UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-35958

DIGITAL TURBINE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		22-2267658
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1300 Guadalupe Street Suite # 302, Austin TX		78701
(Address of Principal Executive Offices)		(Zip Code)

(512) 387-7717

(Issuer’s Telephone Number, Including Area Code)

2811 Cahuenga Boulevard West, Los Angeles, CA, 90068

(former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of a “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

Large Accelerated Filer	¨		Accelerated Filer	¨

Non-accelerated Filer	¨	(do not check if smaller reporting company)	Smaller Reporting Company	x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of February 5, 2014, the Company had 37,824,011 shares of its common stock, $0.0001 par value per share, outstanding.

DIGITAL TURBINE, INC.

FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED DECEMBER 31, 2014

Table of Contents

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	1
	Consolidated Balance Sheets as of December 31, 2014 (Unaudited) and March 31, 2014	1
	Consolidated Statements of Operations and Comprehensive Loss (Unaudited) For the Nine Month Period Ended December 31, 2014 and 2013	2
	Consolidated Statements of Stockholders’ Equity (Unaudited) for the Nine Month Period Ended December 31, 2014 and 2013	3
	Consolidated Statements of Cash Flows (Unaudited) For the Nine Month Period Ended December 31, 2014 and 2013	4
	Notes to the Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4	Controls and Procedures	35
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
Signatures		40

PART I – FINANCIAL INFORMATION

kITEM 1 – FINANCIAL STATEMENTS

Digital Turbine, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	(unaudited)
	December 31,			March 31,
	2014			2014
ASSETS
Current assets
Cash and cash equivalents	$	11,384		$	21,805
Restricted cash		200			200
Accounts receivable, net of allowances of $0 and $0, respectively		5,545			5,102
Deposits		96			24
Prepaid expenses and other current assets		366			350
Total current assets		17,592			27,481
Property and equipment, net		414			465
Deferred tax assets		28			3,238
Intangible assets, net		8,004			9,074
Goodwill		7,309			4,837
TOTAL ASSETS	$	33,346		$	45,095
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	3,756		$	2,943
Accrued license fees and revenue share		3,902			3,395
Accrued compensation		1,883			1,681
Deferred tax liabilities		28			2,987
Other current liabilities		2,111			900
Total current liabilities		11,680			11,906
Long term contingent liability, less discount of $0 and $762, respectively		-			238
Total liabilities	$	11,680		$	12,144
Stockholders' equity
Preferred stock
Series A convertible preferred stock at $0.0001 par value; 200,000 shares authorized, 100,000 issued and outstanding (liquidation preference of $1,000,000)		100			100
Common stock, $0.0001 par value: 200,000,000 shares authorized; 38,606,885 issued and 37,852,285 outstanding at December 31, 2014; 38,143,028 issued and 37,388,429 outstanding at March 31, 2014;		7			7
Additional paid-in capital		197,330			193,422
Treasury Stock (754,599 shares at December 31, 2014 and March 31, 2014)		(71	)		(71	)
Accumulated other comprehensive loss		(97	)		(199	)
Accumulated deficit		(175,603	)		(160,308	)
Total stockholders' equity		21,666			32,951
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	33,346		$	45,095

Digital Turbine, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

(In thousands, except per share amounts)

	3 Months Ended			3 Months Ended			9 Months Ended			9 Months Ended
	December 31,			December 31,			December 31,			December 31,
	2014			2013			2014			2013
Net revenues	$	7,006		$	6,809		$	18,023		$	18,352
Cost of revenues
License fees and revenue share		4,609			4,421			11,720			11,054
Other direct cost of revenues		413			455			1,102			1,314
Total cost of revenues		5,023			4,876			12,823			12,368
Gross profit		1,983			1,933			5,200			5,984
Operating expenses
Product development		1,718			2,039			5,832			6,034
Sales and marketing		485			472			1,989			1,381
General and administrative		5,171			3,110			12,094			10,202
Total operating expenses		7,375			5,621			19,915			17,617
Loss from operations		(5,391	)		(3,688	)		(14,714	)		(11,633	)
Interest and other income / (expense)
Interest income / (expense)		5			(4	)		(122	)		(1,637	)
Foreign exchange transaction gain		39			5			32			61
Change in fair value of warrant derivative liabilities loss		-			-			-			(811	)
Loss on extinguishment of debt		-			-			-			(442	)
Gain / (loss) on settlement of debt		1			27			(9	)		60
Gain/ (loss) on disposal of fixed assets		-			(1	)		2			1
Gain on change on valuation of long term contingent liability		-			-			-			603
Other expense		(25	)		-			(13	)		-
Total interest and other income / (expense)		21			27			(110	)		(2,165	)
Loss from operations before income taxes		(5,369	)		(3,661	)		(14,825	)		(13,798	)

Income tax provision		114			7			469			9

Net loss from continuing operations, net of taxes		(5,484	)		(3,668	)		(15,294	)		(13,807	)
Loss from operations of discontinued component		-			(508	)		-			(2,277	)

Net (loss)	$	(5,484	)	$	(4,176	)	$	(15,294	)	$	(16,084	)

Other comprehensive income / (loss):
Foreign currency translation adjustment	$	32		$	(63	)	$	102		$	375

Comprehensive loss:	$	(5,452	)	$	(4,239	)	$	(15,192	)	$	(15,709	)

Basic and diluted net loss per common share	$	(0.15	)	$	(0.13	)	$	(0.41	)	$	(0.63	)
Continuing operations	$	(0.15	)	$	(0.12	)	$	(0.41	)	$	(0.54	)
Discontinued operations	$	-		$	(0.01	)	$	-		$	(0.09	)
Net loss	$	(0.15	)	$	(0.13	)	$	(0.41	)	$	(0.63	)
Weighted average common shares outstanding, basic and diluted		37,799			31,329			37,576			25,544

Digital Turbine, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands, except share amounts)


																	Accumulated
															Additional		Other
	Common Stock				Preferred Stock				Treasury Stock						Paid-In		Comprehensive			Accumulated
	Shares		Amount		Shares		Amount		Shares			Amount			Capital		Income/(Loss)			Deficit			Total
Balance at March 31, 2014		37,388,429	$	7		100,000	$	100		754,600		$	(71	)	$	193,422	$	(199	)	$	(160,308	)	$	32,951
Net loss		—		—		—		—		—			—			—		—			(4,610	)		(4,610	)
Foreign currency translation		—		—		—		—		—			—			—		38			—			38
Vesting of shares issued to employee		—		—		—		—		—			—			100		—			—			100
Vesting of options issued to employees		—		—		—		—		—			—			718		—			—			718
Vesting of restricted stock for services		—		—		—		—		—			—			76		—			—			76
Shares issued as settlement of debt		50,000		—		—		—		—			—			188		—			—			188
Balance at June 30, 2014		37,438,429		7		100,000		100		754,600			(71	)		194,504		(161	)		(164,918	)		29,461
Net loss		—		—		—		—		—			—			—		—			(5,201	)		(5,201	)
Foreign currency translation		—		—		—		—		—			—			—		32			—			32
Vesting of shares issued to employee		—		—		—		—		—			—			100		—			—			100
Vesting of options issued to employees		—		—		—		—		—			—			889		—			—			889
Vesting of restricted stock for services		45,375		—		—		—		—			—			172		—			—			172
Warrant exercised		300,000		—		—		—		—			—			375		—			—			375
Balance at September 30, 2014		37,783,804		7		100,000		100		754,600			(71	)		196,040		(129	)		(170,119	)		25,828
Net loss		—		—		—		—		—			—			—		—			(5,484	)		(5,484	)
Foreign currency translation		—		—		—		—		—			—			—		32			—			32
Vesting of shares issued to employee		55,064		—		—		—		—			—			178		—			—			178
Vesting of options issued to employees		—		—		—		—		—			—			1,068		—			—			1,068
Vesting of restricted stock for services		—		—		—		—		—			—			44		—			—			44
for services		—		—		—		—		—			—			—		—			—			—
Adjust treasury stock		—		—		—		—		(1	)		—			—		—			—			—
Warrant exercised		13,417		—		—		—		—			—			—		—			—			—
Balance at December 31, 2014		37,852,285	$	7		100,000	$	100		754,599		$	(71	)	$	197,330	$	(97	)	$	(175,603	)	$	21,666

Digital Turbine, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

(In thousands)

	9 Months Ended			9 Months Ended
	December 31,			December 31,
	2014			2013
Cash flows from operating activities
Net (loss)/income	$	(15,294	)	$	(16,084	)
Adjustments to reconcile net loss to net cash used in operating activities:

Loss on disposal of discontinued operations, net of taxes		-			1,634
Depreciation and amortization		1,168			1,584
Amortization of debt discount		-			186
Interest and PIK interest accrued		-			101
Finance costs		-			1,724
Stock and stock option compensation		2,975			1,354
Stock issued for services		369			2,173
Warrants issued for services		-			406
Stock issued as settlement of debt with a supplier		-			51
Settlement of debt with a supplier		-			182
Revaluation of contingent liability		-			(603	)
Increase in fair value of derivative liabilities		-			811
(Increase) / decrease in assets, net of effect of disposal of subsidiary:
Accounts receivable		(443	)		(1,506	)
Deposits		(73	)		439
Deferred tax assets		3,210			-
Prepaid expenses and other current assets		(16	)		346
Increase / (decrease) in liabilities, net of effect of disposal of subsidiary:
Accounts payable		438			(443	)
Accrued license fees and revenue share		507			3,011
Accrued compensation		202			229
Other liabilities and other items		(1,748	)		(2,501	)

Net cash used in operating activities		(8,705	)		(6,906	)

Cash flows from investing activities
Purchase and disposal of property and equipment, net		67			(61	)
Settlement of contingent liability		(49	)		-
Cash used in acquisition of assets		(2,125	)
Cash used in acquisition of subsidiary		-			(1,287	)
Cash acquired with acquisition of subsidiary		-			513
Net cash used in investing activities		(2,107	)		(835	)

Cash flows from financing activities
Repayment of debt obligations		-			(3,657	)
Issuance of shares for cash		-			14,924
Warrant exercised		375			-
Net cash provided by financing activities		375			11,267

Effect of exchange rate changes on cash and cash equivalents		16			(19	)

Net change in cash and cash equivalents		(10,421	)		3,507

Cash and cash equivalents, beginning of period		21,805			1,149

Cash and cash equivalents, end of period	$	11,384		$	4,656

Supplemental disclosure of cash flow information: