971Pro forma net income 2,800Pro forma net income per share— basic 0.03Pro forma net income per share— diluted 0.03 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. As of December 31, 2016, the Company’s financial assets and financial liabilities are presented below at fair value andwere classified within the fair value hierarchy as follows (in thousands): Level 1 Level 2 Level 3 December 31, 2016 Financial Assets Cash and cash equivalents$102,102$ —$ —$102,102 Restricted cash 1,312 — — 1,312 Total Financial Assets$103,414$ —$ —$103,414 96 Table of Contents As of December 31, 2015, the Company’s financial assets and financial liabilities are presented below at fair valueand were classified within the fair value hierarchy as follows (in thousands): Level 1 Level 2 Level 3 December 31,2015 Financial Assets Cash and cash equivalents$180,542$ —$ —$180,542 Restricted cash 1,498 — — 1,498 Total Financial Assets$182,040$ —$ —$182,040 The Company’s cash and cash equivalents, which were held in operating bank accounts, are classified within Level 1of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations or alternativepricing sources with reasonable levels of price transparency. In addition, the Company’s restricted cash is classified withinLevel 1 of the fair value hierarchy. The carrying value of accounts receivable and payables approximates fair value due to theshort time to expected payment or receipt of cash. NOTE 5 — INVESTMENTS In January 2016, the Company announced an investment of up to $7,500 in promissory notes convertible into aminority equity stake in Plain Vanilla. $5,000 was paid in January 2016 and the remaining $2,500 was paid in May 2016. Aspart of the investment, the Company also received a call option to acquire all outstanding equity of Plain Vanilla for 15months from the closing of the initial investment, unless earlier terminated by the Company, at a pre-agreed price. PlainVanilla is the Icelandic developer of the mobile game QuizUp, and is financed primarily through equity investments. On December 19, 2016, the Company acquired substantially all of the intangible assets and certain other assets of PlainVanilla in exchange of forgiveness and cancellation of $7.5 million in aggregate principal amount of convertible promissorynotes and all interest thereon. The call option agreement was terminated as of that date. See “Note 3 – Business Combinations”for additional details. The Company elected for the fair value option to account for its investment in the promissory notes. The call optionwas recorded at cost. As of the investment dates, the fair values of the promissory notes and the call option were determined tobe $5,100 and $2,400, respectively. The Company computed the fair value of the promissory notes as of the businessacquisition date of December 19, 2016 to be $3,200. Due to the decrease in the fair market value of the promissory notes fromthe initial investment date until the business acquisition date, the Company recorded a charge of $1,900 in other expense forthe year ended December 31, 2016. Due to a decline in the forecasted revenue and future cash flow outlook of Plain Vanilladuring the second and third quarters of 2016, the fair value of the call option was estimated to be nil as of September 30, 2016,which resulted in the Company recording an impairment charge of $2,400 in other expense. The following table presents the changes in fair value of the Plain Vanilla promissory notes and the call option: Year ended December 31, 2016 Fair value of Asset at the Impairment purchaseconsideration Asset at the beginning of of costmethod Decrease in for business end of the period Additions investment fair value acquisition the period Convertible promissory note investment inPlain Vanilla Corp. $ — $5,100 $ — $(1,900) $(3,200) $ — Call option to acquire Plain Vanilla Corp. $ — $2,400 $(2,400) — $ — $ — 97 Table of Contents The Company engaged third party valuation experts to aid management in its analysis of the fair value of thepromissory notes issued to the Company in each of January 2016 and May 2016 by, and the Company’s option to acquire allof the outstanding equity (“call option”) of, Plain Vanilla Corp. (“Plain Vanilla”). During the second and third quarters of2016, the fair value of the promissory notes was estimated using a probability weighted assessment of the expected cash flowsdiscounted to their present value. The fair value of the promissory notes as of the business acquisition date of December 19,2016 was assessed using the expected revenue and applicable market multiples. The fair value of the call option prior toimpairment in the third quarter was estimated using the Black-Scholes valuation model. The Black-Scholes valuation modelrequires inputs such as the expected term of the call option, expected volatility and risk-free interest rate. Certain of theseinputs are subjective and require significant analysis and judgment to develop. The weighted average assumptions used by theCompany are noted in the following table: Nine Months Ended September 30, 2016 Dividend yield —Risk-free interest rate 0.41Expected volatility 63.88Expected term (in years) 0.68 Plain Vanilla, prior to acquisition of its assets by the Company, was a VIE. However, the Company determined that itwas not the primary beneficiary of this VIE since the Company did not have the power to direct the activities of this VIE thatmost significantly impacted its economic performance. This determination was based on the following factors: (i) thedevelopment stage of VIE products; (ii) the Company's inability to exercise control or decision making power over the VIE, aswell as its lack of involvement in day-to-day operations and management decisions; and (iii) the fact that the call option toacquire Plain Vanilla, before the acquisition of its assets by the Company, was significantly out of the money. In January 2016, the Company acquired a minority equity stake and entered into a commercial agreement with DairyFree Games, Inc. (“Dairy Free”). As part of the arrangement, the Company invested $2,000 in Dairy Free’s Series A preferredstock. The Company also agreed to provide up to $1,000 of recoupable and non-refundable development funding for a mobilegame under development by Dairy Free. The development funding is payable in installments upon Dairy Free achievingcertain milestones. Dairy Free is the developer of mobile video games and is financed primarily through equity investments. Dairy Free is a VIE; however, the Company has determined that it is not the primary beneficiary of this VIE since theCompany currently does not have the power to direct the activities of this VIE that most significantly impact its economicperformance. The Company made this determination based on the following factors: (i) the development stage of VIE’sproducts; and (ii) the Company's inability to exercise control or decision making power over the VIE, based on the Company'sownership percentage and voting rights, as well as its lack of involvement in day-to-day operations and managementdecisions. For Dairy Free, the preferred stock investment was recorded at cost. As of the investment date and as of December 31,2016, the preferred stock investment was recorded at $2,000 in other long-term assets. The development funding was fullyrecognized as research and development expense during the year ended December 31, 2016. The Company is not obligated to provide any explicit or implicit financial or other support to Dairy Free other thanwhat was contractually agreed to in the investment agreement. The Company has no exposure to loss beyond its investmentsin Dairy Free. The Company evaluates its cost method investments for impairment on a quarterly basis. If the Company has notidentified events or changes in circumstances that may have a significant adverse effect on the fair value of a cost methodinvestment, then the fair value of such cost method investment is not estimated. 98 Table of Contents NOTE 6 — BALANCE SHEET COMPONENTS Accounts Receivable December 31, 2016 2015 Accounts receivable $22,314 $18,672 Less: Allowance for doubtful accounts (837) (716) $21,477 $17,956 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, 2016 $716 $168 $(47) $837 Year ended December 31, 2015 $297 $419 $ - $716 Year ended December 31, 2014 $459 $219 $(381) $297 The Company had no significant write-offs or recoveries during the years ended December 31, 2016, 2015, and 2014. Prepaid expenses and other December 31, 2016 2015 Deferred platform commission fees 11,571 7,675 Deferred royalties 3,275 2,668 Taxes receivable 63 759 Other 4,077 3,739 $18,986 $14,841 99 Table of Contents Property and Equipment December 31, 2016 2015 Computer equipment $7,085 $6,106 Furniture and fixtures 1,054 1,053 Software 8,180 7,408 Leasehold improvements 4,955 3,661 21,274 18,228 Less: Accumulated depreciation and amortization (15,634) (12,781) $5,640 $5,447 Depreciation for the years ended December 31, 2016, 2015 and 2014 was $2,947, $2,861 and $2,513, respectively. Other Long-Term Liabilities December 31, 2016 2015 Deferred rent $619 $692 Uncertain tax position obligations 718 567 Other 177 326 $1,514 $1,585 NOTE 7 — 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, 2016 and December 31, 2015 were as follows: December 31, 2016 December 31, 2015 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 - 5 yrs $40,942 $(19,255) $21,687 $34,750 $(22,954) $11,796 Catalogs 1 yr — — — 1,152 (1,152) — ProvisionX Technology 6 yrs — — — 190 (190) — Carrier contract and related relationships 5 yrs 14,029 (11,427) 2,602 24,200 (20,597) 3,603 Licensed content 2.5 - 5 yrs 2,334 (2,334) — 7,866 (2,866) 5,000 Service provider license 9 yrs 212 (212) — 454 (406) 48 Trademarks 7 yrs 5,117 (3,510) 1,607 5,217 (2,897) 2,320 62,634 (36,738) 25,896 73,829 (51,062) 22,767 Other intangible assets amortized tooperating expenses: Emux Technology 6 yrs — — — 1,228 (1,228) — Non-compete agreements 4 yrs — — — 5,391 (5,391) — — — — 6,619 (6,619) — Total intangibles assets $62,634 $(36,738) $25,896 $80,448 $(57,681) $22,767 100 Table of Contents Acquisition-related intangibles included in the above table are finite-lived and are being amortized on a straight-linebasis over their estimated lives, which approximates 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 revenue. The Company has included amortization of acquired intangible assets not directly attributable torevenue-generating activities in operating expenses. During the year ended December 31, 2016, the Company wrote-off fully amortized intangible assets with an aggregategross book value and accumulated amortization value of $29,109 as these intangible assets were considered obsolete after therecent liquidation of a foreign subsidiary and the restructuring of the Company’s Washington studio. During the year ended December 31, 2016, the Company recorded an impairment of an intangible asset of $4,597 relatedto the license fee paid to an affiliate of one of the Company’s principal stockholders for the Company’s Rival Fire game,which launched during the third quarter of 2016, due to underperformance of the title and the Company’s determination thatthe title would generate negligible cash flows during the remaining contractual life of the license. No impairment of intangibleassets was recorded during the year ended December 31, 2015. During the years ended December 31, 2016, 2015 and 2014, the Company recorded amortization andimpairment expense in the amounts of $14,792, $9,553 and $4,767, respectively, in cost of revenue. During the years endedDecember 31, 2016, 2015 and 2014, the Company recorded amortization expense in the amounts of $0, $201 and $508,respectively, in operating expenses. The Company recorded no impairment charges during the years ended December 31, 2015and 2014. As of December 31, 2016, the total expected future amortization related to intangible assets was as follows: Amortization to Be Included in Cost ofYear Ending December 31, Revenue2017 $10,2672018 5,9052019 4,9602020 3,2582021 and thereafter 1,506 $25,896 Goodwill In the valuation of the goodwill balance for Griptonite, Blammo, MIG, GameSpy, PlayFirst, Cie Games andCrowdstar, the Company gave consideration to the future economic benefits of other assets that were not individuallyidentified or separately recognized. The acquired studio workforce for each of these acquisitions was estimated to have value,and since the acquired workforce is not individually identified or separately recognized, it was subsumed within the goodwillrecognized as part of each business combination. The Company further planned to leverage its preexisting contractualrelationships with Digital Storefronts to distribute new titles developed by the Griptonite, Blammo, PlayFirst, Cie Games andCrowdstar studios and the expected synergies are reflected in the value of the goodwill recognized. The Company also usedthe GameSpy acquired workforce and expertise to help in its development efforts for its games-as-a-service technologyplatform, and these synergies are reflected in the value of goodwill recognized. 101 Table of Contents Goodwill for the periods indicated was as follows: December 31, 2016 December 31, 2015 Goodwill $161,001 $161,075 Accumulated impairment losses (73,111) (73,111) Balance as of January 1 87,890 87,964 Goodwill acquired during the year 29,029 — Effects of foreign currency exchange (87) (74) Balance as of period ended: 116,832 87,890 Goodwill 189,943 161,001 Accumulated impairment losses (73,111) (73,111) Balance as of period ended $116,832 $87,890 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. The Company performed its annual impairment assessment as of September 30, 2016 and determined a Step 1analysis was necessary due to a significant decline in its market capitalization and the significant impairment of prepaidroyalties recorded during the three months ended September 30, 2016. Based on the results of the Step 1 analysis, theCompany concluded that the fair value of the reporting unit was greater than the carrying value of the reporting unit based ona methodology that utilized both an income approach and a market approach. The Company considered valuation factorsincluding its market capitalization, future discounted cash flows and an estimated control premium based upon a review ofcomparable market transactions. Accordingly, the Company did not recognize an impairment of goodwill during the yearended December 31, 2016. During the third quarter of fiscal 2015 and 2014, the Company performed a “Step 0” qualitative assessment for itsreporting 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 and December 31,2014. As of December 31, 2016, there had been no triggering events or indicators of impairment that would require an updatedimpairment review. Any material impairment of prepaid royalty and license fee assets in the future periods may require the Company toperform a goodwill impairment assessment. Such assessment could result in impairments to the Company’s goodwill, whichcould adversely impact the Company’s results of operations. 102 Table of Contents NOTE 8 — COMMITMENTS AND CONTINGENCIES LeasesThe Company leases office space under non-cancelable operating facility leases with various expiration dates throughApril 2021. Rent expense for the years ended December 31, 2016, 2015 and 2014 was $4,827, $4,639 and $4,149,respectively. The terms of the facility leases provide for rental payments on a graduated scale. The Company recognizes rentexpense on a straight-line basis over the lease period, and has accrued for rent expense incurred but not paid. The deferred rentbalance was $820 and $749 at December 31, 2016 and 2015, respectively, of which $619 and $692 was included within otherlong-term liabilities at December 31, 2016 and 2015, respectively.In August and September of 2015, the Company entered into lease agreements for space at its San Mateo, California, andPortland, Oregon offices that will expire on November 30, 2020, and December 31, 2017, respectively. In March 2015, theCompany entered into a lease amendment for its Long Beach, California 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 $1,052 to secure its obligations under the leases, whichhave been classified as restricted cash on the Company’s consolidated balance sheet as of December 31, 2016. At December 31, 2016, future minimum lease payments under non-cancelable operating leases were as follows: Minimum Operating Lease Year Ending December 31, Payments 2017 $4,715 2018 3,031 2019 2,633 2020 1,741 2021 and thereafter 109 $12,229 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 revenuegenerated 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, 2016, future unpaid minimum guaranteed royalty commitments were as follows:. Future Future Minimum Minimum Guarantee DeveloperYear Ending December 31, Commitments Commitments2017 $21,097 $1,2352018 1,236 —2019 4,100 — $26,433 $1,235The 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.103 Table of Contents Future developer commitments as of December 31, 2016 were $1,235. These developer commitments reflect theCompany’s minimum cash obligations to external software developers (“third-party developers”) to design and develop itssoftware applications but do not necessarily represent the periods in which they will be expensed. The Company advancesfunds to these third-party developers, in installments, payable upon the completion of specified development milestones, andexpenses third-party developer commitments as services are provided.Licensor commitments include $22,611 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 upon performanceby the licensor. The classification of commitments between long-term and short-term is determined based on the expectedtiming of recoupment of earned royalties calculated on projected revenue for the licensed IP games. Income Taxes As of December 31, 2016, unrecognized tax benefits have been netted against deferred tax assets and potentialinterest and penalties are classified within “other long-term liabilities” on the Company’s consolidated balance sheets. As ofDecember 31, 2016, the settlement of the Company’s income tax liabilities could not be determined; however, the liabilitiesare 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. Accordingly, the Company had recordedno liabilities for these agreements as of December 31, 2016, 2015 and 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, 2016, 2015 and 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 the104 Table of Contents complaint with prejudice on the ground that the patent asserted by IHL claims patent-ineligible subject matter pursuant to 35U.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.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 otherdefendants. Just Games was seeking at least $10,000 in damages as well as other relief, including costs, permanent andtemporary injunctive relief, an accounting of profits, a constructive trust and such other costs the Court deemed just andproper. The Company filed a motion to dismiss the complaint on January 27, 2016. On February 1, 2016, Just Games filed avoluntary motion 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 9 — STOCKHOLDERS’ EQUITY Common Stock At December 31, 2016, the Company was authorized to issue 250,000 shares of common stock. As of December 31,2016, the Company had reserved 33,347 shares for future issuance under its stock plans and outstanding warrants. Preferred Stock At December 31, 2016, 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. The105 Table of Contents Company issued 12,500 of the Shares to Red River on April 29, 2015 and issued the remaining 8,500 Shares at a secondclosing on June 3, 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 shares was held back byGlu for 18 months from the closing date of the acquisition to satisfy potential indemnification claims under the Cie Gamesmerger agreement. All of these shares were released to former shareholders during the year ended December 31, 2016. 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 shares that were held in escrow until the date that is 60 days following the 24 monthanniversary of the closing date to satisfy potential indemnification claims under the PlayFirst merger agreement were releasedto former shareholders in July 2016. During the third quarter of 2014, approximately 24 shares that were being held backpursuant to the PlayFirst merger agreement were cancelled to satisfy a net working capital adjustment. See Note 3 – Business Combinations – for more information about these acquisitions. Warrants to Purchase Common Stock Celebrity Warrants During 2015, the Company issued warrants to celebrity licensors, and entities affiliated with one of the celebritylicensors, to purchase up to an aggregate of 1,100 shares of the Company’s common stock, subject to adjustments fordividends, reorganizations and other common stock events (collectively, the “Celebrity Warrants”). With respect to CelebrityWarrants covering 1,000 shares, such warrants vest with respect to 50% of the underlying shares upon public announcement ofthe related license agreement, with the remaining shares vesting in equal monthly installments over 24 months, subject to fullacceleration in the event of (i) the Company’s full recoupment of the minimum guarantee payments under the related licenseagreement, (ii) the termination of the license agreement due to the Company’s material breach of the agreement or (iii) achange of control of the Company. With respect to the remaining Celebrity 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. During the years ended December 31, 2016, and 2015, none of these vesting conditions were met. Each of the Celebrity Warrants may, at the election of the holder, be either exercised for cash or net exercised on acashless basis. As of December 31, 2016, Celebrity Warrants covering 1,600 shares of the Company’s common stock wereoutstanding. The fair value of the outstanding Celebrity Warrants is estimated using the Black-Scholes valuation model. The Black-Scholes valuation model requires inputs such as the expected term of the Celebrity Warrants, expected volatility and risk-freeinterest rate. Certain of these inputs are subjective and require significant analysis and judgment to develop. The Companywill estimate and record the fair value of these Celebrity Warrants using a Black-Scholes valuation model when the abovevesting conditions have been met. The amount recognized as expense with respect to these Celebrity Warrants was immaterial for each of years endedDecember 31, 2016, 2015 and 2014. 106 Table of Contents 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”). As of December 31, 2016, MGM Warrants covering 2,667 shares of theCompany’s common stock were outstanding. These remaining shares vest and become exercisable based on conditions relatedto the Company releasing mobile games based on mutually agreed upon intellectual property licensed by MGM to theCompany. During the year ended December 31, 2016, none of these vesting conditions were met. During the year endedDecember 31, 2015, 1,000 shares underlying the MGM Warrants vested in conjunction with the commercial release of theCompany’s game, James Bond: World of Espionage, which occurred on September 29, 2015. During the year endedDecember 31, 2015, the Company recorded $1,928 of non-cash warrant related expense in cost of revenue as the James Bond:World of Espionage game was not expected to generate meaningful revenue over 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, 2016 2015 2014 Dividend yield —% —% —%Risk-free interest rate 1.76% 1.18% 1.90%Expected volatility 57.54% 53.40% 58.20%Expected term (in years) 4.78 5.00 5.00 Warrants outstanding at December 31, 2016 were as follows: Number Weighted of Shares Average Outstanding Exercise Average Under Price 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 Granted - - Exercised - - Warrants outstanding, December 31, 2016 4,267 $3.61 4.78 During the years ended December 31, 2016, 2015, and 2014, warrant holders exercised warrants to purchase 0, 450, and1,191 shares of the Company’s common stock, respectively, and the Company received gross proceeds of $0, $675, and$2,786, respectively, in connection with these exercises. NOTE 10 — 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 to107 Table of Contents which each share that is subject to a stock-based award that is not a “full value award” (restricted stock, RSUs, or other stock-based awards where the price charged to the participant for the award is less than 100% of the fair market value) reduces thenumber of shares available for issuance by 1.32 shares (previously this fungible ratio was 1.39 shares under the Amended 2007Plan). 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, 2016, 2,839 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 theCompany’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 February 2016, theCommittee increased the Maximum Offering Period Share Amount for the offering period that started on February 22, 2016and for each subsequent offering period to 450 shares. As of December 31, 2016, 1,179 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 the108 Table of Contents plan. The Company may grant NSOs under the Inducement Plan at prices less than 100% of the fair value of the shares on thedate of grant, at the discretion of its Board of Directors. The fair value of the Company’s common stock is determined by thelast sale price of such stock on the NASDAQ Global Market on the date of determination. In November 2016, the Company’sCompensation Committee approved an increase of 6,000 shares in the aggregate number of shares of common stockauthorized under the plan. As of December 31, 2016, 1,026 shares were reserved for future grants under the Inducement Plan. Share-Based Awards Available for Grant Shares Available Balances at December 31, 2015 9,684 Increase in authorized shares 6,000 Share-based awards granted (1) (16,720) Share-based awards canceled (2) 4,900 Balances at December 31, 2016 3,864 (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 orafter June 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 forfeitedand returned 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 eachshare subject to an RSU that is forfeited. RSU ActivityA summary of the Company’s RSU activity for the year ended December 31, 2016 is as follows: Weighted Number of Average Aggregate Units Grant Date Intrinsic Outstanding Fair Value Value Awarded and unvested, December 31, 2015 7,344 $4.40 Granted 5,094 $2.52 Vested (2,422) $4.51 Forfeited (1,792) $3.86 Awarded and unvested, December 31, 2016 8,224 $3.33 Restricted stock units vested and expected to vest at December 31, 2016 7,013 $3.36 $13,605 109 $$$$$$$$$$$$$$$$$$$$$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, 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 granted 10,347 $2.16 Options canceled (1,273) $4.04 Options exercised (425) $1.55 Balances at December 31, 2016 15,813 $2.74 7.38 $ — Options vested and expected to vest at December 31, 2016 13,868 $2.81 7.06 $ — Options exercisable at December 31, 2016 4,889 $3.72 2.77 $ — At December 31, 2016, 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$ 2.10 - $ 2.10 5,707 9.87 $2.10 - $0.00$ 2.13 - $ 2.13 3,450 9.78 2.13 - 0.00$ 2.14 - $ 2.90 1,951 3.27 2.63 1,474 2.74$ 2.91 - $ 3.29 2,089 4.21 3.09 1,452 3.14$ 3.56 - $ 4.30 1,582 4.66 4.00 1,002 3.95$ 4.35 - $ 6.67 966 4.18 5.40 893 5.43$ 9.64 - $9.64 1 0.77 9.64 1 9.64$ 11.50 - $ 11.50 65 0.22 11.50 65 11.50$ 11.66 - $ 11.66 1 0.57 11.66 1 11.66$ 11.88- $ 11.88 1 0.30 11.88 1 11.88$ 2.10 - $ 11.88 15,813 7.38 $2.74 4,889 $3.72 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 $1.94 pershare at December 31, 2016. The total intrinsic value of awards exercised during the years ended December 31, 2016, 2015and 2014 was $444, $4,960, and $7,735, respectively. 110 Table of Contents 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 averageassumptions noted in the following table. Year Ended December 31, 2016 2015 2014 Dividend yield —% —% —%Risk-free interest rate 1.39%1.34%1.34%Expected volatility 52.3%51.8%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, 2016, 2015 and 2014 was $0.90, $1.88, and $1.69 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. 111 Table of Contents The following table summarizes the consolidated stock-based compensation expense by line items in theconsolidated statement of operations: Year Ended December 31, 2016 2015 2014 Research and development $4,567 $3,563 $7,422 Sales and marketing 1,091 1,082 701 General and administrative 7,605 7,041 3,510 Total stock-based compensation expense $13,263 $11,686 $11,633 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 term of theearn-out periods, since these employees were primarily employed in product development. The Company re-measured the fair valueof the contingent consideration each reporting period and only recorded a compensation expense for the portion of the earn-outtarget that was likely to be achieved. Since the contingency related to the number of shares to be earned in conjunction with all earnout years was resolved as of December 31, 2014, the full fair value of the shares has been presented in additional paid in capital.During the years ended December 31, 2016, 2015, and 2014 the Company recorded $0, $0, and $4,560 of stock-basedcompensation expense, respectively, related to this contingent consideration. Consolidated net cash proceeds from option exercises were $294, $3,794 and $6,271 for the year ended December 31,2016, 2015 and 2014, respectively. The Company realized no significant income tax benefit from stock option exercises during theyear ended December 31, 2016, 2015 and 2014. 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, 2016, the Company had $25,248 of total unrecognized compensation expense related to RSUs, net ofestimated forfeitures. As of December 31, 2016, the Company had $8,435 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 2.91 years. The unrecognized compensation expense related to stock options will be recognized over aweighted average period of 3.60 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 11 — INCOME TAXES The components of income/(loss) before income taxes by tax jurisdiction were as follows: Year Ended December 31, 2016 2015 2014 United States $(87,085) $(7,819) $5,283 Foreign (656) 775 (4,690) Income/(loss) before income taxes $(87,741) $(7,044) $593 112 Table of Contents The components of income tax benefit/(expense) were as follows: Year Ended December 31, Current: 2016 2015 2014Federal $127 $(24) $(5)State (6) (5) (5)Foreign (86) (183) 656 35 (212) 646 Deferred: Federal 328 — 6,821Foreign (62) 71 88 266 71 6,909 Total: Federal 455 (24) 6,816State (6) (5) (5)Foreign (148) (112) 744 $301 $(141) $7,555 The difference between the actual rate and the federal statutory rate was as follows: Year Ended December 31, 2016 2015 2014 Tax at federal statutory rate 34.0% 34.0% 34.0%State tax, net of federal benefit — (0.1) 0.8 Foreign rate differential (0.1) 1.0 56.6 Research and development credit 0.9 15.9 (133.9) Warrants — — 67.7 Withholding taxes 0.2 0.3 (10.5) Stock-based compensation (2.9) (8.7) 224.9 Non-deductible intercompany bad debt — — 3.9 FIN 48 interest and release (0.1) 1.8 (219.4) Other (0.1) (0.2) 59.6 Deemed dividend from foreign liquidation (1.4) — — Valuation allowance (30.2) (46.1) (1,357.7) Effective tax rate 0.3% (2.1)% (1,274.0)% During 2016, the Company recorded a net release of its valuation allowance of $328 as a result of the acquisition ofCrowdstar Inc. in November 2016.113 Table of Contents Deferred tax assets and liabilities consist of the following: December 31, 2016 December 31, 2015 US Foreign Total US Foreign TotalDeferred tax assets: Fixed assets $191 $40 $231 $ — $1,156 $1,156Net operating loss carryforwards 55,850 526 56,376 37,907 9,493 47,400Accruals, reserves and other 12,006 97 12,103 4,811 129 4,940Foreign tax credit 6,460 — 6,460 6,615 — 6,615Stock-based compensation 3,830 — 3,830 4,866 — 4,866Research and development credit 11,190 — 11,190 9,292 — 9,292Other 2,011 — 2,011 121 17 138Total deferred tax assets $91,538 $663 $92,201 $63,612 $10,795 $74,407Deferred tax liabilities: Fixed assets $ — $(1) $(1) $(290) $ — $(290)Intangible assets (4,441) (6) (4,447) (4,471) (54) (4,525)Other — — — — (16) (16)Net deferred tax assets 87,097 656 87,753 58,851 10,725 69,576Less valuation allowance (87,097) (464) (87,561) (58,851) (10,470) (69,321)Net deferred tax assets $ — $192 $192 $ — $255 $255 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, excludingChina, because their earnings are intended to be reinvested indefinitely. No deferred tax asset was recognized since theCompany does not believe the deferred tax asset will be realized in the foreseeable future. The amount of accumulated foreignearnings of the Company’s foreign subsidiaries totaled $913 as of December 31, 2016. If the Company's foreign earnings wererepatriated, additional tax expense might result. The Company determined that the calculation of the amount of unrecognizeddeferred tax liability related to these cumulative unremitted earnings attributable to foreign subsidiaries is not practicable. The Company recorded a release of its valuation allowance of $328, $0, and $6,821 during 2016, 2015, and 2014,respectively. The 2016 and 2014 releases were associated with the acquisitions of Crowdstar Inc. in November 2016 and CieGames in August 2014, respectively. Pursuant to ASC 805-740, changes in the Company’s valuation allowance that stem froma business combination should be recognized as an element of the Company’s deferred income tax expense or benefit. TheCompany previously recognized a valuation allowance against its net operating loss carryforwards and determined that itshould be able to utilize the benefit of those net operating losses against the deferred tax liabilities of Crowdstar Inc. and CieGames, respectively; 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 114 Table of Contents estimates will not ultimately be recoverable. The available negative evidence at December 31, 2016 and 2015 includedhistorical and projected future operating losses. As a result, the Company concluded that an additional valuation allowance of$18,240 and $795, net of the described releases, was required to reflect the change in its deferred tax assets prior to valuationallowance during 2016 and 2015, respectively. As of December 31, 2016 and 2015, the Company considered it more likelythan not that its deferred tax assets would not be realized within their respective carryforward periods.At December 31, 2016, the Company had net operating loss carryforwards of approximately $158,531 and $97,627for federal and state tax purposes, respectively. These carryforwards will expire at various times between 2017 and 2036. Inaddition, the Company has research and development tax credit carryforwards of approximately $11,158 for federal incometax purposes and $12,941 for California tax purposes. The federal research and development tax credit carryforwards willbegin to expire in 2023. The California state research credit will carry forward indefinitely. The Company has approximately$6,320 of foreign tax credits that will begin to expire in 2017. The Company’s ability to use its net operating losscarryforwards and federal and state tax credit carryforwards to offset future taxable income and future taxes, respectively, maybe subject to restrictions attributable to equity transactions that result in changes in ownership as defined by Internal RevenueCode Section 382. A reconciliation of the total amounts of unrecognized tax benefits was as follows: Year Ended December 31, 2016 2015Beginning balance $9,218 $6,794Reductions of tax positions taken during previous years (806) (304)Additions based on uncertain tax positions related to the current period 2,590 2,085Additions based on uncertain tax positions related to prior periods 43 675Cumulative translation adjustment (34) (32)Ending balance $11,011 $9,218 The total unrecognized tax benefits as of December 31, 2016 and 2015 included approximately $10,590 and $8,678,respectively, of unrecognized tax benefits that have been netted against deferred tax assets. As of December 31, 2016,approximately $421 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, 2016, the Company anticipated that the liability for uncertain tax positions, excluding interest and penalties,could decrease by approximately $126 within the next twelve months due to the expiration of certain statutes of limitation inforeign 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 $294 of interest and penalties on uncertain tax positions as of December 31, 2016, ascompared to $375 as of December 31, 2015. Approximately $128, $78 and $86 of accrued interest and penalty expense relatedto estimated obligations for unrecognized tax benefits was recognized during 2016, 2015 and 2014, respectively. During2016, the Company released $184 of interest and penalties on uncertain tax positions due to the expiration of certain statutesof limitation 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, Canada and China. TheCompany’s federal tax returns are open by statute for tax years 1997 and California tax returns are open by statute for tax years2003 and forward and could be subject to examination by the tax authorities. The Company’s China income tax returns areopen by statute for tax years 2011 and forward. 115 Table of Contents NOTE 12 — 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 operating segment. The financial information reviewed by him isincluded within one operating segment for purposes of allocating resources and evaluating financial performance. Accordingly, the Company reports as a single reportable segment—mobile games. In the case of Digital Storefronts,revenue are attributed to the geographic location where the end-user makes the purchase. The Company generates its revenuein the following geographic regions: Year Ended December 31, 2016 2015 2014 United States of America $149,031 $171,759 $132,447 Americas, excluding the USA 9,127 11,538 9,705 EMEA 24,303 36,134 43,507 APAC 18,120 30,469 37,487 $200,581 $249,900 $223,146 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: December 31, 2016 2015 Americas $5,423 $4,938 EMEA 166 408 APAC 51 101 $5,640 $5,447 NOTE 13 — RESTRUCTURING During each of 2014, 2015 and 2016, the Company’s management approved restructuring plans to improve theeffectiveness and efficiency of its operating model and reduce operating expenses around the world. During the year endedDecember 31, 2014, the Company recorded $435 of restructuring charges, relating to employee termination costs associatedwith headcount reductions in its Moscow, Russia; Bellevue, Washington; and San Francisco, California studios. During theyear ended December 31, 2015, the Company recorded $1,075 of restructuring charges relating to employee termination costsin the Company’s Beijing, China and Bellevue, Washington offices. During the year ended December 31, 2016, the Companyrecorded $2,279 of restructuring charges related to employee termination costs in the Company’s Long Beach, California; SanFrancisco, California; Bellevue, Washington; and Beijing, China offices, and lease termination costs for the Company’sBellevue, Washington and Beijing, China offices. 116 Table of Contents Fiscal 2014, 2015, and 2016 Restructuring Restructuring Restructuring Restructuring Workforce Facility Other Total Balance as of Jan 1, 2014 $ — $ — $ — $ — Charges to operations 435 — 435 Non-cash charges/adjustments — — — — Charges settled in cash (435) — — (435) Balance as of December 31, 2014 $ — $ — $ — $ — Charges to operations 1,044 — 31 1,075 Non-cash charges/adjustments — — — — Charges settled in cash (734) — — (734) Balance as of December 31, 2015 $310 $ — $31 $341 Charges to operations 1,491 740 48 2,279 Non-cash charges/adjustments — 122 — 122 Charges settled in cash (1,801) (591) (79) (2,471) Balance as of December 31, 2016 $ — $271 $ — $271 NOTE 14 – QUARTERLY FINANCIAL DATA (unaudited, in thousands) The following table sets forth unaudited quarterly consolidated statements of operations data for 2015 and 2016. 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 related notes included elsewhere in thisreport. The operating results for any quarter should not be considered indicative of results for any future period. For the Three Months Ended 2016 2015 March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, (In thousands) Revenue $54,528 $48,363 $51,381 $46,309 $69,470 $56,150 $63,250 $61,030 Cost of revenue: Platform commissions, royalties and other 20,320 18,534 18,918 17,467 26,310 21,231 25,890 22,251 Impairment of prepaid royalties and minimumguarantees 43 105 29,836(d) 123 — 89 1,555 858 Impairment and amortization of intangible assets 2,324 2,336 7,320 2,812 2,434 2,434 2,360 2,325 Total cost of revenue 22,687 20,975 56,074 20,402 28,744 23,754 29,805 25,434 Gross profit 31,841 27,388 (4,693) 25,907 40,726 32,396 33,445 35,596 Operating expenses: Research and development 20,312 20,721 20,080 20,766 18,243 18,308 16,304 20,001 Sales and marketing 12,624 10,935 10,104 14,387 12,438 12,771 12,302 10,729 General and administrative 7,984 7,096 7,011 8,134 7,406 7,429 4,419 6,838 Amortization of intangible assets — — — — 127 32 31 11 Restructuring charge 106(a) 2,116(b) 57(c) — — — — 1,075 Total operating expenses 41,026 40,868 37,252 43,287 38,214 38,540 33,056 38,654 Income/(loss) from operations (9,185) (13,480) (41,945) (17,380) 2,512 (6,144) 389 (3,058) Interest and other income/(expense), net 469 (4,453) (1,653) (114) (284) (174) (152) (134) Income/(loss) before income taxes (8,716) (17,933) (43,598) (17,494) 2,228 (6,318) 237 (3,192) Income tax benefit/(provision) 166 (16) (129) 280 (1,104) 809 (79) 234 Net income /(loss) $(8,550) $(17,949) $(43,727) $(17,214) $1,124 $(5,509) $158 $(2,958) Net income/(loss) per share Basic $(0.07) $(0.14) $(0.33) $(0.13) $0.01 $(0.05) $0.00 $(0.02) Diluted $(0.07) $(0.14) $(0.33) $(0.13) $0.01 $(0.05) $0.00 $(0.02) (a)Includes $106 of restructuring charges relating to employee termination costs in the Company’s Long Beach office.(b)Includes $1,421 of restructuring charges relating to employee termination costs in the Company’s San Francisco,117 Table of Contents APAC, and Washington offices, and $695 of restructuring charges relating to facility costs in the Company’s Washingtonand China Korea offices(c)Includes $11 of restructuring charges relating to employee termination costs in the Company’s China and Korea offices,and $48 of restructuring charges relating to facility costs in the Company’s Washington, China, and Korea offices.(d)These charges are related to impairment of prepaid guaranteed royalties and license fees paid to an affiliate of one of theCompany’s principal stockholders in connection with the Company’s game, Rival Fire, guaranteed royalty payments forcertain of its celebrity license agreements, and certain other prepaid royalties. NOTE 15 – RELATED PARTY TRANSACTIONS The Company and an affiliate of one of the Company’s principal stockholders entered into an agreement in November2015 pursuant to which the Company agreed, subject to certain conditions, to pay in the aggregate, up to $15,000 inrecoupable advanced royalties and non-recoupable license fees. As of December 31, 2016, the Company had paid the fullamount of $15,000, as all payment milestones were achieved. During the year ended December 31, 2016, the Company recorded an impairment of $14,463 for un-recouped advancedroyalties and non-recoupable license fees that were paid to an affiliate of one of the Company’s principal stockholders, due tothe underperformance of the Company’s Rival Fire title which launched during the third quarter of 2016 and the negligiblecash flows anticipated for the remaining contractual life of these assets. NOTE 16 – SUBSEQUENT EVENTS In January 2017, the Company committed to a restructuring plan, consisting of the following: ·the elimination of approximately 109 positions, approximately 97 of which were from its Bellevue, Washington andLong Beach, California studios, and approximately 12 of which were from its San Francisco headquarters;·the discontinuation of all operations at its Bellevue, Washington studio; and·the potential elimination of approximately an additional 30 positions (for a potential reduction in force of up toapproximately 139 positions) and discontinuation of all remaining operations at its Long Beach, California studio,contingent on the results of the planned beta release of its Car Town Racing title in late Q1-2017 (the “ContingentPortion”).In connection with these actions, the Company expects to incur charges of approximately $2,600 to $2,800 if theContingent Portion of the plan is not triggered, and estimates approximately $2,000 to $2,100 of such charges will be relatedto employee severance and benefits, and approximately $600 to $700 will be related to lease, contract termination and othercosts. The Company expects to incur charges of approximately $4,300 to $4,700 if the Contingent Portion of the plan istriggered, and estimates approximately $2,450 to 2,650 of such charges will be related to employee severance and benefits,and approximately $1,850 to $2,050 will be related to lease, contract termination and other costs. If the Contingent Portion ofthe plan is not triggered, the Company expects to recognize substantially all of the restructuring-related costs during the firstquarter of 2017. If the Contingent Portion of the plan is triggered, the Company expects to recognize the restructuring-relatedcosts attributable to the Contingent Portion in the second quarter of 2017. The Company expects substantially all of theseverance and benefit charges, and a majority of the lease, contract termination and other costs, to entail cash expenditures. As part of this restructuring plan, the Company also began transitioning game development and live operations forits Racing Rivals title from its Long Beach, California studio to Carbonated Inc. (“Carbonated”) in January 2017. It agreed toprovide Carbonated with development funding and a percentage of the profits generated by the Racing Rivals title to theextent that Carbonated is able to increase the net revenue from this title. The development funding is118 Table of Contents fully recoupable by the Company, along with user acquisition, hosting and certain other game-related costs, before any profitsharing payments are made to Carbonated. 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 31,2016, 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, 2016 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, 2016 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 scope of management’s assessment of the effectiveness of internal control over financial reporting as ofDecember 31, 2016 excluded Crowdstar Inc. because it was acquired by Glu through purchase business combination in 2016.Crowdstar Inc. is a wholly-owned subsidiary whose total assets and total revenue represented 4.1% and 1.0%, respectively, ofthe related consolidated financial statement amounts as of and for the year ended December 31, 2016. The effectiveness of our internal control over financial reporting as of December 31, 2016 has been audited byPricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on page77. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)under the Exchange Act) during the three months ended December 31, 2016 that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting. 119 Table of Contents Item 9B. OTHER INFORMATION None 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 2017Annual 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 2017Annual 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 2017 Annual Meeting of Stockholders is incorporated herein by reference.Equity Compensation Plan Information The following table sets forth certain information, as of December 31, 2016, 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 $17,110,570 3.02 4,018,143(2)Equity compensation plans not approved by securityholders 6,926,573(3) 2.20 1,025,666(4)Total 24,037,143 $5.22 5,043,809 (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 2,839,105 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; and1,179,038 shares available for issuance under the ESPP. 120 Table of Contents (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. 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, 2016, we had reserved a total of 9,969,245 shares of our common stock for grant and issuance under theInducement Plan since its inception, of which, 6,926,573 shares were subject to outstanding stock options and restricted stockunits and 1,025,666 shares remained available for issuance. The remaining 2,017,006 shares represent shares that were subjectto previously 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 2017Annual 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 2017Annual 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. 121 Table of Contents Item 16. Form 10-K Summary None. 122 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 10, 2017By:/s/ Nick Earl Nick Earl, President and Chief Executive Officer Date: March 10, 2017By:/s/ Eric R. Ludwig Eric R. Ludwig, Executive Vice President, ChiefOperating Officer and Chief Financial Officer 123 Table of Contents POWER OF ATTORNEY By signing this Annual Report on Form 10-K below, I hereby appoint each of Nick Earl, Eric R. Ludwig and Scott 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 (includingall exhibits and other documents related to the Form 10-K) with the Securities and Exchange Commission. I authorize each ofmy attorneys-in-fact to (1) appoint a substitute attorney-in-fact for himself and (2) perform any actions that he believes arenecessary or appropriate to carry out the intention and purpose of this Power of Attorney. I ratify and confirm all lawfulactions 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/ Nick Earl President, Chief Executive Officer March 10, 2017Nick Earl and Director (Principal Executive Officer) /s/ Eric R. Ludwig EVP, Chief Operating Officer and Chief FinancialOfficerMarch 10, 2017Eric R. Ludwig (Principal Financial Officer) /s/ Gregory J. Cannon Vice President of Financeand Investor RelationsMarch 10, 2017Gregory J. Cannon (Principal Accounting Officer) /s/ Niccolo de Masi ChairmanMarch 10, 2017Niccolo de Masi /s/ Benjamin T. Smith IV Lead DirectorMarch 10, 2017Benjamin T. Smith IV /s/ Eric R. Ball DirectorMarch 10, 2017Eric R. Ball /s/ Greg Brandeau DirectorMarch 10, 2017Greg Brandeau DirectorMarch 10, 2017Ben Feder /s/ Ann Mather DirectorMarch 10, 2017Ann Mather /s/ Hany M. Nada DirectorMarch 10, 2017Hany M. Nada 124 Table of ContentsCent Exhibit Index Incorporated by Reference Exhibit FilingFiledNumber Exhibit DescriptionFormFile No.ExhibitDateHerewith2.01 Agreement and Plan of Merger, dated as of April 30, 2014 by andamong Glu Mobile Inc., Midas Acquisition Corp., PlayFirst, Inc.and Fortis Advisors LLC8-K001-333682.01 05/02/14 2.02 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, CieDigital Labs, LLC, Cie Games, Inc. and Shareholder RepresentativeServices, LLC8-K001-333682.01 07/30/14 2.03 Stock Transfer Agreement by and among Glu Mobile Inc., TimeWarner Inc., Intel Capital Corporation and certain otherstockholders of Crowdstar Inc., dated November 2, 2016.8-K001-333082.01 11/03/16 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 MobileInc. and each of its directors and executive officers, effective as ofOctober 24, 2013.8-K001-3336899.01 10/29/13 10.02(A)# Amended & Restated 2007 Equity Incentive Plan, as amendedthrough June 4, 2015.10-Q001-3336810.03 08/07/15 10.02(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 10.02(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 10.03# 2007 Employee Stock Purchase Plan, as amended and restated onAugust 1, 2011.10-K001-3336810.04 03/14/12 10.04(A)# 2008 Equity Inducement Plan, as amended effective November 14,2016.8-K001-3336899.01 11/18/16 125 Table of Contents 10.04(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 10.04(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 10.05# Forms of Stock Option Award Agreement (ImmediatelyExercisable) and Stock Option Exercise Agreement (ImmediatelyExercisable) under the Glu Mobile Inc. 2007 Equity Incentive Plan.10-Q001-3336810.05 08/14/08 10.06# Executive Chairman Agreement between Glu Mobile Inc. andNiccolo M. de Masi, dated November 2, 2016.8-K001-3336810.01 11/03/16 10.07# Summary of Compensation Terms of Nick Earl.8-K001-3336899.01 02/03/17 10.08# Executive Employment Agreement, effective as of November 10,2016, by and between Glu Mobile Inc. and Nick Earl. X 10.09# Change of Control Severance Agreement between Glu Mobile Inc.and Nick Earl, effective as of November 10, 2016. X 10.10# Summary of Change of Control Severance Agreement between GluMobile Inc. and Nick Earl, dated as of February 8, 2016.10-K001-3336810.20 03/04/16 10.11# Summary of Compensation Terms of Eric R. Ludwig.8-K001-3336899.01 02/03/17 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 02/03/17 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 10.16# Summary of Compensation Terms of Tim Wilson.8-K001-3336899.01 02/03/17 10.17# Change of Control Severance Agreement between Glu Mobile Inc.and Tim Wilson, effective as of November 10, 2015. X 10.18# Summary of Compensation Terms of Scott J. Leichtner.8-K001-3336899.01 02/03/17 10.19# Summary of Change of Control Severance Arrangement betweenGlu Mobile Inc. and Scott J. Leichtner, dated as of July 7, 2011.10-K001-3336810.15 03/15/13 126 Table of Contents 10.20# Amended and Restated Glu Mobile Inc. 2016 Executive BonusPlan8-K001-3336899.01 05/13/16 10.21# Glu Mobile Inc. 2017 Executive Bonus Plan8-K001-3336899.01 02/03/17 10.22# Non-Employee Director Compensation Program, effective as ofOctober 1, 2013.10-K001-3336810.23 03/14/14 10.23 Sublease between Oracle America, Inc. and Glu Mobile Inc., datedas of April 16, 2013.8-K001-3336899.01 04/22/13 10.24 Common Stock Warrant, between Glu Mobile Inc. and MGMInteractive Inc., dated as of July 15, 2013.S-3333-1905454.03 08/09/13 10.25 iOS Developer Program License Agreement between Glu GamesInc. and Apple Inc., as amended to date.10-K001-3336810.27 03/15/13 10.26 Android Market Developer Distribution Agreement between GluGames Inc. and Google Inc., as amended to date.10-K001-3336810.28 03/15/13 10.27+ License Agreement, dated as of March 31, 2012, by and betweenGlu Mobile Inc. and Atari, Inc.10-Q/A001-3336810.01 10/12/12 10.28+ 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 10.29+ 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 10.30+ 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 10.31+ Amendment No. 3 dated September 16, 2016 to License Agreement,dated as of November 5, 2013, by and between Glu andKimsaprincess, Inc., as previously amended June 13, 2014 andSeptember 2, 2014.10-Q001-3336810.01 11/09/16 21.01 List of Subsidiaries of Glu Mobile Inc. X 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 127 Table of Contents 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.128Exhibit 10.08 GLU MOBILE INC.EXECUTIVE EMPLOYMENT AGREEMENT This Executive Employment Agreement (the “Agreement”) is entered into between Glu Mobile Inc. (“Company”)and Nick Earl (“Employee”). This Agreement is effective as of November 10, 2016 (the “Effective Date”). In consideration of the promises and the terms and conditions set forth in this Agreement, the parties agree asfollows: 1. Position and Duties. As of the Effective Date, Employee will serve as the Company’s President and ChiefExecutive Officer. As the Company’s President and Chief Executive Officer, Employee will be the most senior officer ofthe Company and will render such business and professional services in the performance of his duties as are customary tosuch offices and positions in a Delaware corporation and consistent with the Company’s Certificate of Incorporation andBylaws, including general supervision, direction, and control of the business and officers of the Company, subject in everycase to the direction and control of the Company’s Board of Directors (the “Board”) and its committees. Employee shallreport directly and solely to the Board. Employee agrees to serve without additional remuneration in an executive ordirector capacity for one or more direct or indirect subsidiaries of the Company as the Board may from time to timerequest. Employee’s primary place of employment will be located at the Company’s corporate headquarters in the SanFrancisco Bay Area. 2. Board Service. Employee will be appointed to the Board not later than thirty (30) days following theEffective Date. Employee may be removed from the Board in accordance with applicable law and the Company’sCertificate of Incorporation and Bylaws. Upon the termination of Employee’s employment for any reason, and unlessotherwise requested by the Board, Employee will be deemed to have voluntarily resigned from the Board (and all otherpositions held at the Company and its affiliates) without any further action required by Employee or the Board. At theBoard’s request, Employee will execute any documents necessary to reflect such resignation. 3. Exclusive Service. Executive shall devote his full business efforts and time to the Company. During hisemployment with the Company, Employee agrees not to actively engage in any other employment, occupation orconsulting activity for any direct or indirect remuneration without the prior approval of the Board; provided, however, thatEmployee may serve in any capacity with any civic, educational or charitable organization without the prior approval of theBoard, so long as such activities do not materially interfere with Employee’s duties and obligations under thisAgreement. Employee will also be expected to comply with and be bound by the Company’s operating policies,procedures and practices that are from time to time in effect during the term of his employment. 4. At‑Will Employment. Employee and the Company understand and acknowledge that Employee’semployment with the Company constitutes “at-will” employment, and the employment relationship may be terminated atany time, for any reason, with or without notice. 5. Compensation and Benefits. 5.1 Base Salary. While employed by the Company pursuant to this Agreement, the Company shall paythe Employee an annual base salary of $450,000 (the “Base Salary”), payable in accordance with the Company’s normalpayroll practices. The Compensation Committee of the Board shall periodically review Employee’s compensation andbenefits. 5.2 Annual Target Bonus. Employee will continue to be eligible to participate in the Company’s 2016Executive Bonus Plan, as amended on May 12, 2016 (the “Bonus Plan”), pursuant to which Employee is eligible to receivean annual cash bonus with a target of one hundred percent (100%) of Employee’s then current annual base salary and amaximum cash bonus equal to two hundred percent (200%) of Employee’s then current annual base salary, subject to theterms and conditions of the Bonus Plan. Employee’s participation in any future bonus plans, and the terms of any suchfuture bonus plans, will be determined by the Board or the Compensation Committee of the Board. 5.3 Employee Benefits. During Employee’s employment with the Company, Employee will be eligible toparticipate in the employee benefit plans currently and hereafter maintained by the Company of general applicability toother executive officers of the Company, including, without limitation, the Company’s group medical, dental, vision,disability, life insurance, flexible-spending account, 401(k) and employee stock purchase plan and vacation policies. TheCompany reserves the right to cancel or change the benefit plans and programs it offers to its employees at any time. 5.4 Severance Benefits for Termination Without Cause or Involuntary Termination. If the Employee’semployment with the Company is terminated without Cause (as such term is defined in the Change of Control SeveranceAgreement by and between Employee and the Company with an effective date of November 10, 2016 (the “Change ofControl Agreement”)) or is terminated as a result of an Involuntary Termination (as such term is defined in the Change ofControl Agreement) at any time, other than within twelve (12) months after a Change of Control (as such term is defined inthe Change of Control Agreement), and Employee delivers to the Company a signed agreement and general release (the“Release”) and satisfies all conditions to make the Release effective within sixty (60) days following such termination (the“Release Period”), then, in addition to Accrued Compensation (as defined below) (which shall be payable pursuant to theCompany’s usual payroll schedule irrespective of whether Employee signs and returns the Release), the Employee will beentitled to the following severance benefits (which, to the extent they are payments of money, shall be payable by theCompany not later than fourteen (14) days following receipt by the Company of the Release): (i) twelve (12) months of the Employee’s then-current annual base salary, payable in a lump sum (the“Severance Payment”); and (ii) until the earlier of (i) the date Employee is no longer eligible to receive continuation coverage pursuantto COBRA (as such term is defined below), or (ii) twelve (12) months from the termination date, the Company shallreimburse Employee for continuation coverage pursuant to COBRA as was in effect for the Employee (and any eligibledependents) on the day immediately preceding the termination date; provided, however, that (i) the Employee constitutes aqualified beneficiary, as defined in Section 4980B(g)(1) of the United States Internal Revenue Code of 1986, as amended,and the regulations promulgated thereunder; and (ii) the Employee timely elects continuation coverage pursuant to theConsolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). Notwithstanding the foregoing, if theCompany determines that it cannot provide the foregoing COBRA reimbursements without violating applicable law orincurring additional expense under applicable law (including, without limitation, Section 2716 of the Public Health ServiceAct), the Company will provide Employee, in lieu thereof, a taxable lump sum payment for the balance of the COBRAperiod (the “Cash COBRA”), which payment will equal 100% of the applicable COBRA premium for the Employee andany dependents. The number of months of Cash COBRA to be paid, in any case, shall be reduced by the number ofmonths of previously reimbursed COBRA premiums. Notwithstanding the foregoing, if the Release Period straddles two calendar years, then the SeverancePayment will be paid on March 15 of the second year.2 th6. Stock Options. 6.1 Stock Option Awards. Following the Effective Date and subject to approval of the CompensationCommittee of the Board, the Company will grant Employee two non-qualified stock options to purchase an aggregate ofone million five hundred thousand (1,500,000) shares of the Company’s Common Stock (the “Options”). The Options willbe bifurcated into two awards: the first Option award will be a non-qualified stock option to purchase an aggregate of sixhundred fifty thousand (650,000) shares of the Company’s Common Stock to be granted as soon as reasonably practicablefollowing the Effective Date (the “First Option”), and the second Option award will be a non-qualified stock option topurchase an aggregate of eight hundred fifty thousand (850,000) shares of the Company’s Common Stock to be granted onthe first trading day of 2017 or as soon as reasonably practicable thereafter (the “Second Option”). Each Option will havean exercise price equal to the fair market value of the Company’s common stock on the applicable date of grant and willvest over four (4) years, with twenty-five percent (25%) of the total number of shares subject to each Option vesting on theone-year anniversary of the date of grant of the First Option and the remainder vesting in equal installments on the monthlydate of the First Option’s grant anniversary each month thereafter. Vesting will depend on Employee’s continued servicewith the Company and will be subject to the terms and conditions of the plan (as applicable) and the written stock optionagreement governing the Options. 6.2 Transfer Restrictions. During the period beginning on the grant date of the First Option andcontinuing and including the date that is twenty-four (24) months after the grant date of the First Option, Employee will notoffer, sell, contract to sell, pledge or otherwise transfer or dispose of, directly or indirectly, the Options or any shares ofCommon Stock subject to the Options (the “Lock-Up”) provided, however, that the foregoing restrictions shall not apply totransfers (i) as a bona fide gift or gifts, (ii) to any trust for the direct or indirect benefit of the Employee or the immediatefamily of the Employee, (iii) by will or the laws of descent, (iv) by operation of law pursuant to a qualified domestic orderor in connection with a divorce settlement, or (v) pursuant to a bona fide third-party tender offer, merger, consolidation orother similar transaction made to all holders of the Company’s capital stock involving a change of control of the Company,provided that in the event that such tender offer, merger, consolidation or other such transaction is not completed, theEmployee’s shares of Common Stock and the Options shall remain subject to the provisions of this Lock-Up;provided, however, that in the case of subclauses (i), (ii), (iii) and (iv) above, it shall be a condition to the transfer ordistribution that each transferee, donee or distributee shall execute an agreement stating that such transferee, donee ordistributee is receiving and holding such capital stock subject to the provisions of this Lock-Up and there shall be no furthertransfer of such capital stock in accordance with the Lock-Up. 7. Expenses Relating to the Performance of Services. The Company will, in accordance with applicableCompany policies and guidelines, reimburse Employee for all reasonable and necessary expenses directly incurred byEmployee in connection with the performance of services as the Company’s Chief Executive Officer. In addition, theCompany will reimburse your reasonable attorneys’ fees, not to exceed $10,000, incurred in connection with theconsideration and negotiation of this Agreement. 8. Change of Control Severance Benefits. Employee will execute, and upon such execution, be entitled to thebenefits set forth in the Change of Control Agreement, attached hereto as Exhibit A, subject to its terms and conditions. 9. Termination of Employment for Cause, Death, Disability or Voluntary Separation from Service. In theevent of any separation from service of Employee’s employment by the Company for Cause (as such term is defined in theChange of Control Agreement) or in the event of the Employee’s death, disability (as such term is defined in Section 22(e)(3) of the Code or voluntary separation from service at any time and for any reason, the Employee will be paid only theAccrued Compensation.3 10. Accrued Wages and Vacation; Expenses. Without regard to the reason for, or the timing of, Employee’stermination of employment: (i) the Company shall pay the Employee any unpaid base salary due for periods prior to theTermination Date; (ii) the Company shall pay the Employee and other unpaid vested amounts or benefits under thecompensation, incentive and benefit plans of the Company in which Employee participates; (iii) the Company shall pay theEmployee all of the Employee’s accrued and unused vacation through the Termination Date; and (iv) following submissionof proper expense reports by the Employee, the Company shall reimburse the Employee for all expenses reasonably andnecessarily incurred by the Employee in connection with the business of the Company prior to the Termination Date (the “Accrued Compensation”). These payments shall be made promptly and within the period of time mandated by law. 11. Miscellaneous. 11.1 Arbitration. The parties agree that any controversy or claim arising out of or relating to thisAgreement, or the breach thereof, shall be submitted to the American Arbitration Association (“AAA”) and that a neutralarbitrator will be selected in a manner consistent with its National Rules for the Resolution of Employment Disputes. Thearbitration proceedings will allow for discovery according to the rules set forth in the National Rules for the Resolution ofEmployment Disputes (the “Rules”). All arbitration proceedings shall be conducted in Santa Clara County, California. Except as provided by the Rules, arbitration shall be the sole, exclusive and final remedy for any dispute between Employeeand the Company. Accordingly, except as provided for by the Rules, neither Employee nor the Company will be permittedto pursue court action regarding claims that are subject to arbitration. In addition to the right under the Rules to petition thecourt for provisional relief, Employee agrees that any party may also petition the court for injunctive relief where eitherparty alleges or claims a violation of this Agreement. 11.2 Indemnification. The Company will continue to provide you indemnification to the maximum extentpermitted by the Company’s Certificate of Incorporation and Bylaws, in addition to coverage under any directors andofficers insurance policies maintained by the Company, with such indemnification to be on terms determined by the Boardor any of its committees, but in no case less favorable than those provided to any other executive officer or director of theCompany. 11.3 Section 409A. To the extent (i) any payments to which Employee becomes entitled under thisagreement, or any agreement or plan referenced herein, in connection with Employee’s separation from service from theCompany constitute deferred compensation subject to Section 409A of the Code and (ii) Employee is deemed at the time ofsuch separation from service to be a “specified” employee under Section 409A of the Code, then such payment or paymentshall not be made or commence until the earliest of (i) the expiration of the six (6)-month period measured from the date ofEmployee’s “separation from service” (as such term is at the time defined in Treasury Regulations under Section 409A ofthe Code with the Company or (ii) the date of Employee’s death following such separation from service; provided,however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to Employee,including (without limitation) the additional twenty percent (20%) tax for which Employee would otherwise be liable underSection 409A(a)(1)(B) of the Code in the absence of such deferral. Upon the expiration of the applicable deferral period,any payments which would have otherwise been made during that period (whether in a single sum or in installments) in theabsence of this paragraph shall be paid to Employee or Employee’s beneficiary in one lump sum. For purposes of thisAgreement, no payment will be made to Employee upon termination of Employee’s employment unless such terminationconstitutes a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, asamended (the “Code”), and Section 1.409A-1(h) of the regulations promulgated thereunder. Except as otherwise expresslyprovided herein, to the extent any expense reimbursement or the provision of any in-kind benefit under this Agreement (orotherwise referenced herein) is determined to be subject to (and not exempt from) Section 409A of the Code, the amount ofany such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affectthe expenses eligible for reimbursement or in kind benefits to be provided in any other calendar year, in no event shall anyexpenses be reimbursed after the last day of the calendar year following the calendar year in which4 you incurred such expenses, and in no event shall any right to reimbursement or the provision of any in-kind benefit besubject to liquidation or exchange for another benefit. To the extent that any provision of this Agreement is ambiguous asto its exemption or compliance with Section 409A, the provision will be read in such a manner so that all paymentshereunder are exempt from Section 409A to the maximum permissible extent, and for any payments where suchconstruction is not tenable, that those payments comply with Section 409A to the maximum permissible extent. To theextent any payment under this Agreement may be classified as a “short-term deferral” within the meaning of Section 409A,such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption from Section 409A underanother provision of Section 409A. Payments pursuant to this Agreement (or referenced in this Agreement), and eachinstallment thereof, are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the regulationsunder Section 409A. A termination of employment is intended to constitute a “separation from service” within the meaningof Section 409A. 11.4 Severability. If any provision of this Agreement shall be found by any arbitrator or court ofcompetent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent of itsinvalidity or unenforceability, and agree that all other provisions in this Agreement shall continue in full force and effect. 11.5 No Waiver. The failure by either party at any time to require performance or compliance by the otherof any of its obligations or agreements shall in no way affect the right to require such performance or compliance at anytime thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver ofany preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall beeffective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced. 11.6 Assignment. This Agreement and all rights hereunder are personal to Employee and may not betransferred or assigned by Employee at any time. The Company may assign its rights, together with its obligationshereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of allor substantially all of its business and assets, provided, however, that any such assignee assumes the Company’s obligationshereunder. 11.7 Withholding. All sums payable to Employee hereunder shall be in United States Dollars and shall bereduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law. 11.8 No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any paymentcontemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receivefrom any other source. 11.9 Entire Agreement. This Agreement (and the exhibit(s) hereto) constitute the entire agreement andunderstanding between the parties relating to the subject matter contained herein. 11.10 Amendment. The parties understand and agree that this Agreement may not be amended, modifiedor waived, in whole or in part, expect in a writing executed by both Employee and the Board. 11.11 Binding Nature. This Agreement shall be binding upon, and inure to the benefit of, the successorsand personal representatives of the respective parties hereto. Employee acknowledges that she has had the opportunity todiscuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read andfully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.5  11.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shallbe deemed to be an original but all of which, taken together, constitute one and the same agreement. 11.13 Governing Law. This Agreement and the rights and obligations of the parties hereto shall beconstrued in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws. IN WITNESS WHEREOF, the Company and Employee have executed this Agreement as of the date indicatedbelow. Glu Mobile Inc. Employee /s/ Benjamin T. Smith, IV /s/ Nick Earl Name:Benjamin T. Smith, IV Nick EarlTitle: Lead Director and Chairman of the Compensation Committee 6Exhibit 10.09 GLU MOBILE INC. CHANGE OF CONTROL SEVERANCE AGREEMENT This Change of Control Severance Agreement (the “Agreement”) is made and entered into effective as of November10, 2016 (the “Effective Date”), by and between Nick Earl (the “Employee”) and Glu Mobile Inc. (the “Company”). RECITALS A. It is expected that the Company from time to time will consider the possibility of a Change of Control (asdefined below). The Board of Directors of the Company (the “Board”) recognizes that such consideration can be adistraction to the Employee and can cause the Employee to consider alternative employment opportunities. B. The Board believes that it is in the best interests of the Company and its stockholders to provide the Employeewith an incentive to continue his employment and to maximize the value of the Company upon a Change of Control for thebenefit of its stockholders. C. In order to provide the Employee with enhanced financial security and sufficient encouragement to remain withthe Company notwithstanding the possibility of a Change of Control, the Board believes that it is important to provide theEmployee with certain severance benefits upon the Employee’s termination of employment following a Change of Control. AGREEMENT In consideration of the mutual covenants herein contained and the continued employment of Employee by theCompany, the parties agree as follows: 1. Definitions. Unless otherwise defined elsewhere herein, the following terms referred to in this Agreement shall havethe following meanings: (a) “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 orany of the Company’s customers, suppliers or partners, (ii) his personal dishonesty, willful misconduct in the performanceof services for the Company, or breach of fiduciary duty involving personal profit, (iii) his being convicted of, or pleadingno contest to, any felony or misdemeanor involving fraud, breach of trust or misappropriation or any other act that theBoard reasonably believes in good faith has materially adversely affected, or upon disclosure will materially adverselyaffect, the Company, including the Company’s public reputation, (iv) any material breach of any agreement with theCompany by him that remains uncured for thirty (30) days after written notice by the Company to him or her, unless thatbreach is incapable of cure, or any other material unauthorized use or disclosure of the Company’s confidential informationor trade secrets involving personal benefit or (v) his failure to follow the lawful directions of the Board or, if he is not thechief executive officer, the lawful directions of the chief executive officer, in the scope of his employment unless hereasonably believes in good faith that these directions are not lawful and notifies the Board or chief executive officer, as thecase may be, of the reasons for his belief.1 (b) “Change of Control” means the closing of (i) a merger or consolidation in one transaction or a series ofrelated transactions, in which the Company’s securities held by the Company’s stockholders before the merger orconsolidation represent less than fifty percent (50%) of the outstanding voting equity securities of the surviving corporationafter the transaction or series of related transactions, (ii) a sale or other transfer of all or substantially all of the Company’sassets as a going concern, in one transaction or a series of related transactions, followed by the distribution to theCompany’s stockholders of any proceeds remaining after payment of creditors or (iii) a transfer of more than fifty percent(50%) of the Company’s outstanding voting equity securities by the Company’s stockholders to one or more relatedpersons or entities other than the Company in one transaction or a series of related transactions. Notwithstanding theforegoing, to the extent that any amount constituting deferred compensation (as defined in Section 409A of the Code)would become payable under this Agreement solely by reason of a Change of Control, such amount shall become payableonly if the event constituting a Change of Control would also qualify as a change in ownership or effective control of theCompany or a change in the ownership of a substantial portion of the assets of the Company, each as defined within themeaning of Section 409A of the Code, as it has been and may be amended from time to time, and any proposed or finalTreasury Regulations and IRS guidance that has been promulgated or may be promulgated thereunder from time to time. (c) “Code” means the United States Internal Revenue Code of 1986, as amended, and the regulationspromulgated thereunder. (d) “Involuntary Termination” means the Employee’s resignation of employment from the Company expresslybased on the occurrence of any of the following conditions, without the Employee’s informed written consent, provided,however, that with respect to each of the following conditions, the Employee must (a) within ninety (90) days following itsoccurrence, deliver to the Company a written notice, pursuant to Section 8(b) hereof, explaining the specific basis for theEmployee’s belief that the Employee is entitled to terminate the Employee’s employment due to an InvoluntaryTermination, (b) give the Company an opportunity to cure any of the following within thirty (30) days following delivery ofsuch notice and explanation: (i) a material reduction in his duties, position or responsibilities, or his removal from theseduties, position and responsibilities, unless he is provided with a position of substantially equal or greater organizationalduties, position or authority; provided, however, that a mere change of title, in and of itself, or a reduction of duties,position or responsibilities, in each case solely by virtue of the Company being acquired and made part of an entity wherethe Employee maintains substantially similar duties, position and responsibilities (for example, the Company being acquiredby another entity and the Employee becomes divisional head of what was previously the Company prior to such acquisitionand the Employee retains substantially similar duties, position and responsibilities following such acquisition) will notconstitute an “Involuntary Termination,” (ii) a greater than fifteen percent (15%) reduction in his then-current annual basecompensation (where such reduction is not applicable to the Company’s other executive officers), or (iii) relocation to afacility or a location more than thirty (30) miles from his then-current location of employment. For the avoidance of doubt,Involuntary Termination shall not include a termination of employment for death or Permanent Disability. Additionally, inthe event the Company fails to cure the condition giving rise to an Involuntary Termination within the cure period providedabove, Employee must terminate employment with the Company within thirty (30) days of the end of the cure period. (e) “Permanent Disability” has the meaning set forth in Section 22(e) of the Code. (f) “Termination Date” shall mean the effective date of any notice of termination delivered by one party to theother hereunder. 2 2. Term of Agreement. This Agreement shall terminate upon the date that all obligations of the parties hereto underthis Agreement have been satisfied or, if earlier, on the date, prior to a Change of Control, Employee is no longer employedby the Company. 3. At-Will Employment. The Company and the Employee acknowledge that the Employee’s employment is, and shallcontinue to be, at-will. 4. Severance Benefits. (a) Termination Following a Change of Control. If the Employee’s employment with the Company is terminatedwithout Cause or is terminated as a result of an Involuntary Termination at any time within twelve (12) months after aChange of Control and the Employee delivers to the Company a general release of claims in favor of the Company (therelease of which shall not include any release of claims pursuant to which the Employee is entitled to indemnification withrespect to thereof) (the “Release”) and satisfies all conditions to make the Release effective within sixty (60) days followingsuch termination (the “Release Period”), then, in addition to Accrued Compensation (as defined below) (which shall bepayable pursuant to the Company’s usual payroll schedule irrespective of whether Employee signs and returns the Release),the Employee will be entitled to the following severance benefits (which, to the extent they are payments of money, shall bepayable not later than fourteen (14) days following the receipt by the Company of the Release, and subject to the timelimitations set forth in Section 5): (i) twelve (12) months of the Employee’s then-current annual base salary, payable in a lump sum (the“Separation Payment”); (ii) Employee’s annual bonus for the year, based on the target potential amount (not the maximumpotential amount or the amount actually payable), payable in a lump sum (the “Severance Bonus”); (iii) shares subject to outstanding time-based equity awards (including for the avoidance of doubt stockoptions and restricted stock units) shall become fully vested and, if applicable, exercisable (notwithstanding the foregoing,each equity grant that was granted by the Company to the Employee prior to the Effective Date will continue to begoverned by the Change of Control Severance Arrangement between the Company and the Employee, dated as of February8, 2016 (such agreement, the “Prior Severance Agreement”)); and (iv) Until the earlier of (i) the date Employee is no longer eligible to receive continuation coveragepursuant to COBRA (as defined below), or (ii) twelve (12) months from the Termination Date, the Company shall reimburseEmployee for continuation coverage pursuant to COBRA as was in effect for the Employee (and any eligible dependents)on the day immediately preceding the Termination Date; provided, however, that (i) the Employee constitutes a qualifiedbeneficiary, as defined in Section 4980B(g)(l) of the Code; and (ii) the Employee timely elects continuation coveragepursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). Notwithstanding theforegoing, if the Company determines that it cannot provide the foregoing COBRA reimbursements without violatingapplicable law or incurring additional expense under applicable law (including, without limitation, Section 2716 of thePublic Health Service Act), the Company will provide the Employee, in lieu thereof, a taxable lump sum payment for thebalance of the COBRA period (the “Cash COBRA”), which payment will equal 100% of the applicable COBRA premiumfor the Employee and any dependents. The number of months of Cash COBRA to be paid, in any case, shall be reduced bythe number of months of previously reimbursed COBRA premiums.3 Notwithstanding the foregoing, if the Release Period straddles two calendar years, then the Separation Payment andthe Separation Bonus will be paid on March 15 of the second year. (b) Termination Apart from a Change of Control. If the Employee’s employment with the Company terminatesfor any reason (including a termination without Cause or due to an Involuntary Termination) at any time following twelve(12) months after a Change of Control, then the Employee shall not be entitled to receive any acceleration, severance orother benefits pursuant to this Agreement, but may be eligible for those benefits (if any) as may then be established underthe Company’s then-existing severance and benefits plans and policies at the time of such termination or under Employee’semployment agreement with the Company. (c) Accrued Wages and Vacation; Expenses. Without regard to the reason for, or the timing of, Employee’stermination of employment: (i) the Company shall pay the Employee any unpaid base salary due for periods prior to theTermination Date; (ii) the Company shall pay the Employee all of the Employee’s accrued and unused vacation through theTermination Date and (iii) following submission of proper expense reports by the Employee, the Company shall reimbursethe Employee for all expenses reasonably and necessarily incurred by the Employee in connection with the business of theCompany prior to the Termination Date (the “Accrued Compensation”). These payments shall be made promptly andwithin the period of time mandated by law. 5. Section 409A. To the extent (i) any payments or benefits to which Employee becomes entitled under thisAgreement, or any agreement or plan referenced herein, in connection with Employee’s termination of employment withthe Company constitute deferred compensation subject to Section 409A of the Code and (ii) the Employee is deemed at thetime of such termination of employment to be a “specified employee” under Section 409A of the Code, then such paymentsshall not be made or commence until the earliest of (A) the expiration of the six (6)-month period measured from the date ofEmployee’s “separation from service” (as such term is at the time defined in Treasury Regulations under Section 409A ofthe Code) from the Company; or (B) the date of the Employee’s death following such separation from service; provided,however, that such deferral shall only be effected to the extent required to avoid adverse tax treatment to the Employee,including (without limitation) the additional twenty percent (20%) tax for which the Employee would otherwise be liableunder Section 409A(a)(1)(B) of the Code in the absence of such deferral. Upon the expiration of the applicable deferralperiod, any payments which would have otherwise been made during that period (whether in a single sum or ininstallments) in the absence of this paragraph shall be paid to the Employee or the Employee’s beneficiary in one lump sum(without interest). Except as otherwise expressly provided herein, to the extent any expense reimbursement or the provisionof any in-kind benefit under this Agreement (or otherwise referenced herein) is determined to be subject to (and not exemptfrom) Section 409A of the Code, the amount of any such expenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect the expenses eligible for reimbursement or in kind benefits to be providedin any other calendar year, in no event shall any expenses be reimbursed after the last day of the calendar year followingthe calendar year in which you incurred such expenses, and in no event shall any right to reimbursement or the provision ofany in-kind benefit be subject to liquidation or exchange for another benefit. To the extent that any provision of thisAgreement is ambiguous as to its exemption or compliance with Section 409A, the provision will be read in such a mannerso that all payments hereunder are exempt from Section 409A to the maximum permissible extent, and for any paymentswhere such construction is not tenable, that those payments comply with Section 409A to the maximum permissibleextent. To the extent any payment under this Agreement may be classified as a “short-term deferral” within the meaning ofSection 409A, such payment shall be deemed a short-term deferral, even if it may also qualify for an exemption fromSection 409A under another provision of Section 409A. Payments pursuant to this Agreement (or referenced in thisAgreement), and each installment thereof, are intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the regulations under4 thSection 409A. A termination of employment is intended to constitute a “separation from service” within the meaning ofSection 409A. 6. Limitation on Payments Under Code Section 280G. In the event that the severance and other benefits provided forin this Agreement or otherwise payable to the Employee (i) constitute “parachute payments” within the meaning ofSection 280G of the Code, and (ii) would be subject to the excise tax imposed by Section 4999 of the Code (the “ExciseTax”), then Employee’s benefits under this Agreement shall be either: (a) delivered in full; or (b) delivered as to such lesser extent that would result in no portion of such benefits being subject to the ExciseTax, with any such reductions first being made to the equity portion of the benefits and second being made to the cashportion of the benefits, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the ExciseTax, results in the receipt by Employee on an after-tax basis, of the greatest amount of benefits, notwithstanding that all orsome portion of such benefits may be taxable under Section 4999 of the Code. If a reduction or elimination in payments orbenefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shalloccur in the following order: first a pro-rata reduction of (i) cash payments subject to Section 409A of the Code as deferredcompensation and (ii) cash payments not subject to Section 409A of the Code, and second a pro rata cancellation of (i)equity-based compensation subject to Section 409A of the Code as deferred compensation and (ii) equity-basedcompensation not subject to Section 409A of the Code, with equity all being reduced in reverse order of vesting and equitynot subject to treatment under Treasury regulation 1.280G- Q & A 24(c) being reduced before equity that is so subject. Unless the Company and the Employee otherwise agree in writing, any determination required under thisSection shall be made in writing by the Company’s independent public accountants (the “Accountants”), whosedetermination shall be conclusive and binding upon the Employee and the Company for all purposes. For purposes ofmaking the calculations required by this Section, the Accountants may make reasonable assumptions and approximationsconcerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application ofSection 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants such informationand documents as the Accountants may reasonably request in order to make a determination under this Section. TheCompany shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated bythis Section. 7. Successors. (a) Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase,lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assetsshall assume the Company’s obligations under this Agreement and agree expressly to perform the Company’s obligationsunder this Agreement in the same manner and to the same extent as the Company would be required to perform suchobligations in the absence of a succession, unless otherwise agreed upon in writing by the Employee and suchsuccessor. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’sbusiness and/or assets. (b) Employee’s Successors. Without the written consent of the Company, Employee shall not assign or transferthis Agreement or any right or obligation under this Agreement to any other person5 or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of Employee hereunder shall inure tothe benefit of, and be enforceable by, Employee’s personal or legal representatives, executors, administrators, successors,heirs, distributees, devisees and legatees. 8. Notices. (a) General. Notices and all other communications contemplated by this Agreement shall be in writing and shallbe deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, returnreceipt requested and postage prepaid. In the case of the Employee, mailed notices shall be addressed to him at the homeaddress which he most recently communicated to the Company in writing. In the case of the Company, mailed notices shallbe addressed to its corporate headquarters, and all notices shall be directed to the attention of its General Counsel. (b) Notice of Termination. Any termination by the Company for Cause or by the Employee as a result of avoluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other partyhereto given in accordance with this Section. Such notice shall indicate the specific termination provision in this Agreementrelied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination underthe provision so indicated, and shall specify the Termination Date (which shall be not more than thirty (30) days after thegiving of such notice). The failure by the Employee to include in the notice any fact or circumstance which contributes to ashowing of Involuntary Termination shall not waive any right of the Employee hereunder or preclude the Employee fromasserting such fact or circumstance in enforcing Employee’s rights hereunder. 9. Arbitration. The parties agree that any controversy or claim arising out of, or relating to, this Agreement, or thebreach hereof, shall be submitted to the American Arbitration Association (“AAA”) and that a neutral arbitrator will beselected in a manner consistent with the AAA’s National Rules for the Resolution of Employment Disputes (the“Rules”). The arbitration proceedings will allow for discovery according to the Rules. All arbitration proceedings shall beconducted in Santa Clara County, California. 10. Miscellaneous Provisions. (a) No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any paymentcontemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receivefrom any other source. (b) Waiver. No provision of this Agreement may be modified, waived or discharged unless the modification,waiver or discharge is agreed to in writing and signed by both the Employee and by an authorized officer of the Company(other than the Employee). No waiver by either party of any breach of, or of compliance with, any condition or provisionof this Agreement by the other party shall be considered a waiver of any other condition or provision, or of the samecondition or provision at another time. (c) Integration. This Agreement and any outstanding agreements referenced herein (including, for the avoidanceof doubt, the Prior Severance Agreement) represent the entire agreement and understanding between the parties as to thesubject matter herein regarding severance and acceleration benefits and supersede all prior or contemporaneous agreements,whether written or oral, with respect to this Agreement. (d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall begoverned by the internal substantive laws, but not the conflicts of law rules, of the State of California. 6 (e) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall notaffect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. (f) Employment Taxes. All payments made pursuant to this Agreement shall be subject to withholding ofapplicable income and employment taxes. (g) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original,but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its dulyauthorized officer, as of the day and year first above written. COMPANY:GLU MOBILE INC. By:/s/ Benjamin T. Smith, IV Title: Lead Director and Chairman of the Compensation Committee EMPLOYEE:/s/ Nick Earl Signature Nick Earl Printed Name 7Exhibit 10.17 GLU MOBILE INC. CHANGE OF CONTROL SEVERANCE AGREEMENT This Change of Control Severance Agreement (the “Agreement”) is made and entered into effective as of November10, 2015 (the “Effective Date”), by and between James T. Wilson (the “Employee”) and Glu Mobile Inc. (the “Company”). RECITALS A. It is expected that the Company from time to time will consider the possibility of a Change of Control (asdefined below). The Board of Directors of the Company (the “Board”) recognizes that such consideration can be adistraction to the Employee and can cause the Employee to consider alternative employment opportunities. B. The Board believes that it is in the best interests of the Company and its stockholders to provide theEmployee with an incentive to continue his employment and to maximize the value of the Company upon a Change ofControl for the benefit of its stockholders. C. In order to provide the Employee with enhanced financial security and sufficient encouragement to remainwith the Company notwithstanding the possibility of a Change of Control, the Board believes that it is important to providethe Employee with certain severance benefits upon the Employee’s termination of employment following a Change ofControl. AGREEMENT In consideration of the mutual covenants herein contained and the continued employment of Employee by theCompany, the parties agree as follows: 1. Definitions. Unless otherwise defined elsewhere herein, the following terms referred to in this Agreementshall have the following meanings: (a) “Cause” means (i) the Employee’s committing of an act of gross negligence, gross misconduct ordishonesty, or other willful act, including misappropriation, embezzlement or fraud, that materially adversely affects theCompany or any of the Company’s customers, suppliers or partners, (ii) his personal dishonesty, willful misconduct in theperformance 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 or misdemeanor involving fraud, breach of trust or misappropriation or any other actthat the Board reasonably believes in good faith has materially adversely affected, or upon disclosure will materiallyadversely affect, the Company, including the Company’s public reputation, (iv) any material breach of any agreement withthe Company by him that remains uncured for thirty (30) days after written notice by the Company to him, unless thatbreach is incapable of cure, or any other material unauthorized use or disclosure of the Company’s confidential informationor trade secrets involving personal benefit or (v) his failure to follow the lawful directions of the chief executive officer, inthe scope of his employment unless he reasonably believes in good faith that these directions are not lawful and notifies thechief executive officer in writing of the reasons for his belief. (b) “Change of Control” means the closing of (i) a merger or consolidation in one transaction or a seriesof related transactions, in which the Company’s securities held by the Company’s stockholders before the merger orconsolidation represent less than 50% of the outstanding voting equity securities of the surviving corporation after the transaction or series of related transactions, (ii) a sale or other transfer of allor substantially all of the Company’s assets as a going concern, in one transaction or a series of related transactions,followed by the distribution to the Company’s stockholders of any proceeds remaining after payment of creditors or (iii) atransfer 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 relatedtransactions. Notwithstanding the foregoing provisions of this definition, a transaction will not be deemed a Change ofControl unless the transaction qualifies as a change in control event within the meaning of Section 409A. (c) “Code” means the United States Internal Revenue Code of 1986, as amended, and the regulationspromulgated thereunder. (d) “Involuntary Termination” means the Employee’s resignation of employment from the Companyexpressly based on the occurrence of any of the following conditions, without the Employee’s informed written consent,provided, however, that with respect to each of the following conditions, the Employee must (a) within 90 days followingits occurrence, deliver to the Company a written notice, pursuant to Section 8(b) hereof, explaining the specific basis for theEmployee’s belief that the Employee is entitled to terminate the Employee’s employment due to an InvoluntaryTermination, (b) give the Company an opportunity to cure any of the following within 30 days following delivery of suchnotice and explanation, and (c) terminate employment within fifteen days of the sooner of the expiration of the cure periodset forth above or the date the Company notifies the Employee in writing that it will not cure: (i) a material reduction in hisduties, position or responsibilities, or his removal from these duties, position and responsibilities, unless he is provided witha position of substantially equal or greater organizational level, duties, authority and compensation; provided, however, thata change of title, in and of itself, or a reduction of duties, position or responsibilities solely by virtue of the Company’sbeing acquired and made part of a larger entity will not constitute an “Involuntary Termination,” (ii) a greater than 15%reduction in his then‑current annual base compensation that is not applicable to the Company’s other executive officers, or(iii) a relocation to a facility or a location more than 30 miles from his then‑current location of employment. For theavoidance of doubt, Involuntary Termination shall not include a termination of employment for death or PermanentDisability. (e) “Permanent Disability” has the meaning set forth in Section 22(e)(3) of the Code. (f) “Termination Date” shall mean the effective date of any notice of termination delivered by one partyto the other hereunder. 2. Term of Agreement. This Agreement shall terminate upon the date that all obligations of the parties heretounder this Agreement have been satisfied or, if earlier, on the date, prior to a Change of Control, Employee is no longeremployed by the Company. 3. At-Will Employment. The Company and the Employee acknowledge that the Employee’s employment is,and shall continue to be, at-will. 4. Severance Benefits. (a) Termination Following a Change of Control. If the Employee’s employment with the Company isterminated without Cause or is terminated as a result of an Involuntary Termination at any time within 12 months after aChange of Control and the Employee delivers to the Company within 60 days following such termination a general releaseof claims in favor of the Company (the release of which shall not include any release of claims pursuant to which theEmployee is entitled to indemnification with respect to thereof) (the “Release”), then the Employee will be entitled to the2 following severance benefits (payable within 60 days following the Termination Date, provided that the Release has beenexecuted, delivered to the Company and is effective on or prior to such date, and provided further that if the 60-day periodspans two calendar years, payment will be made in the second calendar year, subject to the time limitations set forth inSection 5): (i) six months of the Employee’s then-current annual base salary, payable in a lump sum. (ii) fifty percent of the Employee’s target annual bonus for the calendar year in which thetermination without Cause or the Involuntary Termination occurs, payable in a lump sum. (iii) in addition to the shares that are vested and exercisable in accordance with each equity awardthat was granted by the Company to the Employee prior to the Termination Date, each such grant shall become vested andexercisable as to an additional 36 months of each such outstanding and not fully vested equity grant; (iv) Until the earlier of (i) the date Employee is no longer eligible to receive continuationcoverage pursuant to COBRA, or (ii) six months from the Termination Date, the Company shall reimburse Employee forcontinuation coverage pursuant to COBRA (as defined below) as was in effect for the Employee (and any eligibledependents) on the day immediately preceding the Termination Date; provided: (A) the Employee constitutes a qualifiedbeneficiary, as defined in Section 4980B(g)(l) of the Code; and (B) the Employee timely elects continuation coveragepursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”). Notwithstanding theforegoing, if the Company determines, in its sole discretion, that it cannot pay or reimburse the Employee for the COBRApremiums without violating applicable law (including Section 2716 of the Public Health Service Act), the Company insteadshall pay to the Employee a fully taxable lump sum cash payment equal to the applicable COBRA premiums (or remainingperiod if reimbursements had commenced prior to the date of such determination). (b) Termination Apart from a Change of Control. If the Employee’s employment with the Companyterminates for any reason (including a termination without Cause or due to an Involuntary Termination) at any timefollowing 12 months after a Change of Control, then the Employee shall not be entitled to receive any acceleration,severance or other benefits pursuant to this Agreement, but may be eligible for those benefits (if any) as may then beestablished under the Company’s then-existing severance and benefits plans and policies at the time of such termination. (c) Accrued Wages and Vacation; Expenses. Without regard to the reason for, or the timing of,Employee’s termination of employment: (i) the Company shall pay the Employee any unpaid base salary due for periodsprior to the Termination Date; (ii) the Company shall pay the Employee all of the Employee’s accrued and unused vacationthrough the Termination Date and (iii) following submission of proper expense reports by the Employee, the Company shallreimburse the Employee for all expenses reasonably and necessarily incurred by the Employee in connection with thebusiness of the Company prior to the Termination Date. These payments shall be made promptly and within the period oftime mandated by law. 5. Section 409A. (a) Notwithstanding anything to the contrary in this Agreement, if the Employee is a “specifiedemployee” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and thefinal regulations and any guidance promulgated thereunder (“Section 409A”) at the time of the Employee’s termination(other than due to death), then the severance payable to the Employee, if any, pursuant to this Agreement, when consideredtogether with any other severance3 payments or separation benefits that are considered deferred compensation under Section 409A (together, the “DeferredCompensation Separation Benefits”) that are payable within the first six (6) months following the Employee’s termination ofemployment, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) dayfollowing the date of the Employee’s termination of employment. All subsequent Deferred Compensation SeparationBenefits, if any, will be payable in accordance with the payment schedule applicable to each payment orbenefit. Notwithstanding anything herein to the contrary, if the Employee dies following his or her termination but prior tothe six (6) month anniversary of his or her termination, then any payments delayed in accordance with this paragraph willbe payable in a lump sum as soon as administratively practicable after the date of the Employee’s death and all otherDeferred Compensation Separation Benefits will be payable in accordance with the payment schedule applicable to eachpayment or benefit. Each payment and benefit payable under this Agreement is intended to constitute separate paymentsfor purposes of Section 1.409A-2(b)(2) of the Treasury Regulations. (b) Any termination of the Employee’s employment is intended to constitute a “separation from service”as such term is defined in Treasury Regulation Section 1.409A-1. (c) It is further intended that payments hereunder satisfy, to the greatest extent possible, the exemptionfrom the application of Section 409A (and any state law of similar effect) provided under Treasury Regulation Section1.409A-1(b)(4) (as a “short-term deferral”). Any amount paid under this Agreement that satisfies the requirements of the“short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations shall not constitute DeferredCompensation Separation Benefits for purposes of clause (a) above. (d) Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntaryseparation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that do not exceed the Section409A Limit shall not constitute Deferred Compensation Separation Benefits for purposes of clause (a) above. (e) The foregoing provisions are intended to comply with the requirements of Section 409A so that noneof the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed underSection 409A, and any ambiguities herein will be interpreted to so comply. The Company and the Employee agree to worktogether in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary,appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to theEmployee under Section 409A. (f) Except as otherwise expressly provided herein, to the extent any expense reimbursement or theprovision of any in-kind benefit under this Agreement is determined to be subject to Section 409A, the amount of any suchexpenses eligible for reimbursement, or the provision of any in-kind benefit, in one calendar year shall not affect theexpenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitationapplicable to medical expenses), in no event shall any expenses be reimbursed after the last day of the calendar yearfollowing the calendar year in which you incurred such expenses, and in no event shall any right to reimbursement or theprovision of any in-kind benefit be subject to liquidation or exchange for another benefit. 6. Limitation on Payments Under Code Section 280G. In the event that the severance and other benefitsprovided for in this Agreement or otherwise payable to Employee (a) constitute “parachute payments” within the meaningof Section 280G of the Code, and (b) would be subject to the excise tax imposed by Section 4999 of the Code (the “ExciseTax”), then Employee’s benefits under this Agreement shall be either:4 (i) delivered in full; or (ii) delivered as to such lesser extent that would result in no portion of such benefits being subject to theExcise Tax, with any such reductions first being made to the equity portion of the benefits and second being made to thecash portion of the benefits, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excisetax imposed by Section 4999, results in the receipt by the Employee on an after-tax basis, of the greatest amount of benefits,notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. If required, thepayments and benefits under this Agreement shall be reduced in the following order: (A) a pro rata reduction of (i) cashpayments that are subject to Section 409A as deferred compensation and (ii) cash payments not subject to Section 409A ofthe Code; (B) a pro rata reduction of (i) employee benefits that are subject to Section 409A as deferred compensation and(ii) employee benefits not subject to Section 409A; and (C) a pro rata cancellation of (i) accelerated vesting of stock andother equity-based awards that are subject to Section 409A as deferred compensation and (ii) stock and other equity-basedawards not subject to Section 409A. In the event that acceleration of vesting of stock and other equity-based awardcompensation is to be reduced, such acceleration of vesting shall be cancelled in the reverse order of the date of grant of theEmployee’s stock and other equity-based awards unless the Employee elects in writing a different order for cancellation.Unless the Company and the Employee otherwise agree in writing, any determination required under this Section will bemade in writing by the Company’s independent public accountants immediately prior to a Change of Control or such otherperson or entity to which the parties mutually agree (the “Accountants”), whose determination will be conclusive andbinding upon the Employee and the Company for all purposes. For purposes of making the calculations required by thisSection, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may relyon reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Companyand the Employee will furnish to the Accountants such information and documents as the Accountants may reasonablyrequest in order to make a determination under this Section. The Company will bear all costs the Accountants may incur inconnection with any calculations contemplated by this Section. 7. Successors. (a) Company’s Successors. Any successor to the Company (whether direct or indirect and whether bypurchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/orassets shall assume the Company’s obligations under this Agreement and agree expressly to perform the Company’sobligations under this Agreement in the same manner and to the same extent as the Company would be required to performsuch obligations in the absence of a succession, unless otherwise agreed upon in writing by the Employee and suchsuccessor. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’sbusiness and/or assets. (b) Employee’s Successors. Without the written consent of the Company, Employee shall not assign ortransfer this Agreement or any right or obligation under this Agreement to any other person or entity. Notwithstanding theforegoing, the terms of this Agreement and all rights of Employee hereunder shall inure to the benefit of, and beenforceable by, Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees,devisees and legatees. 8. Notices. (a) General. Notices and all other communications contemplated by this Agreement shall be in writingand shall be deemed to have been duly given when personally delivered or the next5 business day if sent for next-day delivery by a nationally recognized courier service with all delivery charges pre-paid. Inthe case of the Employee, couriered notices shall be addressed to him at the home address which he most recentlycommunicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its then-currentcorporate headquarters, and all notices shall be directed to the attention of its General Counsel. (b) Notice of Termination. Any termination by the Company for Cause or by the Employee as a result ofa voluntary resignation or an Involuntary Termination shall be communicated by a notice of termination to the other partyhereto given in accordance with this Section. Such notice shall indicate the specific termination provision in this Agreementrelied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination underthe provision so indicated, and shall specify the Termination Date (which shall be not more than thirty (30) days after thegiving of such notice). The failure by the Employee to include in the notice any fact or circumstance which contributes to ashowing of Involuntary Termination shall not waive any right of the Employee hereunder or preclude the Employee fromasserting such fact or circumstance in enforcing Employee’s rights hereunder. 9. Arbitration. (a) Arbitration. The Company and the Employee each agree that any and all disputes arising out of theterms of this Agreement, the Employee’s employment by the Company, the Employee’s service as an officer or director ofthe Company, the Employee’s compensation and benefits, their interpretation and any of the matters herein addressed, orthe termination of the Employee’s employment with the Company or any matters related thereto (“Covered Disputes”), willbe subject to binding arbitration. Covered Disputes that the Company and the Employee agree to arbitrate, and therebyagree to waive any right to a trial by jury, include but are not limited to any statutory claims under local, state, or federallaw, including, without limitation, claims under Title VII of the Civil Rights Act of 1964, the Americans with DisabilitiesAct of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Sarbanes-Oxley Act, the Worker Adjustment and Retraining Notification Act, the California Fair Employment and Housing Act, theFamily and Medical Leave Act, the California Family Rights Act, the California Labor Code, claims of harassment,discrimination, and wrongful termination, and any statutory, constitutional, or common law claims, claims for unpaidwages, any tort, and claims for stock, stock options or other ownership interest in the Company, except that each party may,at its or his option, seek injunctive relief in court related to the improper use, disclosure or misappropriation of a party’sproprietary, confidential or trade secret information. The Company and the Employee further understand that thisAgreement to arbitrate also applies to any Covered Disputes that the Company may have with the Employee. (b) Procedure. Company and the Employee agree that any arbitration will be administered by JudicialArbitration & Mediation Services, Inc. (“JAMS”), pursuant to its Employment Arbitration Rules & Procedures then in effect(the “JAMS Rules”) before a single arbitrator. The JAMS Rules may be found and reviewed athttp://www.jamsadr.com/rules-employment-arbitration. If the Employee is unable to access these rules, the Employee willnotify the Company and the Company will provide him with a hardcopy. The Arbitrator will have the power to award anyremedies available under applicable law, and the Arbitrator will award attorneys’ fees and costs to the prevailing party,except as prohibited by law. The decision of the Arbitrator will be in writing. Any arbitration under this Agreement will beconducted in San Francisco County, California. (c) Administrative Relief. The Employee understands that this Agreement does not prohibit him or herfrom pursuing any administrative claim with a local, state, or federal administrative body or government agency where, as amatter of law, the parties may not restrict the Employee’s ability to file such claims, including, but not limited to, theDepartment of Fair Employment and Housing, the6 Equal Employment Opportunity Commission, the National Labor Relations Board, or the Workers’ Compensation Board. (d) Remedy. Except as provided by this Agreement or applicable law, arbitration will be the sole,exclusive, and final remedy for any dispute between the Employee and the Company. (e) Voluntary Nature of Agreement. Each of the Company and the Employee acknowledges and agreesthat such party is executing this Agreement voluntarily and without any duress or undue influence by anyone. TheEmployee further acknowledges and agrees that he or she has carefully read this Agreement and has asked any questionsneeded for him or her to understand the terms, consequences, and binding effect of this Agreement and fully understands it,including that the Employee is waiving his or her right to a jury trial. The Employee agrees that he or she has beenprovided an opportunity to seek the advice of an attorney of his or her choice before signing this Agreement. 10. Miscellaneous Provisions. (a) No Duty to Mitigate. The Employee shall not be required to mitigate the amount of any paymentcontemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receivefrom any other source. (b) Waiver. No provision of this Agreement may be modified, waived or discharged unless themodification, waiver or discharge is agreed to in writing and signed by both the Employee and by an authorized officer ofthe Company (other than the Employee). No waiver by either party of any breach of, or of compliance with, any conditionor provision of this Agreement by the other party shall be considered a waiver of any other condition or provision, or of thesame condition or provision at another time. (c) Integration. This Agreement and any outstanding equity agreements referenced herein represent theentire agreement and understanding between the parties as to the subject matter herein regarding severance and accelerationbenefits and supersede all prior or contemporaneous agreements, whether written or oral, with respect to this Agreement(including without limitation the offer letter between the Company and the Employee). (d) Choice of Law. The validity, interpretation, construction and performance of this Agreement shall begoverned by the internal substantive laws, but not the conflicts of law rules, of the State of California. (e) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shallnot affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect. (f) Employment Taxes. All payments made pursuant to this Agreement shall be subject to withholding ofapplicable income and employment taxes. (g) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed anoriginal, but all of which together will constitute one and the same instrument. [Signature Page to Change of Control Severance Agreement Follows]7 IN WITNESS WHEREOF, each of the parties has executed this Change of Control Severance Agreement, in the case of theCompany by its duly authorized officer, as of the day and year first above written. COMPANY: GLU MOBILE INC. By:/s/ Nick Earl Nick Earl President and Chief Executive Officer Date: March 2, 2017 /s/ James T. WilsonEMPLOYEE:James T. Wilson Date: March 2, 2017 8Exhibit 21.01 GLU MOBILE INC. Subsidiaries as of March 10, 2017 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 Crowdstar Inc Delaware, USA Glu Games Inc. Delaware, USA Glu Mobile K.K. Japan Glu Mobile Korea Limited Korea 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, 2016. 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, 333-206230 and 333-211208) 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 10, 2017 relating to the financialstatements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLPSan Francisco, CaliforniaMarch 10, 2017 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, Nick Earl, 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 10, 2017/s/ Nick Earl Nick Earl 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 10, 2017 /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, Nick Earl, the President and Chief Executive Officer of Glu Mobile Inc. (the “Company”), pursuant to 18U.S.C. §1350, hereby certifies that: (i) the Annual Report on Form 10-K for the year ended December 31, 2016 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 10, 2017By: /s/ Nick EarlNick Earl 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, 2016 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 10, 2017 By: /s/ Eric R. LudwigEric R. LudwigExecutive Vice President, Chief Operating Officerand Chief Financial Officer (Principal Financial Officer) 

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