##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the Transition Period from  to
 Commission File Number 001-33368
 Glu Mobile Inc.
  Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    91-2143667
(I.R.S. Employer
Identification No.)
 2207 Bridgepointe Parkway, Suite 300
San Mateo, California 94404
 (650) 532-2400
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



GLU MOBILE INC.
 FORM 10-Q
 Quarterly Period Ended September 30, 2010
 TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS (Unaudited)Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    22ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    36ITEM 4. CONTROLS AND PROCEDURES
    
    
    37PART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    38ITEM 1A. RISK FACTORS
    
    
    38ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    57ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    57ITEM 4. RESERVED
    
    
    57ITEM 5. OTHER INFORMATION
    
    
    57ITEM 6. EXHIBITS
    
    
    57SIGNATURES
    
    
    58Exhibit 10.06Exhibit 31.01Exhibit 31.02Exhibit 32.01Exhibit 32.02
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 GLU MOBILE INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (in thousands, except per share data)
 September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,889
    
    
    $
    10,510Accounts receivable, net
    
    
    9,872
    
    
    
    16,030Prepaid royalties
    
    
    3,169
    
    
    
    6,738Prepaid expenses and other
    
    
    2,777
    
    
    
    2,520Total current assets
    
    
    31,707
    
    
    
    35,798Property and equipment, net
    
    
    2,314
    
    
    
    3,344Other long-term assets
    
    
    1,062
    
    
    
    929Intangible assets, net
    
    
    9,759
    
    
    
    13,059Goodwill
    
    
    4,704
    
    
    
    4,608Total assets
    
    $
    49,546
    
    
    $
    57,738LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    3,763
    
    
    $
    4,480Accrued liabilities
    
    
    878
    
    
    
    817Accrued compensation
    
    
    3,895
    
    
    
    1,829Accrued royalties
    
    
    8,182
    
    
    
    12,604Accrued restructuring
    
    
    821
    
    
    
    1,406Deferred revenues
    
    
    972
    
    
    
    914Current portion of long-term debt
    
    
    4,682
    
    
    
    16,379Total current liabilities
    
    
    23,193
    
    
    
    38,429Other long-term liabilities
    
    
    7,866
    
    
    
    7,616Total liabilities
    
    
    31,059
    
    
    
    46,045Commitments and contingencies (Note 5)Stockholders equity:Preferred stock, $0.0001 par value; 5,000 shares authorized at September 30, 2010 and December 31, 2009;
no shares issued and outstanding at September 30, 2010 and December 31, 2009
    
    
    
    
    
    
    Common stock, $0.0001 par value: 250,000 shares authorized at September 30, 2010 and December 31, 2009;
44,573 and 30,360 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively
    
    
    4
    
    
    
    3Additional paid-in capital
    
    
    203,206
    
    
    
    188,078Accumulated other comprehensive income
    
    
    1,073
    
    
    
    931Accumulated deficit
    
    
    (185,796
    )
    
    
    (177,319
    )Total stockholders equity
    
    
    18,487
    
    
    
    11,693Total liabilities and stockholders equity
    
    $
    49,546
    
    
    $
    57,738
   3




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##### Table of Contents



GLU MOBILE INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (in thousands, except per share data)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Revenues
    
    $
    15,468
    
    
    $
    19,645
    
    
    $
    48,709
    
    
    $
    60,292Cost of revenues:Royalties
    
    
    3,934
    
    
    
    5,302
    
    
    
    12,905
    
    
    
    16,782Impairment of prepaid royalties and guarantees
    
    
    
    
    
    
    513
    
    
    
    663
    
    
    
    1,102Amortization of intangible assets
    
    
    1,009
    
    
    
    1,420
    
    
    
    3,243
    
    
    
    5,680Total cost of revenues
    
    
    4,943
    
    
    
    7,235
    
    
    
    16,811
    
    
    
    23,564Gross profit
    
    
    10,525
    
    
    
    12,410
    
    
    
    31,898
    
    
    
    36,728Operating expenses:Research and development
    
    
    5,858
    
    
    
    6,662
    
    
    
    18,748
    
    
    
    19,707Sales and marketing
    
    
    2,692
    
    
    
    3,556
    
    
    
    8,100
    
    
    
    11,214General and administrative
    
    
    3,107
    
    
    
    3,986
    
    
    
    9,972
    
    
    
    12,376Amortization of intangible assets
    
    
    53
    
    
    
    58
    
    
    
    160
    
    
    
    160Restructuring charge
    
    
    
    
    
    
    919
    
    
    
    1,287
    
    
    
    1,432Total operating expenses
    
    
    11,710
    
    
    
    15,181
    
    
    
    38,267
    
    
    
    44,889Loss from operations
    
    
    (1,185
    )
    
    
    (2,771
    )
    
    
    (6,369
    )
    
    
    (8,161
    )Interest and other income/(expense), net:Interest income
    
    
    7
    
    
    
    7
    
    
    
    20
    
    
    
    86Interest expense
    
    
    (98
    )
    
    
    (279
    )
    
    
    (539
    )
    
    
    (1,008
    )Other (expense)/income, net
    
    
    177
    
    
    
    (28
    )
    
    
    (586
    )
    
    
    272Interest and other (expense)/income, net
    
    
    86
    
    
    
    (300
    )
    
    
    (1,105
    )
    
    
    (650
    )Loss before income taxes
    
    
    (1,099
    )
    
    
    (3,071
    )
    
    
    (7,474
    )
    
    
    (8,811
    )Income tax provision
    
    
    (504
    )
    
    
    (917
    )
    
    
    (1,003
    )
    
    
    (2,472
    )Net loss
    
    $
    (1,603
    )
    
    $
    (3,988
    )
    
    $
    (8,477
    )
    
    $
    (11,283
    )Net loss per common share  basic and diluted:
    
    $
    (0.04
    )
    
    $
    (0.13
    )
    
    $
    (0.26
    )
    
    $
    (0.38
    )Weighted average common shares outstanding  basic and diluted
    
    
    36,042
    
    
    
    29,864
    
    
    
    32,392
    
    
    
    29,694Stock-based compensation expense included in:Research and development
    
    $
    104
    
    
    $
    166
    
    
    $
    385
    
    
    $
    546Sales and marketing
    
    
    50
    
    
    
    170
    
    
    
    163
    
    
    
    480General and administrative
    
    
    201
    
    
    
    338
    
    
    
    681
    
    
    
    1,176
   4




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##### Table of Contents



GLU MOBILE INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (in thousands)
 Nine Months Ended September 30,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (8,477
    )
    
    $
    (11,283
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and accretion
    
    
    1,561
    
    
    
    1,766Amortization of intangible assets
    
    
    3,403
    
    
    
    5,840Stock-based compensation
    
    
    1,229
    
    
    
    2,202MIG earnout expense
    
    
    
    
    
    
    875Interest expense on debt
    
    
    407
    
    
    
    895Amortization of loan agreement costs
    
    
    132
    
    
    
    113Non-cash foreign currency remeasurement loss/(gain)
    
    
    584
    
    
    
    (270
    )Impairment of prepaid royalties and guarantees
    
    
    663
    
    
    
    1,102Changes in allowance for doubtful accounts
    
    
    (53
    )
    
    
    51Changes in operating assets and liabilities:Accounts receivable
    
    
    6,050
    
    
    
    3,863Prepaid royalties
    
    
    2,966
    
    
    
    5,225Prepaid expenses and other assets
    
    
    (713
    )
    
    
    239Accounts payable
    
    
    (730
    )
    
    
    (2,544
    )Other accrued liabilities
    
    
    (1,137
    )
    
    
    47Accrued compensation
    
    
    1,313
    
    
    
    289Accrued royalties
    
    
    (4,378
    )
    
    
    (5,394
    )Deferred revenues
    
    
    60
    
    
    
    (184
    )Accrued restructuring charge
    
    
    (586
    )
    
    
    187Other long-term liabilities
    
    
    275
    
    
    
    (1,732
    )Net cash provided by operating activities
    
    
    2,569
    
    
    
    1,287Cash flows from investing activities:Purchase of property and equipment
    
    
    (517
    )
    
    
    (569
    )Net cash used in investing activities
    
    
    (517
    )
    
    
    (569
    )Cash flows from financing activities:Proceeds from line of credit
    
    
    31,457
    
    
    
    43,612Payments on line of credit
    
    
    (34,548
    )
    
    
    (39,673
    )Net proceeds from Private Placement
    
    
    13,297
    
    
    
    MIG loan payments
    
    
    (7,239
    )
    
    
    (14,191
    )Proceeds from exercise of stock options and ESPP
    
    
    602
    
    
    
    279Net cash provided by/(used in) in financing activities
    
    
    3,569
    
    
    
    (9,973
    )Effect of exchange rate changes on cash
    
    
    (242
    )
    
    
    (50
    )Net increase/(decrease) in cash and cash equivalents
    
    
    5,379
    
    
    
    (9,305
    )Cash and cash equivalents at beginning of period
    
    
    10,510
    
    
    
    19,166Cash and cash equivalents at end of period
    
    $
    15,889
    
    
    $
    9,861
   5




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##### Table of Contents



GLU MOBILE INC.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (in thousands, except per share data)
 Note 1  The Company, Basis of Presentation and Summary of Significant Accounting Policies
  Basis of Presentation
     6




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Concentration of Credit Risk
    Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Verizon Wireless
    
    
    14.1
    %
    
    
    19.5
    %
    
    
    16.0
    %
    
    
    20.7
    %China Mobile
    
    
    10.5
    
    
    
    10.2
    
    
    
    *
    
    
    
    10.2
 
 *
    
    Revenues from the customer were less than 10% during the period.   7




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##### Table of Contents



Net Loss Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (1,603
    )
    
    $
    (3,988
    )
    
    $
    (8,477
    )
    
    $
    (11,283
    )Basic and diluted shares:Weighted average common shares outstanding
    
    
    36,042
    
    
    
    29,865
    
    
    
    32,392
    
    
    
    29,695Weighted average unvested common shares subject to repurchase
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Weighted average shares used to compute basic and diluted
net loss per share
    
    
    36,042
    
    
    
    29,864
    
    
    
    32,392
    
    
    
    29,694Net loss per share  basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.13
    )
    
    $
    (0.26
    )
    
    $
    (0.38
    )
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Warrants to purchase common stock
    
    
    2,673
    
    
    
    106
    
    
    
    962
    
    
    
    106Unvested common shares subject to repurchase
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Options to purchase common stock
    
    
    6,499
    
    
    
    5,063
    
    
    
    6,187
    
    
    
    5,0459,172
    
    
    
    5,170
    
    
    
    7,149
    
    
    
    5,152
 Recent Accounting Pronouncements
 Multiple-Deliverable Revenue Arrangementsa consensus of the FASB Emerging Issues Task
Force Revenue Arrangements with Multiple
Deliverables
 Consolidation
   8




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##### Table of Contents



Note 2  Fair Value Measurements
 Fair Value Measurements
 Fair Value Measurements and Disclosures
 Level 1
 Level 2
 Level 3
  Note 3  Balance Sheet Components
 Accounts Receivable
 September 30,
    
    
    December 31,2010
    
    
    2009Accounts receivable
    
    $
    10,365
    
    
    $
    16,576Less: Allowance for doubtful accounts
    
    
    (493
    )
    
    
    (546
    )$
    9,872
    
    
    $
    16,030
  Property and Equipment
 September 30,
    
    
    December 31,2010
    
    
    2009Computer equipment
    
    $
    5,055
    
    
    $
    5,167Furniture and fixtures
    
    
    488
    
    
    
    455Software
    
    
    2,891
    
    
    
    2,742Leasehold improvements
    
    
    3,360
    
    
    
    3,36011,794
    
    
    
    11,724Less: Accumulated depreciation and amortization
    
    
    (9,480
    )
    
    
    (8,380
    )$
    2,314
    
    
    $
    3,344
   9




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##### Table of Contents



Other Long-Term Liabilities
 September 30,
    
    
    December 31,2010
    
    
    2009Uncertain tax position obligations
    
    
    4,848
    
    
    
    4,614Deferred income tax liability
    
    
    1,773
    
    
    
    1,736Other
    
    
    1,245
    
    
    
    1,266$
    7,866
    
    
    
    7,616
 Note 4  Goodwill and Intangible Assets
  September 30, 2010
    
    
    December 31, 2009Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedAmortization
    
    
    
    
    
    
    
    
    
    
    AmortizationExpense
    
    
    
    
    
    
    
    
    
    
    Expense(Including
    
    
    
    
    
    
    
    
    
    
    (IncludingEstimated
    
    
    Gross
    
    
    Impact of
    
    
    Net
    
    
    Gross
    
    
    Impact of
    
    
    NetUseful
    
    
    Carrying
    
    
    Foreign
    
    
    Carrying
    
    
    Carrying
    
    
    Foreign
    
    
    CarryingLife
    
    
    Value
    
    
    Exchange)
    
    
    Value
    
    
    Value
    
    
    Exchange)
    
    
    ValueIntangible assets amortized
to cost of revenues:Titles, content and technology
    
    2.5 yrs
    
    $
    13,591
    
    
    $
    (13,591
    )
    
    $
    
    
    
    $
    13,599
    
    
    $
    (13,411
    )
    
    $
    188Catalogs
    
    1 yr
    
    
    1,230
    
    
    
    (1,230
    )
    
    
    
    
    
    
    1,239
    
    
    
    (1,239
    )
    
    
    ProvisionX Technology
    
    6 yrs
    
    
    202
    
    
    
    (195
    )
    
    
    7
    
    
    
    204
    
    
    
    (168
    )
    
    
    36Carrier contract and related relationships
    
    5 yrs
    
    
    18,738
    
    
    
    (9,538
    )
    
    
    9,200
    
    
    
    18,558
    
    
    
    (7,149
    )
    
    
    11,409Licensed content
    
    5 yrs
    
    
    2,801
    
    
    
    (2,597
    )
    
    
    204
    
    
    
    2,753
    
    
    
    (1,902
    )
    
    
    851Service provider license
    
    9 yrs
    
    
    440
    
    
    
    (137
    )
    
    
    303
    
    
    
    431
    
    
    
    (98
    )
    
    
    333Trademarks
    
    3 yrs
    
    
    546
    
    
    
    (546
    )
    
    
    
    
    
    
    544
    
    
    
    (512
    )
    
    
    3237,548
    
    
    
    (27,834
    )
    
    
    9,714
    
    
    
    37,328
    
    
    
    (24,479
    )
    
    
    12,849Other intangible assets amortized
to operating expenses:Emux Technology
    
    6 yrs
    
    
    1,312
    
    
    
    (1,267
    )
    
    
    45
    
    
    
    1,321
    
    
    
    (1,111
    )
    
    
    210Noncompete agreement
    
    2 yrs
    
    
    574
    
    
    
    (574
    )
    
    
    
    
    
    
    578
    
    
    
    (578
    )
    
    
    1,886
    
    
    
    (1,841
    )
    
    
    45
    
    
    
    1,899
    
    
    
    (1,689
    )
    
    
    210Total intangibles assets
    
    
    
    
    
    $
    39,434
    
    
    $
    (29,675
    )
    
    $
    9,759
    
    
    $
    39,227
    
    
    $
    (26,168
    )
    
    $
    13,059
   10




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Amortization
    
    
    AmortizationIncluded in
    
    
    Included in
    
    
    TotalCost of
    
    
    Operating
    
    
    AmortizationYear Ending December 31,
    
    Revenues
    
    
    Expenses
    
    
    Expense2010 (remaining three months)
    
    $
    983
    
    
    $
    45
    
    
    $
    1,0282011
    
    
    2,891
    
    
    
    
    
    
    
    2,8912012
    
    
    2,771
    
    
    
    
    
    
    
    2,7712013
    
    
    2,702
    
    
    
    
    
    
    
    2,7022014
    
    
    271
    
    
    
    
    
    
    
    2712015 and thereafter
    
    
    96
    
    
    
    
    
    
    
    96$
    9,714
    
    
    $
    45
    
    
    $
    9,759
 Goodwill
   September 30, 2010
    
    
    December 31, 2009Americas
    
    
    EMEA
    
    
    APAC
    
    
    Total
    
    
    Americas
    
    
    EMEA
    
    
    APAC
    
    
    TotalBalance as of January 1Goodwill
    
    $
    24,871
    
    
    $
    25,354
    
    
    $
    23,881
    
    
    $
    74,106
    
    
    $
    24,871
    
    
    $
    25,354
    
    
    $
    23,895
    
    
    $
    74,120Accumulated Impairment Losses
    
    
    (24,871
    )
    
    
    (25,354
    )
    
    
    (19,273
    )
    
    
    (69,498
    )
    
    
    (24,871
    )
    
    
    (25,354
    )
    
    
    (19,273
    )
    
    
    (69,498
    )
    
    
    
    
    
    
    
    4,608
    
    
    
    4,608
    
    
    
    
    
    
    
    
    
    
    
    4,622
    
    
    
    4,622Goodwill Acquired during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effects of Foreign Currency
Exchange
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (14
    )Balance as of period ended:
    
    
    
    
    
    
    
    
    
    
    4,704
    
    
    
    4,704
    
    
    
    
    
    
    
    
    
    
    
    4,608
    
    
    
    4,608Goodwill
    
    
    24,871
    
    
    
    25,354
    
    
    
    23,977
    
    
    
    74,202
    
    
    
    24,871
    
    
    
    25,354
    
    
    
    23,881
    
    
    
    74,106Accumulated Impairment Losses
    
    
    (24,871
    )
    
    
    (25,354
    )
    
    
    (19,273
    )
    
    
    (69,498
    )
    
    
    (24,871
    )
    
    
    (25,354
    )
    
    
    (19,273
    )
    
    
    (69,498
    )$
    
    
    
    $
    
    
    
    $
    4,704
    
    
    $
    4,704
    
    
    $
    
    
    
    $
    
    
    
    $
    4,608
    
    
    $
    4,608
 Intangibles  Goodwill and Other
    11




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##### Table of Contents



Note 5  Commitments and Contingencies
 Leases
   MinimumOperating
    
    
    
    
    
    
    NetLease
    
    
    Sub-lease
    
    
    LeaseYear Ending December 31,
    
    Payments
    
    
    Income
    
    
    Payments2010 (remaining three months)
    
    $
    985
    
    
    $
    31
    
    
    $
    9542011
    
    
    3,347
    
    
    
    82
    
    
    
    3,2652012
    
    
    2,089
    
    
    
    
    
    
    
    2,0892013
    
    
    440
    
    
    
    
    
    
    
    440$
    6,861
    
    
    $
    113
    
    
    $
    6,748
  Minimum Guaranteed Royalties
  MinimumGuaranteedYear Ending December 31,
    
    Royalties2010 (remaining three months)
    
    $
    1,8962011
    
    
    6972012 and thereafter
    
    
    34$
    2,627
   12




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##### Table of Contents



Income Taxes
  Indemnification Agreements
   Contingencies
   Note 6  Debt
 MIG Notes
    13




---



##### Table of Contents



Credit Facility
    14




---



##### Table of Contents



(a)
    
    EBITDA. The Company must maintain, measured on consolidated basis as of the end of each
of the following periods, adjusted EBITDA of at least the following:
 October 1, 2010 through December 31, 2010
    
    $
    1,750January 1, 2011 through March 31, 2011
    
    $
    (300
    )April 1, 2011 through June 30, 2011
    
    $
    100
  (b)
    
    Minimum Domestic Liquidity: The Company must maintain at the lender an amount of cash,
cash equivalents and short-term investments of not less than the greater of: (a) 20% of the
Companys total consolidated unrestricted cash, cash equivalents and short-term
investments, or (b) 15% of outstanding obligations under the Credit Facility.
     Note 7  Stockholders Equity
 Private Placement
  Warrants to Purchase Common Stock
   15




---



##### Table of Contents



NumberExercise
    
    
    of SharesPrice
    
    
    OutstandingTerm
    
    
    per
    
    
    UnderIssue Date
    
    (Years)
    
    
    Share
    
    
    WarrantMay 2006
    
    
    7
    
    
    
    9.03
    
    
    
    106August 2010
    
    
    5
    
    
    $
    1.50
    
    
    
    6,7486,854
 Comprehensive Loss
  Note 8  Stock Option and Other Benefit Plans
 2007 Equity Incentive Plan
      16




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##### Table of Contents



2007 Employee Stock Purchase Plan
    2008 Equity Inducement Plan
   2009 Stock Option Exchange Program
  Exchange Ratio(New Options-for-Exercise Price
    
    Eligible Options)$1.25  $1.99
    
    1-for-12.00  3.99
    
    1-for-24.00  5.94
    
    1-for-35.95 or greater
    
    1-for-4
  17




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##### Table of Contents



Stock Option Activity
  Options OutstandingWeighted
    
    
    WeightedNumber
    
    
    Average
    
    
    Average
    
    
    AggregateShares
    
    
    of
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicAvailable
    
    
    Shares
    
    
    Price
    
    
    Term (Years)
    
    
    ValueBalances at December 31, 2009
    
    
    2,654
    
    
    
    4,841
    
    
    $
    3.49Increase in authorized shares
    
    
    3,911Options granted
    
    
    (4,060
    )
    
    
    4,060
    
    
    
    1.21Options canceled
    
    
    2,125
    
    
    
    (2,125
    )
    
    
    3.93Options exercised
    
    
    
    
    
    
    (318
    )
    
    
    0.88Balances at September 30, 2010
    
    
    4,630
    
    
    
    6,458
    
    
    $
    2.04
    
    
    
    5.05
    
    
    $
    1,511Options vested and expected to vest at
September 30, 2010
    
    
    
    
    
    
    5,180
    
    
    $
    2.24
    
    
    
    4.96
    
    
    $
    1,199Options exercisable at September 30, 2010
    
    
    
    
    
    
    1,643
    
    
    $
    4.22
    
    
    
    4.19
    
    
    $
    314
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Dividend yield
    
    
    
    %
    
    
    
    %
    
    
    
    %
    
    
    
    %Risk-free interest rate
    
    
    0.81
    %
    
    
    1.48
    %
    
    
    1.23
    %
    
    
    1.43
    %Expected volatility
    
    
    78.3
    %
    
    
    59.7
    %
    
    
    77.0
    %
    
    
    58.1
    %Expected term (years)
    
    
    3.10
    
    
    
    3.11
    
    
    
    3.12
    
    
    
    3.15
    18




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Research and development
    
    $
    104
    
    
    $
    166
    
    
    $
    385
    
    
    $
    546Sales and marketing
    
    
    50
    
    
    
    170
    
    
    
    163
    
    
    
    480General and administrative
    
    
    201
    
    
    
    338
    
    
    
    681
    
    
    
    1,176Total stock-based compensation expense
    
    $
    355
    
    
    $
    674
    
    
    $
    1,229
    
    
    $
    2,202
  Note 9  Income Taxes
   Income Taxes
     19




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Note 10  Segment Reporting
 Segment Reporting
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009United States of America
    
    $
    6,817
    
    
    $
    9,177
    
    
    $
    22,407
    
    
    $
    28,902China
    
    
    1,638
    
    
    
    2,021
    
    
    
    4,393
    
    
    
    6,154Americas, excluding the USA
    
    
    2,550
    
    
    
    2,605
    
    
    
    6,958
    
    
    
    7,564EMEA
    
    
    3,757
    
    
    
    5,043
    
    
    
    12,897
    
    
    
    15,737Other
    
    
    706
    
    
    
    799
    
    
    
    2,054
    
    
    
    1,935$
    15,468
    
    
    $
    19,645
    
    
    $
    48,709
    
    
    $
    60,292
  September 30,
    
    
    December 31,2010
    
    
    2009Americas
    
    $
    1,512
    
    
    $
    2,194EMEA
    
    
    685
    
    
    
    700Other
    
    
    117
    
    
    
    450$
    2,314
    
    
    $
    3,344
 Note 11  Restructuring
  Restructuring2010
    
    
    2009
    
    
    2008Facilities
    
    
    
    
    
    
    Facilities
    
    
    SuperscapeWorkforce
    
    
    Workforce
    
    
    Related
    
    
    Workforce
    
    
    Related
    
    
    Plan
    
    
    TotalBalance as of January 1, 2009
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    100
    
    
    $
    443
    
    
    $
    457
    
    
    $
    1,000Charges to operations
    
    
    
    
    
    
    1,009
    
    
    
    867
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,876Non Cash Adjustments
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    (73
    )Charges settled in cash
    
    
    
    
    
    
    (380
    )
    
    
    (68
    )
    
    
    (100
    )
    
    
    (443
    )
    
    
    (406
    )
    
    
    (1,397
    )Balance as of December 31, 2009
    
    
    
    
    
    
    629
    
    
    
    737
    
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    1,406Charges to operations
    
    
    1,052
    
    
    
    
    
    
    
    235
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,287Non Cash Adjustments
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    71Charges settled in cash
    
    
    (979
    )
    
    
    (629
    )
    
    
    (321
    )
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    (1,943
    )Balance as of September 30, 2010
    
    $
    145
    
    
    $
    
    
    
    $
    651
    
    
    $
    
    
    
    $
    
    
    
    $
    25
    
    
    $
    821
  20




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Note 12  Subsequent Events
     21




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The information in this discussion and elsewhere in this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements are based upon current
expectations that involve risks and uncertainties. Any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements. For example, the
words may, will, believe, anticipate, plan, expect, intend, could, estimate,
continue and similar expressions or variations are intended to identify forward-looking
statements. In this report, forward-looking statements include, without limitation, the following:
 
    
    our expectations and beliefs regarding the future conduct and growth of our business,
including our intention to significantly increase our studio capacity dedicated toward advanced
platforms and smartphones;
 
    
    our expectations regarding competition and our ability to compete effectively;
 
    
    our expectations regarding the development of future products, including those for
smartphones, as well as our intention to shift a larger portion of our research and development
expenses towards these development efforts;
 
    
    our intention to focus our development efforts on persistent-state, freemium games and
increase our use of in-game advertising, micro-transactions and other monetization techniques
with respect to the games we develop for smartphones;
 
    
    our expectation that the substantial majority of the persistent-state, freemium games
that we are developing for smartphones will be based on our own intellectual property;
 
    
    our expectations regarding our revenues and expenses, including the expected decline in
revenues from games we develop for feature phones in our traditional carrier-based business;
 
    
    our assumptions regarding the impact of Recent Accounting Pronouncements applicable to
us;
 
    
    our assessments and estimates that determine our effective tax rate and valuation
allowance;
 
    
    our belief that our cash and cash equivalents, borrowings under our revolving credit
facility and cash flows from operations, if any, will be sufficient to meet our working capital
needs, contractual obligations, debt service obligations, capital expenditure requirements and
similar commitments; and
 
    
    our expectation regarding our ability to maintain compliance with or negotiate the
financial and other covenants in our credit facility.
 Our actual results and the timing of certain events may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a discrepancy include,
but are not limited to, those discussed in Risk Factors elsewhere in this report. All
forward-looking statements in this document are based on information available to us as of the date
hereof, and we assume no obligation to update any such forward-looking statements to reflect future
events or circumstances.
  
    
    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 and judgments underlying our financial statements;
 
    
    Recent Accounting Pronouncements;
 
    
    Results of Operations, including a more detailed discussion of our revenues and expenses;
and
 
    
    Liquidity and Capital Resources, which discusses key aspects of our statements of cash
flows, changes in our balance sheets and our financial commitments.
  22




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Overview
  Financial Results and Trends
     23




---



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Zuma
     24




---



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Significant Transactions
   Critical Accounting Policies and Estimates
  Recent Accounting Pronouncements
   25




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Results of Operations
 Comparison of the Three Months Ended September 30, 2010 and 2009
 Revenues
 Three Months EndedSeptember 30,2010
    
    
    2009(in thousands)Revenues
    
    $
    15,468
    
    
    $
    19,645
  Cost of Revenues
 Three Months EndedSeptember 30,2010
    
    
    2009(in thousands)Cost of revenues:Royalties
    
    $
    3,934
    
    
    $
    5,302Impairment of prepaid royalties and guarantees
    
    
    
    
    
    
    513Amortization of intangible assets
    
    
    1,009
    
    
    
    1,420Total cost of revenues
    
    $
    4,943
    
    
    $
    7,235Revenues
    
    $
    15,468
    
    
    $
    19,645Gross margin
    
    
    68.0
    %
    
    
    63.2
    %
   26




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##### Table of Contents



Research and Development Expenses
 Three Months EndedSeptember 30,2010
    
    
    2009(in thousands)Research and development expenses
    
    $
    5,858
    
    
    $
    6,662Percentage of revenues
    
    
    37.9
    %
    
    
    33.9
    %
  Sales and Marketing Expenses
 Three Months EndedSeptember 30,2010
    
    
    2009(in thousands)Sales and marketing expenses
    
    $
    2,692
    
    
    $
    3,556Percentage of revenues
    
    
    17.4
    %
    
    
    18.1
    %
  General and Administrative Expenses
 Three Months EndedSeptember 30,2010
    
    
    2009(in thousands)General and administrative expenses
    
    $
    3,107
    
    
    $
    3,986Percentage of revenues
    
    
    20.1
    %
    
    
    20.3
    %
   27




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Restructuring
   Interest and Other Income/(Expense), Net
  Income Tax Provision
  Comparison of the Nine Months Ended September 30, 2010 and 2009
 Revenues
 Nine Months EndedSeptember 30,2010
    
    
    2009(in thousands)Revenues
    
    $
    48,709
    
    
    $
    60,292
   28




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##### Table of Contents



Cost of Revenues
 Nine Months EndedSeptember 30,2010
    
    
    2009(in thousands)Cost of revenues:Royalties
    
    $
    12,905
    
    
    $
    16,782Impairment of prepaid royalties and guarantees
    
    
    663
    
    
    
    1,102Amortization of intangible assets
    
    
    3,243
    
    
    
    5,680Total cost of revenues
    
    $
    16,811
    
    
    $
    23,564Revenues
    
    $
    48,709
    
    
    $
    60,292Gross margin
    
    
    65.5
    %
    
    
    60.9
    %
  Research and Development Expenses
 Nine Months EndedSeptember 30,2010
    
    
    2009(in thousands)Research and development expenses
    
    $
    18,748
    
    
    $
    19,707Percentage of revenues
    
    
    38.5
    %
    
    
    32.7
    %
   29




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##### Table of Contents



Sales and Marketing Expenses
 Nine Months EndedSeptember 30,2010
    
    
    2009(in thousands)Sales and marketing expenses
    
    $
    8,100
    
    
    $
    11,214Percentage of revenues
    
    
    16.6
    %
    
    
    18.6
    %
  General and Administrative Expenses
 Nine Months EndedSeptember 30,2010
    
    
    2009(in thousands)General and administrative expenses
    
    $
    9,972
    
    
    $
    12,376Percentage of revenues
    
    
    20.5
    %
    
    
    20.5
    %
   30




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Restructuring
  Interest and other Income/(Expense), Net
  Income Tax Provision
   31




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Liquidity and Capital Resources
 Nine Months Ended September 30,2010
    
    
    2009(in thousands)Consolidated Statement of Cash Flows Data:Capital expenditures
    
    $
    517
    
    
    $
    569Depreciation and amortization
    
    
    4,964
    
    
    
    7,606Cash flows provided by operating activities
    
    
    2,569
    
    
    
    1,287Cash flows used in investing activities
    
    
    (517
    )
    
    
    (569
    )Cash flows provided by/(used in) in financing activities
    
    
    3,569
    
    
    
    (9,973
    )
  Operating Activities
   Investing Activities
   Financing Activities
    32




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##### Table of Contents



Sufficiency of Current Cash and Cash Equivalents
    
    
    EBITDA. On August 24, 2009, we entered into an amendment to our credit facility, which
reduced certain of the minimum targets contained in the EBITDA-related covenant. On February
10, 2010 we entered into a second amendment to the agreement. The second amendment changed the
measurement period for the EBITDA covenant from a rolling six month calculation to a quarterly
calculation. On March 18, 2010, we entered into a third amendment to the agreement which (1)
extended the maturity date of the credit facility from December 22, 2010 until June 30, 2011,
(2) increased the interest rate for borrowings under the credit facility by 0.75% to the
lenders prime rate, plus 1.75%, but no less than 5.0%, and (3) requires us to maintain,
measured on a consolidated basis at the end of each of the following periods, EBITDA of at
least the following:
 October 1, 2010 through December 31, 2010
    
    $
    1,750,000January 1, 2011 through March 31, 2011
    
    $
    (300,000
    )April 1, 2011 through June 30, 2011
    
    $
    100,000
  
    
    Minimum Domestic Liquidity:We must maintain at the lender an amount of cash, cash
equivalents and short-term investments of not less than the greater of: (a) 20% of our
total consolidated unrestricted cash, cash equivalents and short-term investments, or (b)
15% of outstanding obligations under the credit facility.
  33




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34




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##### Table of Contents



Contractual Obligations
  Payments Due by PeriodTotal
    
    
    1 Year*
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    Thereafter(in thousands)Operating lease obligations,
net of sublease income
    
    $
    6,748
    
    
    $
    954
    
    
    $
    5,794
    
    
    $
    
    
    
    $
    Guaranteed royalties(1)
    
    
    2,627
    
    
    
    1,896
    
    
    
    731
    
    
    
    
    
    
    
    MIG earnout and bonus notes(2)
    
    
    3,113
    
    
    
    3,113
    
    
    
    
    
    
    
    
    
    
    
    Uncertain tax position
obligations, including
interest and penalties(3)
    
    
    4,848
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,848Line of credit
    
    
    1,569
    
    
    
    1,569
    
    
    
    
    
    
    
    
    
    
    
    
 
 *
    
    Represents the remaining three months of 2010(1)
    
    We have entered into license and development arrangements with various
owners of brands and other intellectual property so that we can create
and publish games for mobile handsets based on that intellectual
property. A significant portion of these agreements require us to pay
guaranteed royalties over the term of the contracts regardless of
actual game sales.(2)
    
    We have issued $25.0 million of notes payable to former shareholders
of MIG, of which we had paid an aggregate principal amount of $22.0
million as of September 30, 2010. The above table does not include
approximately $723,000 of taxes withheld from MIG earnout payments and
paid to Chinese Tax Authorities in October, 2010. The amounts in the
table above include interest accrued through September 30, 2010. See
Note 6 of Notes to Unaudited Condensed Consolidated Financial
Statements included in Part I, Item 1 of this report for further
details.(3)
    
    As of September 30, 2010, unrecognized tax benefits and potential
interest and penalties were classified within Other long-term
liabilities on our consolidated balance sheets. As of September 30,
2010, the settlement of our income tax liabilities cannot be
determined; however, the liabilities are not expected to become due
within the next 12 months. Off-Balance Sheet Arrangements
   35




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate and Credit Risk
       Foreign Currency Exchange Risk
      36




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Inflation
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
   37




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  We have a history of net losses, may incur substantial net losses in the future and may not achieve
profitability.
  Our financial results could vary significantly from quarter to quarter and are difficult to
predict, particularly in light of the current economic environment, which in turn could cause
volatility in our stock price.
   38




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##### Table of Contents




    
    the number of new games released by us and our competitors, including those for
smartphones and advanced platforms;
 
    
    the timing of release of new games by us and our competitors, particularly those that
may represent a significant portion of revenues in a period;
 
    
    the quality and popularity of new games and games released in prior periods;
 
    
    changes in the prominence of deck placement or storefront featuring for our leading
games and those of our competitors;
 
    
    fluctuations in the size and rate of growth of overall consumer demand for mobile
handsets, games and related content;
 
    
    the rate at which consumers continue to migrate from traditional feature phones to
more advanced platforms and smartphones;
 
    
    our success in developing and monetizing persistent-state, freemium games for
smartphones;
 
    
    our ability to increase the daily and monthly active users of our persistent-state,
freemium games that we develop for smartphones, as well as the number of minutes these
users play such games;
 
    
    the strength or weakness in consumer demand for new mobile devices;
 
    
    the expiration of existing content licenses for particular games;
 
    
    the timing of charges related to impairments of goodwill, intangible assets, prepaid
royalties and guarantees;
 
    
    changes in pricing policies by us, our competitors or our carriers and other
distributors;
 
    
    changes in pricing policies by our carriers related to downloading content, such as
our games, which pricing policies could be influenced by the lower average prices for
content on advanced platforms and smartphones;
 
    
    changes in the mix of original and licensed games, which have varying gross margins;
 
    
    carrier policies around off portal marketing and monetization;
 
    
    the timing of successful mobile handset launches;
 
    
    the timeliness and accuracy of reporting from carriers;
  39




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
    
    the seasonality of our industry;
 
    
    strategic decisions by us or our competitors, such as acquisitions, divestitures,
spin-offs, joint ventures, strategic investments or changes in business strategy;
 
    
    our success in entering new geographic markets;
 
    
    changes in accounting rules, such as those governing recognition of revenue, including
the period of time over which we recognize revenue for the sale of virtual currency and
goods by means of purchases within certain of our games, sometimes
referred to as in-app purchases;
 
    
    the timing of compensation expense associated with equity compensation grants; and
 
    
    decisions by us to incur additional expenses, such as increases in marketing or
research and development.
 The markets in which we operate are highly competitive, and many of our competitors have
significantly greater resources than we do.
    
    
    significantly greater revenues and financial resources;
 
    
    stronger brand and consumer recognition regionally or worldwide;
 
    
    the capacity to leverage their marketing expenditures across a broader portfolio of
mobile and non-mobile products;
 
    
    more substantial intellectual property of their own from which they can develop games
without having to pay royalties;
 
    
    greater platform specific focus, experience and expertise;
 
    
    pre-existing relationships with brand owners or carriers that afford them access to
intellectual property while blocking the access of competitors to that same intellectual
property;
 
    
    greater resources to make acquisitions;
 
    
    lower labor and development costs; and
 
    
    broader global distribution and presence.
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Our strategy to grow our business includes developing titles for advanced platforms and smartphones
beyond our wireless carrier channel, which currently comprises the substantial majority of our
revenues. If we do not succeed in generating considerable revenues and gross margins from these
advanced platforms and smartphones, our revenues, financial position and operating results may
suffer.
  
    
    the open nature of many of these smartphone storefronts increases substantially the
number of our competitors and competitive products and makes it more difficult for us to
achieve prominent placement or featuring for our games;
 
    
    the pricing and revenue models for titles on these smartphone storefronts are rapidly
evolving (for example, the introduction of micro-transaction capabilities and the
potential introduction of usage-based pricing for games), and has resulted, and may
continue to result, in significantly lower average selling prices for our games developed
for smartphones as compared to games developed for feature phones in our traditional
carrier channels, and a lower than expected return on investment for these games;
 
    
    the billing and provisioning capabilities of some smartphones are currently not
optimized to enable users to purchase games or make in-app purchases, which could make it
difficult for users of these smartphones to purchase our games or make in-app purchases
and could reduce our addressable market, at least in the short term;
 
    
    the competitive advantage of our porting capabilities may be reduced as these advanced
platforms and smartphones become more widely adopted;
 
    
    many of our key licenses do not grant us the rights to develop games for the iPhone
and certain other smartphones;
 
    
    we have less experience with open storefront distribution channels than with
carrier-based distribution;
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
    
    these smartphone digital storefronts are relatively new markets, for which we are less
able to forecast with accuracy revenue levels, required marketing and developments
expenses, and net income or loss;
 
    
    many OEMs and carriers are developing their own storefronts and it may be difficult
for us to predict which ones will be successful, and we may expend time and resources
developing games for storefronts that ultimately do not succeed; and
 
    
    competitors may have substantially greater resources available to invest in
development and publishing of products for advanced platforms and smartphones.
  If we do not achieve a sufficient return on our investment with respect to our efforts to develop
persistent-state, freemium games for smartphones and advanced platforms, it could negatively affect
our operating results.
  
    
    we have limited experience in successfully developing and marketing persistent-state,
freemium games;
 
    
    we have only recently begun to embed micro-transaction capabilities into some of our
games for smartphones as well as experiment with a number of advertising monetization
techniques, and our limited experience in these areas may cause us to have difficulty
optimizing the monetization of our freemium games;
 
    
    some of our competitors have already released a significant number of
persistent-state, freemium games on smartphones, and this competition will make it more
difficult for us to differentiate our games and derive significant revenues from them;
 
    
    our competitors may have substantially greater resources available to invest in the
development and publishing of persistent-state, freemium games;
 
    
    we intend to have the significant majority of our persistent-state, freemium games be
based upon our own intellectual property rather than well-known licensed brands, and, as
a result, we may encounter difficulties in generating sufficient consumer interest in our
games, particularly since we historically have had limited success in generating
significant revenues from games based on our own intellectual property;
 
    
    persistent-state, freemium games currently represent a significant minority of the
games available on smartphones and other advanced platforms and have a limited history,
and it is unclear how popular this style of game will become on smartphones or their
revenue potential;
 
    
    our strategy with respect to developing persistent-state, freemium games for
smartphones assumes that a large number of consumers will download our games because they
are free and that we will subsequently be able to effectively monetize these games;
however, some smartphones charge users a fee for downloading content, and users of these
smartphones may be reluctant to download our freemium games because of these fees, which
would reduce the effectiveness of our product strategy;
 
    
    our persistent-state, freemium games may otherwise not be widely downloaded by
consumers for a variety of reasons, including poor consumer reviews or other negative
publicity, ineffective or insufficient marketing efforts or a failure to achieve
prominent storefront featuring for such games;
 
    
    even if our persistent-state, freemium games are widely downloaded, we may fail to
retain users of these games or optimize the monetization of these games for a variety of
reasons, including poor game design or quality, gameplay issues such as
game unavailability, long load times or an unexpected termination of the game due to data
server or other technical issues or our failure to effectively respond and adapt to
changing user preferences through updates to our games; and
 
    
    because these are effectively new products for us, we are less able to forecast with
accuracy revenue levels, required marketing and development expenses, and net income or
loss.
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An acceleration in the slowdown in sales of feature phones in our traditional carrier-based
business, which represents the substantial majority of our revenues, or a decline in the average
selling prices of our games sold through wireless carriers, could have a material adverse impact on
our revenues, financial position and results of operations.
  Our stock price has fluctuated and declined significantly since our initial public offering in
March 2007, and may continue to fluctuate, may not rise and may decline further, which could cause
our stock to be delisted from trading on the NASDAQ Global Market
  
    
    price and volume fluctuations in the overall stock market, including as a result of
trends in the economy as a whole, such as the continuing unprecedented volatility in the
financial markets;
 
    
    changes in the operating performance and stock market valuations of other technology
companies generally, or those in our industry in particular;
 
    
    actual or anticipated fluctuations in our operating results;
 
    
    the financial projections we may provide to the public, any changes in these
projections or our failure to meet these projections;
 
    
    failure of securities analysts to initiate or maintain coverage of us, changes in
financial estimates by any securities analysts who follow our company or our industry,
our failure to meet these estimates or failure of those analysts to initiate or maintain
coverage of our stock;
 
    
    ratings or other changes by any securities analysts who follow our company or our
industry;
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
    
    announcements by us or our competitors of significant technical innovations,
acquisitions, strategic partnerships, joint ventures, capital raising activities or
capital commitments;
 
    
    the publics response to our press releases or other public announcements, including
our filings with the SEC;
 
    
    any significant sales of our stock by our directors, executive officers or large
stockholders, including the investors in the Private Placement whose shares have been
registered for resale under the Securities Act and may be freely sold at any time;
 
    
    lawsuits threatened or filed against us; and
 
    
    market conditions or trends in our industry or the economy as a whole.
   We may need to raise additional capital or borrow funds to grow our business, and we may not be
able to raise capital or borrow funds on terms acceptable to us or at all.
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We have outstanding debt obligations and may incur additional debt in the future, which could
adversely affect our financial condition and results of operations.
  
    
    requiring us to dedicate a portion of our expected cash from operations to service our
debt, thereby reducing the amount of expected cash flow available for other purposes,
including funding our operations;
 
    
    increasing our vulnerability to downturns in our business, to competitive pressures
and to adverse economic and industry conditions;
 
    
    limiting our ability to pursue acquisitions that may be accretive to our business; and
 
    
    limiting our flexibility in planning for, or reacting to, changes in our business and
our industry.
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Changes in foreign exchange rates and limitations on the convertibility of foreign currencies could
adversely affect our business and operating results.
   Inferior deck placement or storefront featuring would likely adversely impact our revenues and thus
our operating results and financial condition.
    
    
    the perceived attractiveness of the title or brand;
 
    
    the past critical or commercial success of the game or of other games previously
introduced by a publisher;
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
    
    the publishers relationship with the applicable digital storefront owner and future
pipeline of quality titles for it; and
 
    
    the current market share of the publisher.
  End user tastes are continually changing and are often unpredictable; if we fail to develop and
publish new mobile games that achieve market acceptance, our sales would suffer.
  If we are unsuccessful in establishing and increasing awareness of our brand and recognition of our
games or if we incur excessive expenses promoting and maintaining our brand or our games, our
potential revenues could be limited, our costs could increase and our operating results and
financial condition could be harmed.
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We currently rely primarily on wireless carriers to market and distribute our games for feature
phones and thus to generate a significant portion of our revenues. The loss of or a change in any
significant carrier relationship, including their credit worthiness, could materially reduce our
revenues and adversely impact our cash position.
  Changes made by wireless carriers and other distributors to their policies regarding pricing,
revenue sharing, supplier status, billing and collections could adversely affect our business and
operating results.
     A shift of technology platform by wireless carriers and mobile handset manufacturers could lengthen
the development period for our games, increase our costs and cause our games to be of lower quality
or to be published later than anticipated.
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We have depended on a small number of games for a significant portion of our revenues in recent
fiscal periods. If these games do not continue to succeed or we do not release highly successful
new games, our revenues would decline.
  Failure to renew our existing brand and content licenses on favorable terms or at all and to obtain
additional licenses would impair our ability to introduce new mobile games or to continue to offer
our current games based on third-party content.
 Zuma
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System or network failures could reduce our sales, increase costs or result in a loss of revenues
or end users of our games.
  We face added business, political, regulatory, operational, financial and economic risks as a
result of our international operations and distribution, any of which could increase our costs and
adversely affect our operating results.
  
    
    challenges caused by distance, language and cultural differences;
 
    
    multiple and conflicting laws and regulations, including complications due to
unexpected changes in these laws and regulations;
 
    
    foreign currency exchange rate fluctuations;
 
    
    difficulties in staffing and managing international operations;
 
    
    potential violations of the Foreign Corrupt Practices Act, particularly in certain
emerging countries in East Asia, Eastern Europe and Latin America;
 
    
    greater fluctuations in sales to end users and through carriers in developing
countries, including longer payment cycles and greater difficulty collecting accounts
receivable;
 
    
    protectionist laws and business practices that favor local businesses in some
countries;
 
    
    regulations that could potentially affect the content of our products and their
distribution, particularly in China;
 
    
    potential adverse foreign tax consequences;
 
    
    foreign exchange controls that might prevent us from repatriating income earned in
countries outside the United States, particularly China;
 
    
    price controls;
 
    
    the servicing of regions by many different carriers;
 
    
    imposition of public sector controls;
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
    
    political, economic and social instability;
 
    
    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.
   If we fail to deliver our games at the same time as new mobile handset models are commercially
introduced, our sales may suffer.
  Future mobile handsets may significantly reduce or eliminate wireless carriers control over
delivery of our games and force us to rely further on alternative sales channels, which, if not
successful, could require us to increase our sales and marketing expenses significantly.
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If a substantial number of the end users that purchase our games by subscription change mobile
handsets or if wireless carriers switch to subscription plans that require active monthly renewal
by subscribers or change or cease offering subscription plans, our sales could suffer.
  If we fail to maintain and enhance our capabilities for porting games to a broad array of mobile
handsets, our attractiveness to wireless carriers and branded content owners will be impaired, and
our sales and financial results could suffer.
   Our industry is subject to risks generally associated with the entertainment industry, any of which
could significantly harm our operating results.
  If one or more of our games were found to contain hidden, objectionable content, our reputation and
operating results could suffer.
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Our business and growth may suffer if we are unable to hire and retain key personnel.
  Acquisitions could result in operating difficulties, dilution and other harmful consequences.
  
    
    diversion of management time and a shift of focus from operating the businesses to
issues related to integration and administration;
 
    
    declining employee morale and retention issues resulting from changes in compensation,
management, reporting relationships, future prospects or the direction of the business;
 
    
    the need to integrate each acquired companys accounting, management, information,
human resource and other administrative systems to permit effective management, and the
lack of control if such integration is delayed or not implemented;
 
    
    the need to implement controls, procedures and policies appropriate for a larger
public company that the acquired companies lacked prior to acquisition;
 
    
    in the case of foreign acquisitions, the need to integrate operations across different
cultures and languages and to address the particular economic, currency, political and
regulatory risks associated with specific countries; and
 
    
    liability for activities of the acquired companies before the acquisition, including
violations of laws, rules and regulations, commercial disputes, tax liabilities and other
known and unknown liabilities.
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Our reported financial results could be adversely affected by changes in financial accounting
standards or by the application of existing or future accounting standards to our business as it
evolves.
  If we fail to maintain an effective system of internal controls, we might not be able to report our
financial results accurately or prevent fraud; in that case, our stockholders could lose confidence
in our financial reporting, which could negatively impact the price of our stock.
  Maintaining and improving our financial controls and the requirements of being a public company may
strain our resources, divert managements attention and affect our ability to attract and retain
qualified members for our board of directors.
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If we do not adequately protect our intellectual property rights, it may be possible for third
parties to obtain and improperly use our intellectual property and our business and operating
results may be harmed.
   Our business is subject to increasing regulation of content, consumer privacy, distribution and
online hosting and delivery in the key territories in which we conduct business. If we do not
successfully respond to these regulations, our business may suffer.
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Changes in our tax rates or exposure to additional tax liabilities could adversely affect our
earnings and financial condition.
      Third parties may sue us, including for intellectual property infringement, which, if successful,
may disrupt our business and could require us to pay significant damage awards.
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Our principal stockholders, executive officers and directors have substantial control over our
company, which may prevent you or other stockholders from influencing significant corporate
decisions.
  Some provisions in our certificate of incorporation, bylaws and the terms of some of our licensing
and distribution agreements and our credit facility may deter third parties from seeking to acquire
us.
  
    
    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 a majority 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 established and shares of which may be issued without stockholder approval;
and
 
    
    advance notice procedures apply for stockholders to nominate candidates for election
as directors or to bring matters before a meeting of stockholders.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. RESERVED
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
   57




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SIGNATURES
  GLU MOBILE INC.Date: November 10, 2010
    By:
    /s/ Niccolo M. de MasiNiccolo M. de MasiPresident and Chief Executive Officer
(Principal Executive Officer)Date: November 10, 2010
    By:
    /s/ Eric R. LudwigEric R. LudwigSenior Vice President, Chief Financial
Officer and Chief Administrative Officer

(Principal Financial Officer)  58




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EXHIBIT INDEX
 Exhibit
    
    
    
    
    

    Incorporated by Reference
    
    Filing
    
    FiledNumber
    
    Exhibit Description
    
    Form
    
    File No.
    
    Exhibit
    
    Date
    
    Herewith10.01
    
    
    Glu Mobile Inc. 2010 Executive Bonus Plan.
    
    8-K
    
    001-33368
    
    
    99.02
    
    
    08/03/1010.02
    
    
    Sublease, dated as of September 29, 2010, by and
between BlackRock Institutional Trust Company and
Glu Mobile Inc.
    
    8-K
    
    001-33368
    
    
    99.01
    
    
    10/04/1010.03
    
    
    First Amendment to Sublease, dated as of September
29, 2010, by and between BlackRock Institutional
Trust Company and Glu Mobile Inc.
    
    8-K
    
    001-33368
    
    
    99.02
    
    
    10/04/1010.04
    
    
    Sub-sublease, dated as of September 29, 2010, by and
between Appirio, Inc. and Glu Mobile Inc.
    
    8-K
    
    001-33368
    
    
    99.03
    
    
    10/04/1010.05
    
    
    Transitional Employment Agreement, dated as of
September 28, 2010, by and between Glu Mobile Inc.
and Kevin S. Chou
    
    8-K
    
    001-33368
    
    
    99.04
    
    
    10/04/1010.06
    
    
    Summary of Compensation Terms of Kal Iyer
    
    
    
    
    
    
    
    
    
    
    
    X31.01
    
    
    Certification of Principal Executive Officer
Pursuant to Securities Exchange Act Rule
13a-14(a)/15d-14(a).
    
    
    
    
    
    
    
    
    
    
    
    X31.02
    
    
    Certification of Principal Financial Officer
Pursuant to Securities Exchange Act Rule 13a-14(a)
/15d-14(a).
    
    
    
    
    
    
    
    
    
    
    
    X32.01
    
    
    Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350 and Securities
Exchange Act Rule 13a-14(b).*
    
    
    
    
    
    
    
    
    
    
    
    X32.02
    
    
    Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350 and Securities
Exchange Act Rule 13a-14(b).*
    
    
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    This certification is not deemed filed for purposes of Section 18 of the Securities
Exchange Act, or otherwise subject to the liability of that section. Such certification will
not be deemed to be incorporated by reference into any filing under the Securities Act of 1933
or the Securities Exchange Act of 1934, except to the extent that Glu Mobile Inc. specifically
incorporates it by reference.