UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 30, 2013
or
| ¨ 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: 0-22315
| DIGITAL CREATIVE DEVELOPMENT CORPORATION |
| (Exact name of registrant as specified in its charter) |
| Utah | 34-1413104 | |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| 720 Fifth Avenue 10th Floor, New York, New York | 10019 | |||
| (Address of principal executive offices) | (Zip Code) |
| (212) 247-0581 | ||
| (Registrant's telephone number, including area code) |
| (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 Securities Exchange Act of 1934 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 Noo
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 accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filero | Accelerated filero | |
| Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyx |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesxNoo
As of November 8, 2013, there were 127,170,667 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2013
INDEX
| Part I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements. | F-1 |
| Condensed Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and June 30, 2013 | F-1 | |
| Condensed Consolidated (Unaudited) Statements of Operations for the three months ended September 30, 2013 and 2012 | F-2 | |
| Condensed Consolidated (Unaudited) Statement of Stockholders’ Equity for the three months ended September 30, 2013 | F-3 | |
| Condensed Consolidated (Unaudited) Statements of Cash Flows for the three months ended September 30, 2013 and 2012 | F-4 | |
| Notes to Condensed Consolidated Financial Statements | F-5 - F-6 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 3 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 4 |
| Item 4. | Controls and Procedures. | 4 |
| Part II | OTHER INFORMATION | |
| Item 1. | Legal Proceedings. | 5 |
| Item 1A. | Risk Factors. | 5 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 5 |
| Item 3. | Defaults Upon Senior Securities. | 5 |
| Item 4. | Mine Safety Disclosures. | 5 |
| Item 5. | Other Information. | 5 |
| Item 6. | Exhibits. | 5 |
| Signatures | 7 | |
| Certifications—pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. | ||
| 2 |
PART 1---FINANCIAL INFORMATION
Item 1. Financial Statements.
| DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| September 30, 2013 | June 30, 2013 | |||||||
| (unaudited) | (audited) | |||||||
| (in thousands) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| TOTAL CURRENT ASSETS | $ | — | $ | — | ||||
| TOTAL ASSETS | $ | — | $ | — | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accrued expenses and other liabilities | $ | 91.9 | $ | 82.9 | ||||
| Dividends payable | 66.1 | 66.1 | ||||||
| TOTAL CURRENT LIABILITIES | 158.0 | 149.0 | ||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred Stock 15,000,000 Shares Authorized | ||||||||
| Series A Convertible, Par Value $1 ; 2,200 Shares Issued and | ||||||||
| Outstanding; Involuntary Liquidation Preference of $ 1 Per Share | ||||||||
| Plus Accrued and Unpaid Dividends | 2.2 | 2.2 | ||||||
| Series C, Par Value $100 ; 500 Shares Issued and Outstanding | ||||||||
| at September 30, 2013 and June 30, 2013; Involuntary Liquidation Preference | ||||||||
| of $100 Per Share Plus Accrued and Unpaid Dividends | 50.0 | 50.0 | ||||||
| Series D, Par Value $100 ; No Shares Issued and Outstanding | ||||||||
| at September 30, 2013 and June 30, 2013; Involuntary Liquidation Preference | ||||||||
| of $100 Per Share Plus Accrued and Unpaid Dividends | — | — | ||||||
| Common Stock, Par Value $.01; Authorized 600,000,000 Shares; Issued and Outstanding: | ||||||||
| 127,170,667 Shares at September 30, 2013 and June 30, 2013 | 1,271.7 | 1,271.7 | ||||||
| Additional paid in capital | 41,296.6 | 41,296.6 | ||||||
| Accumulated deficit | (42,778.5 | ) | (42,769.5 | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIT | (158.0 | ) | (149.0 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | — | $ | — | ||||
| See accompanying notes to condensed consolidated financial statements. | ||||||||
| F-1 |
| DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (unaudited) | ||||||||
| For the Three Months Ended December 31, | ||||||||
| 2013 | 2012 | |||||||
| (in thousands) | ||||||||
| REVENUE | $ | — | $ | — | ||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | (9.0 | ) | (25.0 | ) | ||||
| (LOSS) FROM OPERATIONS | (9.0 | ) | (25.0 | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest expense, net and other | — | (57.5 | ) | |||||
| TOTAL OTHER INCOME (EXPENSE) | — | (57.5 | ) | |||||
| NET LOSS | $ | (9.0 | ) | $ | (82.5 | ) | ||
| UNDECLARED PREFERRED STOCK DIVIDENDS | (1.3 | ) | (36.4 | ) | ||||
| NET LOSS APPLICABLE TO COMMON SHAREHOLDERS | $ | (10.3 | ) | $ | (118.9 | ) | ||
| WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES | ||||||||
| FOR BASIC AND DILUTED EARNINGS PER SHARE | 127,170.7 | 53,864.2 | ||||||
| BASIC AND DILUTED LOSS PER SHARE | $ | (0.0 | ) | $ | (0.0 | ) | ||
| See accompanying notes to condensed consolidated financial statements. | ||||||||
| F-2 |
| DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY | ||||||||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||
| FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 | ||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
| Preferred Stock | Additional | |||||||||||||||||||||||
| Series | Series | Common | Paid-in | Accumulated | ||||||||||||||||||||
| A | C | Stock | Capital | Deficit | Total | |||||||||||||||||||
| Balance at June 30, 2013 (audited) | $ | 2.2 | $ | 50.0 | $ | 1,271.7 | $ | 41,296.6 | $ | (42,769.5 | ) | $ | (149.0 | ) | ||||||||||
| Net loss | (9.0 | ) | (9.0 | ) | ||||||||||||||||||||
| Balance at September 30, 2013 (unaudited) | $ | 2.2 | $ | 50.0 | $ | 1,271.7 | $ | 41,296.6 | $ | (42,778.5 | ) | $ | (158.0 | ) | ||||||||||
| See accompanying notes to consolidated financial statements. | ||||||||||||||||||||||||
| F-3 |
| DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE THREE MONTHS ENDED SEPTEMBER 30 | ||||||||
| 2013 (unaudited) | 2012 (unaudited) | |||||||
| (in thousands) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITES: | ||||||||
| Net loss | $ | (9.0 | ) | $ | (82.5 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Changes in assets and liabilities: | ||||||||
| Increase in accounts payable, accrued expenses and other liabilities | 9.0 | 82.5 | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | — | — | ||||||
| NET CASH PROVIDED BY INVESTING ACTIVITES: | — | — | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | — | — | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | — | — | ||||||
| CASH AND EQUIVALENTS, beginning of period | — | — | ||||||
| CASH AND EQUIVALENTS, end of period | $ | — | $ | — | ||||
| CASH PAYMENTS FOR: | ||||||||
| Interest expense | $ | — | $ | — | ||||
| Income taxes | $ | — | $ | — | ||||
| See accompanying notes to condensed consolidated financial statements. | ||||||||
| F-4 |
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2013
(unaudited)
($’s in thousands)
NOTE 1- BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Digital Creative Development Corporation and its wholly owned subsidiary (collectively, the "Company").
The accompanying consolidated financial statements as of September 30, 2013 and for the three months ended September 30, 2013 and 2012 are unaudited and have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission relating to interim financial statements. The accompanying consolidated balance sheet as of June 30, 2013 and other information as of June 30, 2013 have been derived from the Company's audited annual financial statements. These consolidated financial statements do not include all disclosures provided in the Company's annual financial statements. The consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes thereto for the year ended June 30, 2013 contained in the Company's Form 10-K filed with the Securities and Exchange Commission. All adjustments of a normal recurring nature, which, in the opinion of management, are necessary to present a fair statement of results for the periods presented have been made. The results of operations for the three months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.
NOTE 2- DOUBT AS TO CONTINUING AS A GOING CONCERN
Our consolidated unaudited financial statements were prepared on the assumption that we will continue as a going concern. We currently have a working capital and equity deficit of $158.0. Our ability to obtain resources sufficient to continue to meet our obligations as they come due is dependent on raising additional equity or by additional borrowings. We intend to use our cash as well as other funds, to the extent that they are available on commercially reasonable terms, to finance our activities. Although we can provide no assurance that these additional funds will be available in the amounts or at the times we may require, management believes that it can obtain the additional funds necessary to continue its operations.
NOTE 3- PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Digital Creative Development Corporation and its wholly owned subsidiary, (collectively the "Company"), Digital Creative Development Company (Delaware). All significant inter-company accounts and transactions have been eliminated in consolidation.
NOTE 4- ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses primarily consist of accrued legal and other professional fees and general administrative expenses of the Company.
NOTE 5- COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated results of operations or financial position.
NOTE 6- STOCKHOLDERS’ EQUITY
On December 13, 2011 the Company filed a 14C Information Statement with the Securities and Exchange Commission for the purpose of increasing its authorized shares. A majority of the shareholders of the Company approved the increase in the Company’s authorized number of shares from 85,000,000 shares (75 million common shares and 10 million preferred shares) to 615,000,000 shares (600 million common shares and 15 million preferred shares) by Written Consent. The Company has received approval for this increase from the various regulatory agencies.
| F-5 |
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2013
(unaudited)
($’s in thousands)
The holders of the Series A Preferred Stock are entitled to a cumulative dividend of $0.10 per share per annum. Such dividends accrue annually but are payable only if and when the Company declares a dividend. The Company has never paid any dividends with respect to the Series A Preferred Stock. The Series A Preferred Stock is entitled to a liquidation preference of $1.00 per share, plus any accrued and unpaid dividends. The Series A Preferred Stock may be redeemed by the Company at a redemption price of $1.00 per share plus all accrued and unpaid dividends. The amount of accumulated and unpaid dividends was approximately $26.7 and $26.6 as of September 30, 2013 and June 30, 2013, respectively.
The Series C Preferred stock is not convertible, but may be redeemed at the option of the Company at a redemption price of $100 per share plus accrued and unpaid dividends, at any time after October 31, 1999. The holders of the preferred stock are entitled to a cumulative dividend of 10% per annum, payable semiannually, if and when the board declares a dividend. As of September 30, 2013 and June 30, 2013, the Company had accumulated and unpaid dividends of approximately $10.9 and $9.7, respectively, on this series of preferred stock.
| F-6 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Statements contained in this Quarterly Report on Form 10-Q, other than the historical financial information, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievement of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward-looking statements. Factors that might cause such a difference include, but are not limited to, risks and uncertainties related to the substantial capital requirements, development of effective internal processes and systems, the ability to attract and retain high quality employees, changing overall economy and other risks described herein and in the Company's June 30, 2013 Annual Report on Form 10-K.
PLAN OF OPERATION
Digital Creative Development Corporation (the “Company”) was principally involved in acquiring and investing in software and high technology companies, with a focus on acquiring controlling interests. At present, the Company does not have an operating business except for its interest in Broadcaster, Inc. The Company has since begun to search for candidates with which to enter into business combinations or strategic transactions.
The Company intends to locate and enter into a transaction with an existing, public or privately-held company (a "Target Business"). A transaction with a Target Business may be structured as a merger, consolidation, exchange of the Company's common stock for stock or assets of the Target Business or any other form, which will result in the combined enterprise remaining a publicly-held corporation.
Acquisitions or business combinations involve many risks, including:
| · Unforeseen obligations or liabilities; |
| · Difficulty assimilating the acquired operations and personnel; |
| · Risks of entering markets in which we have little or no direct prior experience; |
| · Potential impairment of relationships with employees or customers as a result of changes in management; |
| · Potential dilutive issuances of equity, large and immediate write-offs, the incurrence of debt, and amortization of goodwill or other intangible assets; and |
| · Unforeseen obligations or liabilities. |
We cannot make assurances that the Company will make any acquisitions or business combinations or that the Company will be able to obtain additional financing for such acquisitions or combinations, if necessary. If any acquisitions or combinations are made, we cannot make assurances that we will be able to successfully integrate the acquired or combined business into our operations or that the acquired or combined business will perform as expected. Furthermore, Federal and state tax laws and regulations have a significant impact upon the structuring of transactions. Management will evaluate the possible tax consequences of any prospective transaction and will endeavor to structure a transaction so as to achieve the most favorable tax treatment. There can be no assurance that the Internal Revenue Service or relevant state tax authorities will ultimately assent to our tax treatment of a particular consummated transaction. To the extent the Internal Revenue Service or any relevant state tax authorities ultimately prevail in recharacterizing the tax treatment of a transaction, there may be adverse tax consequences to us, the target business, and/or their respective stockholders. Tax considerations as well as other relevant factors will be evaluated in determining the precise structure of a particular transaction, which could be effected through various forms of a merger, consolidation or stock or asset acquisition.
Pending negotiation and consummation of a transaction, the Company anticipates that it will not have any business activities, aside from carrying on its search for a transaction partner. Should the Company incur any significant liabilities prior to a combination with a Target Business, it may not be able to satisfy, without additional financing, such liabilities as are incurred.
RESULTS OF OPERATIONS
Three Month Period Ended September 30, 2013 Compared To The Three Month Period Ended September 30, 2012.
The Company experienced a net loss of $9,000 in the three month period ended September 30, 2013 compared to a net loss of $82,500 in the comparable 2012 period. After settling its notes and other debts in April 2013, the Company did not incur interest charges during the three months ended September 30, 2013. The Company incurred approximately $57,500 of interest expense in the comparable 2012 period.
| 3 |
LIQUIDITY AND CAPITAL RESOURCES
The Company's current liabilities exceeded its current assets by approximately $158,000 at September 30, 2013, compared to current liabilities exceeding its current assets by $149,000 at June 30, 2013. The Company increased its operating obligations by $9,000 during the three months ended September 30, 2013. These expenses were necessitated to meet filing requirements as a public reporting entity.
Since the Company is inactive, the Company can only depend on funding from third parties, of which there can be no assurance.
The proceeds of any such sales are anticipated to be principally used by the Company for general working capital purposes. The Company anticipates that its working capital needs will be financed by sales of additional equity or by additional borrowings until and unless the Company acquires a profitable operating business or makes other investments.
The consolidated unaudited financial statements were prepared on the assumption that the Company will continue as a going concern. Considering the working capital and equity deficit of $158,000, the Company’s ability to obtain financial resources to meet its obligations depends on raising cash by issuing additional equity or by additional borrowings. However, the Company can provide no assurance that these additional funds will be available in the amounts or at the times required. Management currently believes that it can obtain the additional funds necessary to continue its operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company's chief executive officer in conjunction with the chief financial officer, after evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report (the "Evaluation Date") has concluded that the Company's disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission.
Changes in Internal Controls
During this fiscal quarter, there were no significant changes in the Company's internal controls over financial reporting or, to the knowledge of the management of the Company, in other factors that could significantly affect those controls subsequent to the Evaluation Date.
| 4 |
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is, from time to time, the subject of litigation, claims and assessments arising out of matters occurring during the normal operation of the Company's business. In the opinion of management, the liability, if any, under such current litigation, claims and assessments, that are material, have been properly accrued.
Item 1A. Risk Factors.
Not required for smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
The holders of the Series A Preferred Stock are entitled to a cumulative dividend of $0.10 per share per annum. Such dividends accrue annually but are payable if and when the Company declares a dividend. The Company has never paid any dividends with respect to the Series A Preferred Stock. The 2,200 outstanding shares of Series A Preferred Stock are convertible into 3,300 shares of Common Stock for no additional consideration at the option of the holder of the stock. The Series A Preferred Stock is entitled to a liquidation preference of $1.00 per share, plus any accrued and unpaid dividends. The Series A Preferred Stock may be redeemed by the Company at a redemption price of $1.00 per share plus all accrued and unpaid dividends. The amount of accumulated and unpaid dividends was approximately $26,700 and $26,600 as of September 30, 2013 and June 30, 2013, respectively.
The Series C Preferred stock is not convertible, but may be redeemed at the option of the Company at a redemption price of $100 per share plus accrued and unpaid dividends, at any time after October 31, 1999. The holders of the preferred stock are entitled to a cumulative dividend of 10% per annum, payable semiannually, if and when the board declares a dividend. As of September 30, 2013 and June 30, 2013, the Company had accumulated and unpaid dividends of approximately $10,900 and $9,700, respectively, on this series of preferred stock.
Item 4. Mine Safety Disclosures.
None.
Item 5. Other Information
None.
Item 6. Exhibits
| (a) | Exhibits: |
31.01 Chief Executive Officer---Certification pursuant to Rule 13a-14 (a) of the Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02 Chief Financial Officer--- Certification pursuant to Rule 13a-14 (a) of the Exchange Act of 193,4 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01 Chief Executive Officer---Certification pursuant to Rule 13a-14(b) of the Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| 5 |
32.02 Chief Financial Officer-- Certification pursuant to Rule 13a-14(b) of the Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| 6 |
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DIGITAL CREATIVE DEVELOPMENT CORPORATION | ||
| Dated: November 19, 2013 | By: | /s/ Gary Herman |
| Name: Gary Herman | ||
| Title: Chief Executive Officer | ||
| By: | /s/ Skuli Thorvaldsson | |
| Name: Skuli Thorvaldsson | ||
| Title: Chief Financial Officer | ||
7