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. -------- 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
<TABLE> <CAPTION> 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) <S> <C> <C> <C> <C> 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 ============ ============ ============ ============ </TABLE> The accompanying notes are an integral part of these condensed consolidated financial statements. 3
<TABLE> <CAPTION> 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) <S> <C> <C> 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 =========== =========== </TABLE> 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. 12
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. 13
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. 14
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 15
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. 16
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. 17
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 18