UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
Form 10-Q
_____________
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2008
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 000-50621
DOLPHIN DIGITAL MEDIA INC.
(Exact name of registrant as specified in its charter)
Nevada 86-0787790
(State of incorporation) (I.R.S. employer identification no.)
82 Avenue Road
Toronto, Ontario Canada M5R2H2
(Address of principal executive offices, including zip code)
(416) 929-5798
(Registrant's telephone number)
LOGICA HOLDINGS, INC.
(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| 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
the definitions of "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 |_| Smaller reporting company |X|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 under the Act). Yes |_| No |X|
The number of shares of Common Stock outstanding was 48,647,716 as of November
13, 2008.
DOLPHIN DIGITAL MEDIA INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets (Unaudited) 2
Condensed Consolidated Statements of Operations (Unaudited)
Three and Nine months ended September 30th 2008 & 2007 3
Condensed Consolidated Statement of Cash Flows (Unaudited)
Nine Months Ended June 30th 2008 and 2007 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 14
ITEM 4 - CONTROLS AND PROCEDURES 16
PART II - OTHER INFORMATION
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 17
ITEM 5 - OTHER INFORMATION 17
ITEM 6 - EXHIBITS 18
DOLPHIN DIGITAL MEDIA, INC. AND SUBSIDIARIES
F/K/A LOGICA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2008 2007
------------- -------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 109,348 $ 37,150
Inventory 102,161 2,229
Prepaid expenses 69 468
Other current assets 736 11,896
------------- -------------
TOTAL CURRENT ASSETS 212,314 51,743
Property, plant and equipment 71,576 93,803
Intangible assets 132,583 129,135
------------- -------------
TOTAL ASSETS $ 416,473 $ 274,681
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 225,067 $ 223,891
Other current liabilities 112,131 8,037
Advances from related parties 70,000 --
------------- -------------
TOTAL CURRENT LIABILITIES 407,198 231,928
------------- -------------
TOTAL LIABILITIES 407,198 231,928
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock $0.001 par value,
10,000,000 shares authorized;
500,000 issued and outstanding as
of September 30, 2008 and
December 31, 2007, respectevely 500 500
Common stock, $0.015 par value,
100,000,000 shares authorized;
48,647,716 and 21,988,142 issued and
outstanding as of September 30, 2008
and December 31, 2007, respectevely 729,716 307,565
Additional paid-in capital 9,715,998 7,941,022
Deferred compensation (30,807) (254,072)
Accumulated other comprehensive loss (64,161) (100,025)
Accumulated deficit (10,341,971) (7,852,237)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 9,275 42,753
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 416,473 $ 274,681
============= =============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
2
DOLPHIN DIGITAL MEDIA, INC. AND SUBSIDIARIES
F/K/A LOGICA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
For the three months ended For the nine months ended
September 30, September 30,
2008 2007 2008 2007
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES:
Revenues $ 267,020 $ 168,170 $ 601,919 $ 168,170
Cost of sales 101,468 114,156 227,509 114,156
------------ ------------ ------------ ------------
GROSS PROFIT 165,552 54,014 374,410 54,014
------------ ------------ ------------ ------------
OPERATING EXPENSES:
General and administrative 462,193 274,833 1,424,333 809,180
Legal and professional fees 266,382 128,461 871,983 143,515
Depreciation 9,176 6,741 26,011 16,666
Impairment of intangible assets -- 537,303 -- 537,303
Impairment of goodwill -- 4,999,724 -- 4,999,724
Amortization of deferred compensation 74,421 -- 223,264 --
------------ ------------ ------------ ------------
Total operating expenses 812,172 5,947,062 2,545,591 6,506,388
------------ ------------ ------------ ------------
OPERATING LOSS (646,620) (5,893,048) (2,171,181) (6,452,374)
------------ ------------ ------------ ------------
OTHER (INCOME) AND EXPENSES:
Interest income (492) (26) (641) (26)
Interest expense 4,806 9,666 20,830 28,935
Liquidated damages -- -- 262,500 --
------------ ------------ ------------ ------------
Total other expense 4,314 9,640 282,689 28,909
NET LOSS (650,934) (5,902,688) (2,453,870) (6,481,283)
------------ ------------ ------------ ------------
DISCONTINUED OPERATIONS
Gain from discontinued operations -- 31,666 -- 31,666
Gain on sale of subsidiary -- 1,341,649 -- 1,341,649
------------ ------------ ------------ ------------
NET GAIN FROM DISCONTINUED OPERATIONS -- 1,373,315 -- 1,373,315
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (13,753) -- (35,864) --
------------ ------------ ------------ ------------
TOTAL OTHER COMPREHENSIVE LOSS $ (664,687) $ (4,529,373) $ (2,489,734) $ (5,107,968)
============ ============ ============ ============
Basic and Diluted (Loss) per Share -
from continued operation (0.014) (0.311) (0.080) (0.866)
------------ ------------ ------------ ------------
Basic and Diluted (Loss) per Share $ (0.014) $ (0.311) $ (0.080) $ (0.866)
============ ============ ============ ============
Basic and Diluted Weighted Average
Number of Shares Outstanding for
the period 47,183,793 14,567,138 30,937,314 5,897,466
============ ============ ============ ============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
3
DOLPHIN DIGITAL MEDIA, INC. AND SUBSIDIARIES
F/K/A LOGICA HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
2008 2007
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $(2,489,734) $(6,481,283)
Net loss from discontinued operations -- 1,373,315
----------- -----------
Net loss (2,489,734) $(5,107,968)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 26,011 16,666
Amortization of common stock compensation 223,211 --
Common stock issued for services rendered 230,272 104,906
Common stock issued for liquidated damages 262,500 --
Impairment of goodwill -- 4,999,724
Impairment of intangible assets -- 537,303
Changes in assets and liabilities:
Accounts receivable -- (65,640)
Inventory (99,932) --
Prepaid expenses 399 (71,373)
Other current assets 11,160 --
Accounts payable 1,176 504,997
Accrued expenses 104,094 12,315
Discontinued operations, net -- 31,666
----------- -----------
Net cash (used in) provided by operating activities (1,730,843) 962,596
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (3,784) (71,373)
Purchase of Intangible Asset (3,448) (29,924)
----------- -----------
Net cash used in investing activities (7,232) (101,297)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the convertible notes payable 1,674,409 1,288,656
Proceeds from issuances of common stock 30,000 --
Advances from related parties 70,000 --
Discontinued operations, net -- (2,097,406)
----------- -----------
Net cash provided by (used in) financing activities 1,774,409 (808,750)
----------- -----------
EXCHANGE RATE LOSS 35,864 --
----------- -----------
INCREASE IN CASH 72,198 52,549
CASH, BEGINNING OF YEAR 37,150 6,297
----------- -----------
CASH, END OF YEAR $ 109,348 $ 58,846
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 15,883 $ 28,935
=========== ===========
Income taxes paid $ -- $ --
=========== ===========
NON CASH FINANCING AND INVESTING :
Conversion of debt into common shares $ 1,674,409 $ 1,289,012
=========== ===========
Conversion of accounts payable into common shares $ -- $ 206,000
=========== ===========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
DOLPHIN DIGITAL MEDIA INC AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION
(A) Basis of Presentation and Organization.
Dolphin Digital Media Inc (the "Company"), initially known as Rising
Fortune Incorporated, was incorporated in the State of Nevada on March 7, 1995.
The Company was inactive between the years 1996 and 2003. On November 19th,
2003, the Company amended its Articles of Incorporation to change its name to
Maximum Awards Inc. On July 3 2007 the Company amended its Articles of
Incorporation again to change its name to Logica Holdings Inc. On July 29 2008,
the Company amended its Articles of Incorporation again to change its name to
Dolphin Digital Media Inc. The Company creates and manages social networking
websites for children utilizing state-of the-art fingerprint identification
technology. As a leading developer of Internet safety technology operating in
the entertainment, digital media, and e-commerce sectors, there is a focus on
the growing global market for social networking, downloadable entertainment
content and branded merchandise sales.
Plays On The Net Plc (subsidiary) was incorporated in London (United
Kingdom) on May 23 2006. The company began as an online database for unpublished
playwrights. A platform for writers to share their work, to communicate with
fellow dramatists and to explore new ideas, it has since grown into an extensive
retail site for book and audio downloads and all-round theatre information site.
Plays On The Net Inc (subsidiary) was incorporated in Ontario (Canada)
on July 27 2006. It is a fully owned subsidiary of Plays On the Net Plc and is
considered as the North American arm of its parent company which also develops
from time to time websites for sale to third parties.
Anne's World Limited (subsidiary) was incorporated in Ontario (Canada)
on August 3 2006. The company obtained the license for a secure social
networking website for children. The website is an interactive virtual world for
young people, secured with cutting-edge biometric technology in the form of a
personal fingerprint reader.
Curtain Rising Inc (subsidiary) was incorporated in Ontario (Canada) on
October 19 2006. The company's main activity is an online database for theatres
and a bi-weekly online theatre magazine. Organized by city, the concept was a
user-friendly search engine which would enable theatergoers to locate
productions, venues and information with ease.
Dolphin Digital Media Inc (subsidiary) was incorporated in Delaware in
June of 2008. The company owns a 10 year exclusive world-wide license and right
to utilize the Property of Dolphin Entertainment Inc but solely upon and in
connection the creation, promotion and operation of its Internet social
networking websites.
5
NOTE 2 INTERIM FINANCIAL STATEMENTS
The accompanying interim unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 8 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In our opinion, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September 30, 2008
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2008. For further information, refer to the financial
statements and footnotes thereto included in our Form 10-KSB Report for the
fiscal year ended December 31, 2007.
NOTE 3 GOING CONCERN
The accompanying condensed consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America which contemplate continuation of the Company as a
going concern. The Company has quarter end losses from operations for the period
months ended September 30, 2008. During the nine months period ended September
30, 2008 the Company recorded an accumulated deficit of $10.341.972. Further,
the Company has inadequate working capital to maintain or develop its
operations, and is dependent upon funds from private investors and the support
of certain stockholders.
These factors raise substantial doubt about the ability of the Company
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties. In this
regard, Management is planning to raise any necessary additional funds through
loans and additional sales of its common stock. There is no assurance that the
Company will be successful in raising additional capital.
NOTE 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent Accounting Pronouncements
- --------------------------------
Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
In June 2008, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No.
03-6-1, "Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities." The FSP addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share under the two-class method. The FSP
affects entities that accrue dividends on share-based payment awards during the
awards' service period when the dividends do not need to be returned if the
employees forfeit the award. This FSP is effective for fiscal years beginning
6
after December 15, 2008. The implementation of this standard will not have a
material impact on the Company's consolidated financial position and results of
operations.
Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an
entity's Own Stock.
In June 2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an
Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock" (EITF
07-5). EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument's contingent
exercise and settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. The implementation of this standard will not
have a material impact on the Company's consolidated financial position and
results of operations.
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon
Conversion (Including Partial Cash Settlement)
In May 2008, the FASB issued FSP Accounting Principles Board ("APB") Opinion No.
14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement)." The FSP clarifies the
accounting for convertible debt instruments that may be settled in cash
(including partial cash settlement) upon conversion. The FSP requires issuers to
account separately for the liability and equity components of certain
convertible debt instruments in a manner that reflects the issuer's
nonconvertible debt (unsecured debt) borrowing rate when interest cost is
recognized. The FSP requires bifurcation of a component of the debt,
classification of that component in equity and the accretion of the resulting
discount on the debt to be recognized as part of interest expense in our
consolidated statement of operations. The FSP requires retrospective application
to the terms of instruments as they existed for all periods presented. The FSP
is effective for us as of January 1, 2009 and early adoption is not permitted.
The implementation of this standard will not have a material impact on the
Company's consolidated financial position and results of operations.
The Hierarchy of Generally Accepted Accounting Principles
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" (FAS No.162). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements. SFAS No. 162 is effective 60 days following
the SEC's approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles". The implementation of this standard will not
have a material impact on the Company's consolidated financial position and
results of operations.
7
Determination of the Useful Life of Intangible Assets
In April 2008, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position on Financial Accounting Standard ("FSP FAS") No. 142-3,
"Determination of the Useful Life of Intangible Assets", which amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of intangible assets under SFAS No. 142
"Goodwill and Other Intangible Assets". The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of the expected cash flows used to measure the fair value
of the asset under SFAS No. 141 (revised 2007) "Business Combinations" and other
U.S. generally accepted accounting principles. The implementation of this
standard will not have a material impact on the Company's consolidated financial
position and results of operations.
Disclosure about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued SFAS No. 161, "Disclosure about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133", (SFAS 161).
This statement requires that objectives for using derivative instruments be
disclosed in terms of underlying risk and accounting designation. The Company is
required to adopt SFAS No. 161 on January 1, 2009. The implementation of this
standard will not have a material impact on the Company's consolidated financial
position and results of operations.
Delay in Effective Date
In February 2008, the FASB issued FSP FAS No. 157-2, "Effective Date of FASB
Statement No. 157". This FSP delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. The impact of adoption was not material to the Company's
consolidated financial condition or results of operations.
Business Combinations
In December 2007, the FASB issued SFAS No. 141(R) "Business Combinations" (SFAS
141(R)). This Statement replaces the original SFAS No. 141. This Statement
retains the fundamental requirements in SFAS No. 141 that the acquisition method
of accounting (which SFAS No. 141 called the purchase method) be used for all
business combinations and for an acquirer to be identified for each business
combination. The objective of SFAS No. 141(R) is to improve the relevance, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. To accomplish
that, SFAS No. 141(R) establishes principles and requirements for how the
acquirer:
a. Recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree.
8
b. Recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase.
c. Determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of
the business combination.
This Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008 and may not be applied before
that date. The implementation of this standard will not have a material impact
on the Company's consolidated financial position and results of operations.
Non-controlling Interests in Consolidated Financial Statements--an amendment of
ARB No. 51
In December 2007, the FASB issued SFAS No. 160 "Non-controlling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51" (SFAS No. 160).
This Statement amends the original Accounting Review Board (ARB) No. 51
"Consolidated Financial Statements" to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. This Statement is
effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008 and may not be applied before that date.
The implementation of this standard will not have a material impact on the
Company's consolidated financial position and results of operations.
Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of SFAS No.
115" (SFAS No. 159), which becomes effective for the Company on February 1,
2008, permits companies to choose to measure many financial instruments and
certain other items at fair value and report unrealized gains and losses in
earnings. Such accounting is optional and is generally to be applied instrument
by instrument. The implementation of this standard will not have a material
impact on the Company's consolidated financial position and results of
operations.
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS
No. 157). SFAS No. 157 provides guidance for using fair value to measure assets
and liabilities. SFAS No. 157 addresses the requests from investors for expanded
disclosure about the extent to which companies' measure assets and liabilities
at fair value, the information used to measure fair value and the effect of fair
value measurements on earnings. SFAS No. 157 applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value, and does
not expand the use of fair value in any new circumstances. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and will be adopted by the Company in the first quarter of
fiscal year 2008. The implementation of this standard will not have a material
impact on the Company's consolidated financial position and results of
operations.
9
Accounting Changes and Error Corrections
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" (SFAS No. 154), which replaces Accounting Principles Board (APB)
Opinion No. 20, "Accounting Changes," and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements - An Amendment of APB Opinion No. 28".
SFAS No. 154 provides guidance on the accounting for and reporting of accounting
changes and error corrections, and it establishes retrospective application, or
the latest practicable date, as the required method for reporting a change in
accounting principle and the reporting of a correction of an error. SFAS No. 154
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The implementation of this standard
will not have a material impact on the Company's consolidated financial position
and results of operations.
NOTE 5 NOTES PAYABLE
During the nine months ended September 2008, the Company has received proceeds
of $1,674,409 from notes payable. This debt was converted into 3,348,818 shares
of common stock at a price of $0.50 per share. The basic terms of this
convertible loan note were as follows:
A) The Holder of this Note will convert at $0.50 US into fully paid and
non-assessable shares of Common Stock, $0.015 US par value, of the
Company.
B) Commencing from the date that the investment was, and is, made all
outstanding principal and interest on this Note shall be carry interest
and the Company shall pay said interest at the rate equal to ten
percent (10%) per annum on the principal of this Note outstanding
during the period beginning on date investment has, or is, made.
C) The Company acknowledges that although the issuance of the shares will
be retroactive to when the loan from the holder was received; that the
actual date of any withholding or restriction period under any
regulatory stipulation is in fact the actual date of that the funds
were received by the Company.
D) The Company acknowledges that the loans are payable upon demand.
E) No fractional shares of Common Stock shall be issued upon conversion of
this Note. In lieu of the Company issuing any fractional shares to the
Holder upon the conversion of this Note, the Company shall pay to the
Holder cash in lieu of fractional shares in the amount of outstanding
principal that is not so converted. Upon conversion of this Note, the
Company shall be forever released from all its obligations and
liabilities (that have been subject to the conversion) under this Note,
except that the Company shall continue to be liable for any outstanding
investment that has not been converted.
10
The loan notes did not accrue any interest because the Company converted the
loans the same day that the funds were received.
NOTE 6 LICENSING AGREEMENTS
The Company recognizes a monthly payment of $16,667 per month to Anne's
Diary Inc in respect of the seven year license to exploit the annesdiary.com
website and technology.
The Company also recognizes a 10 year licensing agreement between
Dolphin Entertainment Inc and Dolphin Digital Media Inc. Under the license, the
Company is authorized to use Dolphin Entertainment's brand properties in
connection with the creation, promotion and operation of subscription based
Internet social networking websites for children and young adults. The license
requires that the Company pays to Dolphin Entertainment royalties at the rate of
fifteen percent (15%) of our net sales from performance of the licensed
activities. Net Sales is defined in the license as meaning the number of units
sold by Dolphin Digital arising from the performance of the licensed activities
multiplied by Dolphin Digital's established prices as published on the Dolphin
Digital websites or other official Dolphin Digital pricing publications in force
at the time of sale. No set-offs, third-party royalties, or deductions of any
kind may be taken in the determination of net sales or the royalties due to
Dolphin Entertainment.
NOTE 7 STOCKHOLDERS EQUITY
A) Common Stock
The company's Articles of Incorporation authorize the issuance of 100,000,000
shares at $0.015 par value.
The following transactions occurred from January 1, 2008 to September 30, 2008:
1. On January 14 2008, the company issued 187,500 common shares as part of
a liquidated damages indemnity clause due to late filing of a
registration statement. The Dollar value of this transaction was $
262,500.
2. On February 14 2008, the Company issued 300,000 common shares for debt
conversion at $ .50 cents per share. The value of the debt was
$150,000.
3. On March 3 2008, the Company issued 1,000,000 common shares for debt
conversion at $ .50 cents per share. The value of the debt was
$500,000.
4. On April 29, 2008, the Company issued 2,560 common shares for debt
conversion at $ .50 cents per share. The value of the debt was $1,260.
5. On May 1st 2008, the company issued to T Squared Investments LLC
300,000 common shares of Dolphin Digital Media Inc for a consideration
of $ .10 per share, the total consideration was $30,000.
11
6. On June 6, 2008, the Company issued 25,000 common shares for debt
conversion at $ .50 cents per share. The value of the debt was $12,500.
7. On June 6, 2008, the Company issued 43,518 common shares at $ .50 for
$21,759 of consulting services rendered to the Company.
8. On June 17, 2008, the Company issued 203,504 common shares for $ 1.02
for $208,513 of marketing & consulting services rendered.
9. On June 19, 2008, the Company issued 557,335 common shares for debt
conversion at $ .50 cents per share. The value of the debt was
$278,668.
10. On June 23, 2008 the Company issued 24,063,735 common shares for the
acquisition of Dolphin Digital Media Inc.
11. On September 30, 2008, the Company issued 1,463,922 common shares for
debt conversion at $ .50 cents per share. The value of the debt was $
731,961.
During 2007, the Company entered into a consulting agreement with a
consultant to provide management and public relations services. The agreement
calls for the consultant to provide services for a period of one year and the
consultant to receive: 400,000 shares of common stock and warrants to purchase
50,000 shares of common stock at an exercise price of $2.50 for a period of two
years, and warrants to purchase 50,000 shares of common stock at an exercise
price of $5.00 for a period of two years. The common stock has a fair value of
$200,000 based on recent cash offerings and will be amortized over the life of
the agreement ($0.50 per share). The fair value of the warrants was estimated on
the grant date using the Black-Scholes option pricing model with the following
weighted average assumptions: expected dividend yield 0%, volatility 123%,
risk-free interest rate of 3.94%, and expected warrant life of two years. The
value of the warrants on the date of issuance was $103,686. For the quarter
ended September 30, 2008, the Company has recognized consulting expense of $
74,421 under the agreement. As of September 30, 2008 the Company has recorded
deferred stock compensation of $ 30,807.
Also, on June 23 2008 the Company purchased 100 % of Dolphin Digital
Media Inc. The Company issued a total of 24,063,735 of common shares of 51% of
its outstanding common stock for the acquisition of Dolphin Digital Media Inc
resulting in a change of control. In addition the Company also agreed to an
anti-dilution provision for the shareholder of Dolphin Digital Media, Inc. As
consideration for the agreement the shareholder has agreed to become the
Chairman and CEO of the Company. As the shareholder is considered a related
party on SAB 48 the Company has recorded the assets of Dolphin Digital Media,
Inc at their historical cost.
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The total amount of issued and outstanding share for the period ended
September 30, 2008 was 48,647,716.
NOTE 8 SUBSEQUENT EVENTS
Since September 30, 2008, the Company has received loans that total of
$460,700 from its major shareholders. These loans will be converted into common
stock at $0.50 or will be repayable on demand.
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ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008.
Revenues for the three months ended September 30, 2008 increased by
$98,850 from $168,170 for the three months ended September 30, 2007 to $267,020
for the three months ended September 30, 2008.
Cost of sales which comprises the cost of services contracted for third
party website development. The cost of sales for the period September 30, 2008
was $101,468 opposed to $114,156 for the period September 30, 2007. The gross
profit for the quarter was $165,553.
The Company's general and administration costs increased by $187,360
from $274,833 to $462,193, the legal and professional fees increased by $137,921
from $128,461 for the three months ended September 30, 2007 to $266,382 for the
same period of 2008 and the depreciation costs also increased $2,435 due to an
increase in property, plant and equipment. The Company accounted for $74,421
stock compensation amortization for the three months; this amortization started
in October of 2007 hence there is no comparable. The Company total expenditure
for the period has decreased significantly due to the fact that in September
2007 the Company impaired $537,303 of intangible assets and a further $4,999,724
related to the impairment of Goodwill. The total expenditure for the three
months ended September 2008 was $812,173.
The net loss from the Company's operations decreased by $5,246,428 from
$(5,893,048) for the three months ended September 30, 2007 to $(646,620) for the
same period of 2008.
The Company paid $4,806 in interest for the period ended September 30,
2008, opposed to $9,666 paid in the same period of 2007.
The Company's comparative comprehensive losses a1so show a significant
decrease due the above mentioned impairments of goodwill and the intangible
assets and also a $1,373,315 gain from discontinued operations in September
2007.
The comprehensive loss including the foreign currency translation
adjustments was $(664,686) or $(0,01) per share based on 47,183,793 weighted
average shares outstanding for the three months ended September 30, 2008
compared to a loss of $(4,529,373) or $(0.31) per share based on 14,567,138
weighted average shares outstanding for the three months ended September 30,
2007
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008.
Revenues for the nine months ended September 30, 2008 increased by
$433,749 from $168,170 for the three months ended September 30, 2007 to $601,919
for the nine months ended September 30, 2008.
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Cost of sales which comprises the cost of services contracted for third
party website development. The cost of sales for the nine month period was
$227,509 opposed to $114,156 for the same period ended September 30, 2007. The
gross profit for the nine months was $374,410.
The Company's general and administration costs increased by $622,249
from $1,431,429 to $809,180 due to substantial development costs, the legal and
professional fees increased by $748,468 from $143,515 for the nine months ended
September 30 2007 to $871,983 for the same period of 2008, this extraordinary
increase was mainly due the June 23rd 2008 acquisition of Dolphin Digital Media
and the contracted services of external consultants and the depreciation costs
also increased $9,345 due to an increase in property, plant and equipment. The
Company accounted for $223,264 stock compensation amortization for the nine
months; this amortization started in October of 2007 hence there is no
comparable information. The Company total expenditure for the period has
decreased significantly due to the fact that in September 2007 the Company
impaired $537,303 of intangible assets and a further $4,999,724 related to the
impairment of Goodwill. The total expenditure for the nine months ended
September 2008 was $2,552,687.
The net loss from the company's operations decreased by $4,274,097 from
$(6,452,374) for the nine months ended September 30, 2007 to $(2,178,277) for
the same period of 2008.
The Company paid $20,830 in interest for the nine month period ended
September 30, 2008, opposed to $28,935 paid in the same period of 2007.
The Company's comparative comprehensive losses a1so show a significant
decrease due the above mentioned impairments of Goodwill and the intangible
assets and also a $1,373,315 gain from discontinued operations in September
2007.
The comprehensive loss including the foreign currency translation
adjustments was $(2,489,735) or $(0,08) per share based on 30,937,314 weighted
average shares outstanding for the nine months ended September 30, 2008 compared
to a loss of $(5,107,968) or $(0.87) per share based on 5,897,466 weighted
average shares outstanding for the same period ended September 30, 2007.
LIQUIDITY AND CAPITAL RESERVES
Through the nine months ended September 30, 2008 we have relied on
advances of $731,961 from our principal funder and we have converted all of this
debt into restricted common stock. As of September 30, 2008, the Company had
cash of $109,348 and a working capital deficit of $194,884.
It is the Company's intention to seek additional equity or debt which
we plan to use to use for working capital and to implement a marketing program
to increase awareness of our businesses and to expand our operations.
On June 23 2008 the Company purchased 100 % of Dolphin Digital Media
Inc. The Company issued a total of 24,063,735 of common shares of 51% of its
outstanding common stock for the acquisition of Dolphin Digital Media Inc
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resulting in a change of control. In addition the Company also agreed to an
anti-dilution provision for the shareholder of Dolphin Digital Media, Inc
(subsidiary). As consideration for the agreement, the shareholder has agreed to
become the Chairman and CEO of the Company. As the shareholder is considered a
related party on SAB 48 the Company has recorded the assets of Dolphin Digital
Media, Inc at their historical cost.
For the period ended September 30, 2008, the Company derived almost all
of its income from website development. The Companies long term growth lies on
the continuous introduction of new digital media products based on the branded
Dolphin Entertainment products as a result of the 10 year licensing agreement
between Dolphin Entertainment and Dolphin Digital Media. Also, the Company
believes that there is potential for growth in the subscription model to
Annesdiary.com, online shopping and affiliate revenue through Anne's World
Limited, the online shopping and banner advertising as well as advertising
revenues coming from the Curtain Rising by-weekly magazine and finally the
online book and audio download, website development and affiliate revenues
through Plays On The Net.
Depending upon market conditions, the Company may not be successful in
raising sufficient additional capital for it to achieve its business objectives.
In such event, the business, prospects, financial condition, and results of
operations could be materially adversely affected.
The Company's executive offices are now based in Toronto (Canada) and
have a full time staff of six.
There is no guarantee that the Company will be successful in its
attempt to raise capital sufficient to meet its cash requirements for the next
twelve months. If the Company is not successful in its effort to raise
sufficient capital to meet its cash requirements, the business will fail and the
Company will cease to do business.
ITEM 4. CONTROLS AND PROCEDURES.
a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of the Company's management,
including the Company's principal executive officer and principal financial
officer, the Company conducted an evaluation of the effectiveness of the design
and operations of its disclosure controls and procedures, as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as of the end of the period covered by
this report. Based on their evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and
procedures were effective such that the material information required to be
included in our Securities and Exchange Commission ("SEC") reports is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms relating to Dolphin Digital Media, Inc., including our
consolidated subsidiaries, and was made known to them by others within those
entities, particularly during the period when this report was being prepared.
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b) Changes in internal controls.
There were no changes in our internal controls over financial reporting during
the last fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
1. On September 30 2008, the Company issued 1.463.922 common shares for
debt conversion at $ .50 cents per share. The value of the debt was $
731.961.
The shares above were issued pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act. Purchasers received
current information relating to the Company and had the ability to ask questions
about the Company. Certificates representing the securities contain appropriate
restrictive legends.
ITEM 5. OTHER INFORMATION
On July 29, 2008, the Company amended its articles of incorporation and
changed its name to Dolphin Digital Media Inc.
On August 15, 2008, the Company's NASDAQ ticker symbol was changed from
LGHL to DPDM.
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ITEM 6. EXHIBITS
Exhibits required by Item 601 of Regulation S-B
31.1 Form 302: Certification of Chief Executive Officer
32.1 Form 906: Certification of Chief Executive Officer and
Principal Financial Officer
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 13th day of November 2008.
Dolphin Digital Media Inc
/s/ William O'Dowd IV
------------------------
Name: William O'Dowd IV
Chief Executive Officer
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