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 June 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 47,183,793 as of June 30, 2008.
DOLPHIN DIGITAL MEDIA INC. AND SUBSIDIARIES TABLE OF CONTENTS Page No. -------- PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets (Un-Audited) 2 Condensed Consolidated Income Statement (Un-Audited) Three and Six months ended June 30th 2008 & 2007 3 Condensed Consolidated Statement of Cash Flows (Unaudited) Six 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 12 ITEM 4 - CONTROLS AND PROCEDURES 17 PART II - OTHER INFORMATION ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 18 ITEM 5 - OTHER INFORMATION 18 ITEM 6 - EXHIBITS 19
DOLPHIN DIGITAL MEDIA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2008 2007 ------------ ------------ (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash 4,584 $ 37,150 Inventory 100,997 2,229 Prepaid expenses 574 468 Other current assets 727 11,896 ------------ ------------ TOTAL CURRENT ASSETS 106,882 51,743 Property, plant and equipment 76,868 93,803 Intangible assets 132,583 129,135 ------------ ------------ TOTAL ASSETS $ 316,333 $ 274,681 ============ ============ LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable $ 389,474 $ 223,891 Other current liabilities 95,559 8,037 ------------ ------------ TOTAL CURRENT LIABILITIES 485,033 231,928 ------------ ------------ TOTAL LIABILITIES $ 485,033 $ 231,928 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT Preferred stock $0.001 par value, 10,000,000 shares authorized; 500,000 issued and outstanding as of June 30, 2008 and December 31, 2007, respectively 500 500 Common stock, $0.015 par value, 100,000,000 shares authorized; 47,183,793 and 21,988,142 issued and outstanding as of June 30, 2008 and December 31, 2007, respectively 707,757 307,565 Additional paid-in capital 9,005,996 7,941,022 Deferred compensation (105,229) (254,072) Accumulated other comprehensive loss (110,203) (100,025) Accumulated deficit (9,667,521) (7,852,237) ------------ ------------ TOTAL SHAREHOLDERS' DEFICIT (168,700) 42,753 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 316,333 $ 274,681 ============ ============ The accompanying notes are an integral part of these condensed consolidated financial statements. 2
<TABLE> <CAPTION> DOLPHIN DIGITAL MEDIA INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 For the three months ended For the six months ended June 30, June 30, ---------------------------- ---------------------------- 2008 2007 2008 2007 ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) <S> <C> <C> <C> <C> REVENUES: Revenues $ 192,328 $ -- $ 337,022 $ -- Cost of sales 73,036 -- 126,862 -- ------------ ------------ ------------ ------------ GROSS PROFIT 119,292 -- 210,160 -- ------------ ------------ ------------ ------------ OPERATING EXPENSES: General and administrative 828,394 319,961 1,382,455 493,916 Legal and professional fees 156,350 55,136 198,941 55,136 Depreciation 8,480 6,563 16,835 9,663 Amortization of deferred compensation 74,421 -- 148,843 -- ------------ ------------ ------------ ------------ Total operating expenses 1,067,645 381,660 1,747,074 558,715 ------------ ------------ ------------ ------------ OPERATING LOSS (948,353) (381,660) (1,536,914) (558,715) ------------ ------------ ------------ ------------ OTHER (INCOME) AND EXPENSES: Interest income (111) -- (18) -- Interest expense 10,701 9,390 15,883 18,780 Liquidated damages -- -- 262,500 -- ------------ ------------ ------------ ------------ Total other expense 10,590 9,390 278,365 18,780 NET LOSS (958,943) (391,050) (1,815,279) (577,495) ------------ ------------ ------------ ------------ OTHER COMPREHENSIVE LOSS Foreign currency translation adjustment (10,490) -- (10,178) -- ------------ ------------ ------------ ------------ TOTAL OTHER COMPREHENSIVE LOSS $ (969,433) $ (391,050) $ (1,825,457) $ (577,495) ============ ============ ============ ============ Basic and Diluted (Loss) per Share - from continued operation (0.041) (0.159) (0.081) (0.251) ------------ ------------ ------------ ------------ Basic and Diluted (Loss) per Share $ (0.041) $ (0.159) $ (0.081) $ (0.251) ============ ============ ============ ============ Basic and Diluted Weighted Average Number of Shares Outstanding for the Year 23,625,658 2,452,198 22,517,594 2,303,600 ============ ============ ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. 3
DOLPHIN DIGITAL MEDIA INC. INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007 2008 2007 ----------- ----------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,815,279) $(1,287,544) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 16,835 9,663 Amortization of common stock compensation 148,843 -- Common stock issued for services rendered 230,311 -- Common stock issued for liquidated damages 262,500 -- Changes in assets and liabilities: Inventory (98,768) -- Prepaid expenses (104) (5,472) Other current assets 11,169 147,320 Accounts payable 165,583 109,281 Accrued expenses 87,522 (39,000) ----------- ----------- Net cash used in operating activities (991,388) (1,065,752) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment -- (84,068) Purchase of Intangible Asset (3,448) (29,924) ----------- ----------- Net cash used in investing activities (3,448) (113,992) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the convertible notes payable 942,448 -- Proceeds from issuances of common stock 30,000 -- Advances from related parties -- 1,212,479 ----------- ----------- Net cash provided by financing activities 972,448 1,212,479 ----------- ----------- EXCHANGE RATE LOSS (10,178) (36,461) ----------- ----------- DECREASE IN CASH (32,566) (3,726) CASH, BEGINNING OF YEAR 37,150 6,297 ----------- ----------- CASH, END OF YEAR $ 4,584 $ 2,571 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 15,883 $ 18,780 =========== =========== Income taxes paid $ -- $ -- =========== =========== NON CASH FINANCING AND INVESTING: Conversion of debt into common shares $ 942,448 $ -- =========== =========== 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 SIX MONTHS ENDED JUNE 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 Dolphin Digital Media Inc. On July 29 2008, the Company amended its Articles of Incorporation again to change its name to Dolphin Digital Media Inc Dolphin Digital Media Inc is a holding company whose primary focus is in the e-commerce and information technology sector. Plays On The Net Plc 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 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 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 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. 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 six month period ended June 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. 5
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 June 30, 2008. During the six months period ended June 30, 2008 the Company recorded an accumulated deficit of $9,667,521. 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 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. 6
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. 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. 7
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. 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. 8
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. 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 six months ended June 2008, the Company has received proceeds of $942,448 from notes payable. This debt was converted into 1,884,895 shares of common stock at a price of $ .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 Ordinary 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. 9
D) The Company acknowledges that the loans are payable upon demand. E) No fractional shares of Ordinary 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. 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 (Canadian Dollars) 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 June 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. 10
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 2007 the Company issued 24,063,735 common shares for the acquisition of Dolphin Digital Media Inc. 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 June 30, 2008, the Company has recognized consulting expense of $ 74,421 under the agreement. As of June 30, 2008 the Company has recorded deferred stock compensation of $105,228. 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. The total amount of issued and outstanding share for the period ended June 30, 2008 was 47,183,793. NOTE 8 SUBSEQUENT EVENTS Since June 30th 2008, the Company has received loans that total of $ 712,651 from various non affiliate investors. These loans will be converted into common stock at a 30% discount of the price of the day that the funds were received or will be repayable on demand. 11
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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 19, 2003, the Company amended its Articles of Incorporation to change its name to Maximum Awards Inc. On July 27, 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. On December 9, 2003, the Company acquired 100% of the outstanding shares of Maximum Awards Pty Ltd., an Australian company engaged in the business of operating a consumer rewards program known as Maximum Awards. Under the Maximum Awards program, consumers earn points by purchasing products and services offered by the Company and its program partners. Accumulated points then can be redeemed in order to acquire additional desired products or services from the same list of such items offered by the Company. The company operates its program in Australia and has done so since October 2002. In anticipation of this transaction the company's articles of incorporation were amended on November 19, 2003 to change the name of the company to Maximum Awards, Inc. The acquisition of Maximum Awards Pty Ltd resulted in a change of control of the Company and was accounted for as a recapitalization of Maximum Awards Pty Limited. The business of Maximum Awards Pty Ltd was, at this point, business of the Company. On June 1st, 2004, the Company acquired 100% of the issued and outstanding shares of Travel Easy Holidays Pty Ltd ("Travel Easy") and Global Business Group Pty Ltd ("Global Business"). These corporations are involved in the travel industry and mail order industries and were acquired to add to the Company's rewards program operations by providing an in-house travel agency and a consumer products retailer. Travel Easy is an Australian proprietary limited corporation. Travel Easy was organized under the law of the Province of Queensland, Australia on July 19, 2002. Travel Easy is engaged in the business of providing travel agent services and its operations are located in the company's offices in Brisbane, Queensland, Australia. Prior June 1, 2004, Travel Easy was owned by Maxwell Thomas, the company's chief executive officer, and Michael Sullivan, a director of the company. Mr. Thomas owned 60% of Travel Easy and Mr. Sullivan owned 40%. Under terms of the acquisition agreement between the company and Mr. Thomas, the Company acquired Travel Easy for $1.00 Australian making Travel Easy a wholly owned subsidiary of the Company. Global Business also is an Australian proprietary limited corporation. Global business was organized under the law of the Province of Queensland, Australia in June 2003. Global Business does business under the name Easy Shopper Direct and is engaged in the business of selling consumer goods on-line and through published catalogs and its operations are located in the company's offices in Brisbane, Queensland, Australia. Prior to June 1, 2004, Global Business was owned by Maxwell Thomas, the company's chief executive officer, and Michael Sullivan, a director of the Company. Mr. Thomas owned 60% of Global Business and Mr. Sullivan owned 40%. Under terms of the acquisition agreement 12
between the Company and Mr. Thomas, the company acquired Global Business for $1.00 Australian. Global Business a wholly-owned subsidiary of the Company. Because both Travel Easy and Global Business were acquisitions under common control, the financial statements have been prepared by including the accounts of both Travel Easy and Global Business and have been accounted as a business combination with the net assets of Maximum Awards (Pty) Ltd. and the Company brought forward at their historical basis. The financial statements, including the comparatives, reflect the accounts of Maximum Awards, Travel Easy and Global Business. On July 9, of 2007, the Company acquired Plays On The Net Plc and its subsidiary, Plays On The Net Inc, and it also acquired Curtain Rising Inc and Anne's World Limited, for a total consideration of 12,000,000 shares of common stock. The acquisition of these companies resulted in a change of control of the Company and was accounted for as a reverse merger. The businesses of Plays on the Net, Curtain Rising and Anne's World are now the business of the Company. Plays On The Net Plc 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, audio downloads and all-round theatre information site. Plays On The Net Inc 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 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 was incorporated in Ontario (Canada) on October 19, 2006. The company main activity is an online database for theatres and a by-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. On July 27, 2007, the Company amended its articles of incorporation and changed its name to Logica Holdings Inc. On September 30, 2007, the Company sold of 100% of its Australian subsidiaries; Maximum Awards Pty Limited, Travel Easy Holidays Pty Ltd and Global Business Group Pty Ltd to an Australian company based in Brisbane called Eko Group Pty Limited. On May 28, 2008, we entered into a Social Network Platform License Agreement with Dolphin Entertainment, Inc., a Florida corporation and its affiliated companies pursuant to which we granted to Dolphin Entertainment a three (3) year exclusive license to utilize our proprietary social network creation platform and visitor identification, authentication and authorization technology to create and operate several subscription-based social networking websites themed around Dolphin Entertainment's premium family entertainment 13
brand properties. This alliance permits the creation of highly secure social networking websites for children and young adults with the strong attraction of premium family entertainment brands, an Internet first. Dolphin Entertainment is wholly owned by William O'Dowd, IV, who became our majority shareholder, Chief Executive Officer and Chairman of the Board of Directors in connection with our acquisition of Dolphin Digital Media, Inc., described below. Under the Social Network Platform License Agreement, we agreed to an even 50%-50% share with Dolphin Entertainment of subscription revenues generated by Dolphin Entertainment's or its affiliates' operation of social networking websites created with the platform, and to additional revenue shares to be determined by the parties in the event additional revenue streams other than subscription revenues (such as advertisement sales, merchandising and sublicensing) might be generated and received. On June 23, 2008, we obtained an exclusive license to Dolphin Entertainment's family entertainment brand properties through the acquisition of 100% of the capital stock of Dolphin Digital Media, a newly formed Delaware corporation wholly owned by Mr. O'Dowd. At the time of the acquisition, Dolphin Digital was the grantee of an exclusive ten-year worldwide license from Dolphin Entertainment, dated as of the date of the closing of the acquisition, to use Dolphin Entertainment's family entertainment brand properties relating to certain live-action television and film productions, including: Zoey 101, Ned's De-Classified School Survival Guide, Roxy Hunter, Shredderman Rules, Last Day of Summer, Gym Teacher, Spectacular, Soul Surfer: The Bethany Hamilton Story, and Millennium Kiss. This license was the sole asset of Dolphin Digital at the time of the acquisition. Under the license, we are 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 we pay to Dolphin Entertainment royalties at the rate of fifteen percent (15%) of our net sales from performance of the licensed activities. In consideration of the acquisition, we issued 24,063,735 shares of our common stock (constituting fifty-one percent (51%) of our issued and outstanding common stock) to Mr. O'Dowd. Additionally, in connection with the acquisition, we appointed Mr. O'Dowd our Chief Executive Officer and Chairman of the Board of Directors. In addition, we granted to Mr. O'Dowd certain anti-dilution protection for five (5) years from the date of the acquisition under which we agreed to issue such number of shares of our common stock as necessary for Mr. O'Dowd to maintain his fifty-one percent (51%) ownership any time that we issue additional shares to a party other than Mr. O'Dowd, or upon the exercise by any such party of options, warrants, notes or other securities exercisable or exchangeable for, or convertible into, any share of our common stock. On July 29, 2008, the Company amended its articles of incorporation and changed its name to Dolphin Digital Media Inc. Results for the three months ended June 30, 2008. Revenues for the three months ended June 30, 2008 increased by $192,328 from $0 for the three months ended June 30, 2007 to $192,328 for the three months ended June 30, 2008. The increase in revenues was due to the fact that Company had no revenues for the same period of the previous year. 14
Cost of sales which comprises the cost of services contracted for third party website development. The cost of sales for the period June 30, 2008 was $73,036 opposed to $0 for the period June 30, 2007. The gross profit for the quarter was $119,292. The Company's general and administration costs increased by $508,433 from $319,961 to $828,394, the legal and professional fees increased by $101,214 from $55,136 for the three months ended June 30 2007 to $156,350 for the same period of 2008 and the depreciation costs also increased $1,917 due to an increase in property, plant and equipment. The net loss from the company's operations increased by $566,693 from $ (381,660) for the three months ended June 30, 2007 to $(948,353) for the same period of 2008. The Company paid $10,701 in interest for the period ended June 30, 2008, opposed to $9,390 paid in the same period of 2007. The company net loss increased by $567,893 from $(391,050) for the three months ended June 30, 2007 to $(958,943) for the same period of 2008. The comprehensive loss including the foreign currency translation adjustment was $(969,433) or $(0,04) per share based on 24,204,269 weighted average shares outstanding for the three months ended June 30, 2008 compared to a loss of $(391,050) or $(0.16) per share based on 2,452,198 weighted average shares outstanding for the three months ended June 30, 2007 Results for the Six months ended June 30, 2008. Revenues for the six months ended June 30, 2008 increased by $337,022 from $0 for the six months ended June 30, 2007 to $337,022 for the six months ended June 30, 2008. The increase in revenues was due to the fact that Company had no revenues for the same period of the previous year. Cost of sales which comprises the cost of services contracted for third party website development. The cost of sales for the period June 30, 2008 was $126,862 opposed to $0 for the period June 30, 2007. The gross profit for the six month period was $210,160. The Company's general and administration costs increased by $888,539 from $493,916 to $1,382,455 mainly due to a substantial increase in expenditure in marketing, publicity and other related consultant fees. The legal and professional fees increased by $143,805 from $55,136 for the six months ended June 30 2007 to $198,941 for the same period of 2008 and the depreciation costs also increased $7,172 due to an increase in property, plant and equipment. The net loss from the company's operations increased by $978,199 from $ (558,714) for the six months ended June 30, 2007 to $(1,536,913) for the same period of 2008. The Company paid $15,883 in interest for the period ended June 30, 2008, opposed to $18,780 paid in the same period of 2007. The company net loss increased by $1,237,784 from $(577,495) for the six months ended June 30, 2007 to $(1,815,279) for the same period of 2008. The comprehensive loss including the foreign currency translation adjustment was $(1,825,457) or $(0,08) per share based on 22,517,594 weighted average shares outstanding for the six months ended June 30, 2008 compared to a loss of $(577,495) or $(0.25) per share based on 2,303,600 weighted average shares outstanding for the six months ended June 30, 2007. 15
LIQUIDITY AND CAPITAL RESERVES Through the six months ended June 30, 2008 we have relied on advances of $942,448 from our principal funder and we have converted all of this debt into restricted common stock. As of June 30, 2008, the Company had cash of $4,584 and a working capital deficit of $378,151. 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. For the period ended June 30, 2008, the Company derived almost all of its income from website development. The Company's long term growth lies in the monthly or annual 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. The Company's target market is mainly North America, Japan and most other English speaking nations in the world. 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. The Company received a 10 year licensing agreement between Dolphin Entertainment Inc and Dolphin Digital Media Inc. whereby Dolphin Digital Media Inc agrees to pay Dolphin Entertainment Inc royalties at a Royalty Rate of fifteen percent (15%). Royalties will be calculated by applying the Royalty Rate to Licensee's Net Sales. Net Sales, meaning the number of units sold by Licensee arising from the performance of the Licensed Activities multiplied by Licensee's established prices as published on the Dolphin Digital Media Websites or other official Licensee pricing publication 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 Inc. 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. 16
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. 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. 17
PART II - OTHER INFORMATION ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 1. On April 29, 2008, the Company issued 2,560 common shares for debt conversion at $ .50 cents per share. 2. 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. 3. On June 6, 2008, the Company issued 25,000 common shares for debt conversion at $ .50 cents per share. 4. On June 6, 2008, the Company issued 43,518 common shares at $ .65 for services rendered. 5. On June 17, 2008, the Company issued 203,504 common shares for $ .90 services rendered. 6. On June 19, 2008, the Company issued 557,335 common shares for debt conversion at $ .50 cents per share. 7. On June 23 2007 the Company issued 24,063,735 common shares for the acquisition of Dolphin Digital Media Inc. 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. 18
ITEM 6. EXHIBITS Exhibits required by Item 601 of Regulation S-B 3i Certification of amendment of articles of incorporation date July 29 2008 31.1 Form 302: Certification of Chief Executive Officer 31.2 Form 302: Certification of Principal Financial 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 18th day of August 2008. Dolphin Digital Media Inc /s/ William O'Dowd IV ------------------------------- Name: William O'Dowd IV Chief Executive Officer 19