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EX-32.1 - EXHIBIT 32.1 - Dolphin Entertainment, Inc.c01665exv32w1.htm
EX-31.1 - EXHIBIT 31.1 - Dolphin Entertainment, Inc.c01665exv31w1.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
OR
     
o   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.)
804 Douglas Road, Executive Tower Building, Suite 365, Miami, Florida 33134
(Address of principal executive offices, including zip code)
(305) 774-0407
(Registrant’s telephone number)
(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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
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 o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company þ
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No þ
The number of shares of Common Stock outstanding was 61,800,830 as of May 24, 2010.
 
 

 

 


 

DOLPHIN DIGITAL MEDIA INC. AND SUBSIDIARIES
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 Exhibit 31.1
 Exhibit 32.1

 

 


Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1.  
CONSOLIDATED FINANCIAL STATEMENTS
DOLPHIN DIGITAL MEDIA INC AND SUBSIDIARIES
Consolidated Balance Sheets
                 
    March 31,     December 31,  
    2010     2009  
          (Audited)  
ASSETS
               
Current
               
Cash
  $ 179,629     $ 3,218  
Inventory
    88,420       91,860  
Prepaid Expenses
    7,063       211,128  
Other Current assets
    694       635  
 
           
Total Current Assets
    275,806       306,841  
 
           
 
               
Property, Plant and equipment
           
 
               
Intangible Assets
    1,447,832       1,208,268  
 
           
Total Assets
  $ 1,723,638     $ 1,515,109  
 
           
 
               
LIABILITIES
               
Current
               
Cash overdraft
  $     $ 14,087  
Accounts payable
    1,491,387       1,573,028  
Other current liabilities
    364,528       315,350  
Advances from Related Parties
    1,124,000       1,079,000  
Notes payable (Net of discount of $63,000 and $84,000, respectively
    237,000       216,000  
 
           
Total Current Liabilities
    3,216,915       3,197,465  
 
               
Long Term Liabilities
               
Notes payable convertible (Net of discount of $69,857 and $73,032, respectively
    233,318       230,143  
 
           
 
               
Total Liabilities
    3,450,233       3,427,608  
 
               
STOCKHOLDERS’ DEFICIT
               
 
               
Common Share Capital, $0.015 par value, 100,000,000 shares authorized, 61,770,527 issued and outstanding as of March 31, 2010 and 56,959,454 issued and outstanding as of December 31 2009
    934,058       897,141  
Preferred Share Capital $0.001 par value, 10,000,000 shares authorized, 500,000 shares issued and outstanding
    500       500  
Additional Paid-In Capital
    26,721,137       24,854,441  
Deferred Compensation
           
Accumulated Deficit
    (29,120,227 )     (27,529,526 )
Comprehensive Loss / Income
    (262,063 )     (135,055 )
 
           
Total Stockholders’ Deficit
    (1,726,595 )     (1,912,499 )
 
           
Total Liabilities and Stockholders’ Deficit
  $ 1,723,638     $ 1,515,109  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

 

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DOLPHIN DIGITAL MEDIA INC AND SUBSIDIARIES
Consolidated Income Statements
For the Three Months Ended March 31, 2010 and 2009
                 
    For the Three Months Ended  
    March 31,  
    2010     2009  
 
               
Revenues
  $ 256     $  
 
               
Cost of Sales
    240        
 
           
 
               
Gross Profit
    16        
 
           
 
               
Expenditures:
               
General and Administrative
    370,223       1,111,982  
Legal and Professional Fees
    216,002       143,358  
Depreciation
          7,080  
 
           
Total Expense
    586,226       1,262,420  
 
           
 
               
Loss from Operations
    (586,210 )   $ (1,262,420 )
 
           
 
               
Other Expenses
               
Finance charges
    966,649        
Interest Expense
    38,108       22,254  
 
           
Total Other Expenses
    1,004,757       22,254  
 
           
 
               
Net (Loss) / Profit from operations
  $ (1,590,967 )   $ (1,284,674 )
 
           
 
               
Foreign Currency Adjustments
    266       10,764  
 
           
 
               
Comprehensive (Loss) / Profit
  $ (1,590,701 )   $ (1,273,910 )
 
           
 
               
Basic and Diluted Loss per Share
  $ (0.03 )   $ (0.03 )
 
           
 
               
Basic and Diluted Weighted Average Number of Shares Outstanding during the Period
    59,997,836       49,236,904  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

 

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DOLPHIN DIGITAL MEDIA INC. AND SUBSIDIARIES
Consolidated Statements of Cashflows
For the Thee Months Ended March 31, 2010 and 2009
                 
    For the Three Months Ended
March 31,
 
    2010     2009  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net loss
  $ (1,590,967 )   $ (1,284,674 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
          7,080  
Amortization of debt discount
    24,175        
Common Stock issued for compensation
          370,000  
Warrants issued for financing
    945,614          
Shares Issued — Services Rendered
    72,500        
Changes in operating assets and liabilities:
               
Increase / (Decrease) in prepaid expenses
    204,065       69  
Increase / (Decrease) in other current assets
    (59 )     97  
Increase / (Decrease) in Inventory
    3,440        
Increase / (Decrease) in accounts payable
    (81,915 )     335,178  
Increase / (Decrease) in other current liabilities
    49,717       (15,152 )
 
           
Net Cash (Used In) Operating Activities
    (373,430 )     (587,402 )
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of intangible assets
    (239,564 )     (60,631 )
 
           
Net Cash (Used In) Investing Activities
    (239,564 )     (60,631 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Decrease in cash overdraft
    (14,087 )      
Proceeds from sale of common stock
    685,500        
Advances from Related Parties
    45,000       366,000  
Proceeds from exercise of warrants
    200,000        
Proceeds from note payable
          300,000  
 
           
Net Cash Provided By Financing Activities
    916,413       666,000  
 
           
 
               
Foreign Currency Adjustments
    (127,008 )     10,764  
 
           
 
               
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    176,411       28,731  
 
               
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    3,218       51,014  
 
           
 
               
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 179,629     $ 79,745  
 
           
 
               
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
               
 
               
Interest paid
  $     $ 798  
 
           
Income taxes
  $        
 
           
 
               
SUPPLEMENTAL DISCLOSURES OF NON CASH FLOWS INVESTING AND FINANCING ACTIVITIES:
               
Conversion of debt to equity
  $     $ 300,000  
 
           
The accompanying notes are an integral part of these consolidated financial statements.

 

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DOLPHIN DIGITAL MEDIA, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION:
Basis of Presentation and Organization
The accompanying unaudited condensed financial statements are presented in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal occurring accruals) considered necessary in order to make the financial statements not misleading, have been included. Operating results for the three months ended March 31, 2010 are not necessarily indicative of results that may be expected for the year ending December 31, 2010. The condensed financial statements are presented on the accrual basis.
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
Dolphin Digital Media, Inc. is dedicated to the cause of online safety for children. By creating and managing child-friendly social networking websites utilizing state-of the-art fingerprint identification technology, Dolphin Digital Media has taken an industry-leading position with respect to internet safety, as well as digital entertainment
Dolphin Digital Media (Canada) Inc (Former Plays On The Net Inc) was incorporated in Ontario (Canada) on July 27 2006.] The Company changed it name on October 28, 2008.
Curtain Rising Inc was incorporated in Ontario (Canada) on October 19 2006. The company has no current operations, revenues or expenses.
On June 23 2008 Logica Holdings purchased 100% of Dolphin Digital Media Inc. The Company issued a total of 24,063,735 of common shares, equivalent to 51% of its outstanding common stock, for the acquisition of Dolphin Digital Media Inc resulting in a change of control. The total amount of issued and outstanding share for the period ended June 30, 2008 was 47,183,793. The acquisition was accounted for as a reverse merger transaction with Logica Holdings. Historical financials are those of Logica Holdings.
NOTE 2 — GOING CONCERN
The accompanying 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 losses for the three months ended March 31, 2010 of 1,590,701. As of March 31, 2010 the Company recorded an accumulated deficit of approximating $29,120,227. 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.

 

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NOTE 3 — SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows:
Principles of Consolidation
The accompanying financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company and its wholly owned subsidiary. The accompanying consolidated financial statements include the accounts of Dolphin Digital Media Inc and its subsidiaries Plays On The Net Plc, Dolphin Digital Media (Canada) Inc, Anne’s World Limited, Curtain Rising Inc and Dolphin Digital Media Inc. for the three months ended March 31, 2010 and 2009. Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Reclassification
Certain prior period amounts have been reclassified to conform to March 31, 2010 presentations.
Revenue Recognition
The Company recognizes the monthly and annual subscription revenues over the service period. Advertising revenue is recognized over the period the advertisement is displayed. Online shopping revenues and affiliate commission income are both recognized when a customer incurs in a purchase.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At March 31 2010 and December 31, 2009, there were no cash and cash equivalents. Cash and cash equivalents are defined to include cash on hand and cash in the bank.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. These inventories consisted of fingerprint readers. At March 31, 2010 and December 31 2009 the value of the company’s inventory was $88,240 and $91,980, respectively.
Property and Equipment
Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized thereon. Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized. The range of estimated useful lives to be used to calculate depreciation for principal items of property and equipment are as follow:
     
    Depreciation/
    Amortization
Asset Category   Period
Furniture and Fixture
  5 Years
Computer equipment
  3 Years
Leasehold improvements
  5 Years
Goodwill and Intangible Assets
The Company adopted Accounting Standard Codification (“ASC”) Topic 350, formerly, Statement of Financial Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets, effective July 1, 2002. As a result, the Company discontinued amortization of goodwill, and instead annually evaluates the carrying value of goodwill for impairment, in accordance with the provisions of ACS Topic 350, formerly SFAS No. 142. Goodwill and indefinite-lived intangible represents the excess of the cost of investments in subsidiaries over the fair value of the net identifiable assets acquired. The Company holds licenses and expects both licenses and the cash flow generated by the use of the licenses in order to operate the platform to continue indefinitely due to the likelihood of continued renewal at little or no cost.

 

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Impairment of Long-Lived Assets
The Company accounts for long-lived assets under the FASB Accounting Standards Codification No.’s 350 and 360 Intangibles — Goodwill and Other and Property, Plant and Equipment. In accordance with FASB ASC No.’s 350 and 360, long-lived assets, Goodwill and indefinite-lived intangible assets are reviewed for impairment by applying a fair-value based test on an annual basis or more frequently if circumstances indicate a potential impairment. If it is determined that an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value and classified as “Impairment” in the consolidated statement of operations.
Comprehensive Income
The Company has adopted ACS Topic 220, formerly SFAS No. 130, “Reporting Comprehensive Income” (“SFAS 130”), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders’ Equity.
Comprehensive income comprises a gain on foreign translation.
Foreign Currency Translation
The functional currency of the Company is the United States Dollar. The financial statements of the Company’s Canadians subsidiary translated to the United States dollars using the period exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transaction occurred. Net gains and losses resulting from foreign exchange translations are included in the statements of operations and stockholders’ equity as other comprehensive income (loss).
Loss per share
The Company has adopted FASB Accounting Standards Codification No. 260 Earnings Per Share, Loss per common share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding during the period. Stock warrants were not included in the computation of loss per share for the periods presented because their inclusion is anti-dilutive. The total potential dilutive warrants and stock options outstanding at March 31, 2010 was 11,224,004. There were no dilutive securities outstanding for the period ended March 31, 2010.
Business Segments
The Company operates the following business segments:
  1)  
Dolphin Digital Media (USA): The Company’s primary business model is monthly and annual membership fees in the US for subscription to Dolphinsecure.com.
 
  2)  
Dolphin Digital Media (Canada): The Company’s primary business model is monthly and annual membership fees in Canada for subscription to Dolphinsecure.com.
Fair Value of Financial Instruments
Fair value of certain of the Company’s financial instruments including cash and cash equivalents, inventory, account payable, accrued expenses, notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.
Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.

 

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Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:
Level 1
Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2
Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3
Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair values.
Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income.
Concentration of Credit Risk
The Company did not have cash in banks in excess of FDIC insurance limits at March 31, 2010 and December 31, 2009. During the year ended Three months Ended March 31, 2010 the Company’s did not have a concentration of sales. During the three months ended March 31, 2009 the Company did not have any sales.
Recent Accounting Pronouncements
Recent accounting pronouncements that the Company has adopted or will be required to adopt in the future are summarized below.
In June 2009, the FASB issued Financial Accounting Standards Codification No. 860 — Transfers and Servicing. FASB ASC No. 860 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. FASB ASC No. 860 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB ASC No. 860 will have on its financial statements.
In June 2009, the FASB issued Financial Accounting Standards Codification No. 810 — Consolidation. FASB ASC No. 810 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB ASC No. 810 will have on its financial statements.
In June 2009, the FASB issued Financial Accounting Standards Codification No. 105-GAAP. The FASB Accounting Standards Codification (“Codification”) will be the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. FASB ASC No. 105 is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in FASB ASC No. 105. All other accounting literature not included in the Codification is nonauthoritative. The Adpotion of FASB ASC No. 105 did not have a impact on our financial statements.
NOTE 4 — PROPERTY, PLANT AND EQUIPMENT
The Company has fixed assets as of March 31, 2010 and December 31, 2009 as follows:
                 
    March 31,     December 31,  
    2010     2009  
 
               
Property, plant and equipment
  $ 122,042     $ 122,042  
Accumulated depreciation
    (122,042 )     (122,042 )
 
           
 
 
Total
  $     $  
 
           

 

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NOTE 5 — INTANGIBLE ASSETS
The Company has intangible assets as of March 31, 2010 and December 31, 2009 as follows:
                 
    March 31,     December 31,  
    2010     2009  
 
               
Other intangible assets
  $ 29,924     $ 29,924  
Dolphin Secure Websites
    1,417,908       1,178,344  
 
           
 
               
Total
  $ 1,447,832     $ 1,208,268  
 
           
NOTE 6 — NOTES PAYABLE — CONVERTIBLE
                 
    March 31,     December 31,  
    2010     2009  
 
               
Note Amount
  $ 300,000     $ 300,000  
Discount
    (63,000 )     (84,000 )
 
           
 
 
Net
  $ 237,000     $ 216,000  
 
           
In January 2009 the Company received proceeds of $200,000 from a note payable. The note bears interest at a rate of 10% per annum and is convertible at $.50 per share. The note is due two years from the date of issuance. Accrued interest at March 31, 2010 and December 31, 2009 amount to $24,548 and $19,616, respectively. The Company recorded beneficial conversion of $112,000. The Company is amortizing the beneficial conversion over the term of the note. Amortization expense at March 31, 2010 and December 31, 2009 amounted to $70,000 and $56,000, respectively.
In March 2009 the Company received proceeds of $100,000 from a note payable. The note bears interest at a rate of 10% and is convertible at $.50 per share. The note is due two years from the date of issuance. Accrued interest at March 31, 2010 and December 31, 2009 amount to $10,000 and $7,534, respectively. The Company recorded beneficial conversion of $56,000. The Company is amortizing the beneficial conversion over the term of the note. Amortization expense at March 31, 2010 and December 31, 2009 amounted to $35,000 and $28,000, respectively.
NOTE 7 — NOTE PAYABLE RELATED PARTY
As of March 31, 2010 and December 31, 2009 The Company’s CEO had loaned the Company a total of $1.124.000 and $1,079,000, respectively. This amount has accrued interest at a rate of 10%. The outstanding amount indebted to Mr. William O’Dowd includes accrued interest of $138,823 and $111,278 at March 31, 2010 and December 31, 2009, respectively.
NOTE 8 — NOTE PAYABLE — CONVERTIBLE
In July 2009 the Company entered into a convertible promissory note in the amount of $300,000. The Company has agreed to issue 231,000 common stock warrants at an exercise price of $.0001 pursuant to the note agreement. The note is convertible into 769,231 shares of common ($.39 per share) and 384,616 common stock warrants with an exercise price of $.80. The Note is due July 29, 2015. 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 121%, risk-free interest rate of 1%, and expected warrant life of 6 months The fair value of the warrants on the date of issuance was $76,207. The Company will amortize the value of the warrants over the term of the note. For the Three months ended March 31, 2010 the Company recorded amortization expense of $3,127 related to the note.
                 
    March 31,     December 31,  
    2010     2009  
 
               
Note Amount
  $ 300,000     $ 300,000  
Discount
    (66,682 )     (69,857 )
 
           
 
               
Net
  $ 233,318     $ 230,143  
 
           

 

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NOTE 9 — LICENSING AGREEMENTS
The Company recognizes a ten 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 of net sales from performance of the licensed activities. No sales were recorded during the year ended December 31, 2009.
NOTE 10 — STOCKHOLDERS EQUITY
A) Preferred Stock
The Company’s Articles of Incorporation authorize the issuance of 10,000,000 shares of $0.001 par value preferred stock. The Board of Directors has the power to designate the rights and preferences of the preferred stock and issue the preferred stock in one or more series.
a) On October 4, 2007 the Company issued 250,000 preferred shares for a cash consideration of $250,000. These preferred shares are convertible by the investor into 2.5 shares of common stock or $ .40 per share.
b) On November 7, 2007 the Company issued 250,000 preferred shares for a cash consideration of $250,000. These preferred shares are convertible by the investor into 2.0833 shares of common stock or $ .48 per share.
As of March 31, 2010, the Company had 500,000 preferred shares issued and outstanding.
On October 4th 2007, the company entered into a financing agreement whereby Warrants were issued to an investor to purchase the following amounts of common stock:
  a)  
650,000 shares of common stock exercisable at $0.72 per share.
 
  b)  
1,500,000 shares of common stock exercisable at $1.00 per share.
 
  c)  
1,500,000 shares of common stock exercisable at $2.00 per share.
On March 10, 2010 the Company and T Squared Investments LLC agrees to cancel the following warrants:
   
Warrant “A” for 650,000 shares;
   
Warrant “B” for 1,500,000 shares;
   
Warrant “C” for 1,500,000 shares; and,
   
Warrant “4” for 384,615 shares.
Post such cancellation, the only warrants held by T Squared Investments LLC is their existing Warrant “D” for 231,000 shares with an exercise price of $0.0001 per share and the following warrant below. Pursuant to this agreement the expiration date of Warrant “D” will be reduced from July 28, 2014 to December 31, 2012.
In consideration for the cancellation of such warrants above and for the payment to the DPDM described below, T Squared Investments LLC will be issued a new Warrant “E” for 7,000,000 shares of DPDM with an expiration date of December 31, 2012 and an exercise price of $0.25 per share.
Upon execution T Squared Investments LLC will immediately wire Two Hundred Thousand Dollars ($200,000) to the Company, which will result in the effective reduction of the exercise price of Warrant “E” from $0.25 per share to $0.2214 per share. T Squared Investments LLC can continually pay the Company an amount of money to reduce the exercise price of Warrant “E” until such time as the exercise price of Warrant “E” is effectively $0.0001 per share. Each time a payment by T Squared Investments LLC is made to DPDM, a side letter will be executed by both parties that states the new effective exercise price of Warrant “E” at that time. At such time when T Squared Investments LLC has paid down Warrant “E” to an exercise price of $0.0001 per share or less, T Squared Investments LLC shall have the right to exercise Warrant “E” via a cashless provision and hold for six months to remove the legend under Rule 144.
T Squared Investments LLC may not exercise such warrant if post the exercise, T Squared Investments LLC would be above the 9.99% ownership level of the Company. All terms of this letter and Warrant E (as laid out in the Warrant “E”) are effective upon execution by both parties as of the date written above. T Squared Investments LLC will make a good faith effort to exercise or pay the applicable amount to reduce the exercise price of Warrant “E” by $750,000 by September 30th, 2010.

 

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Immediately upon signing this agreement and wiring DPDM $200,000.00, T Squared Investments LLC will have the following warrants outstanding.
         
New Warrant “E”:
  Amount:
Exercise price:
Expiration Date:
  7,000,000 shares
$0.2214 per share
12/31/2012
 
       
New Warrant “D”:
  Amount:
Exercise price:
Expiration Date:
  231,000 shares
$0.0001 per share
2/31/2012
The Warrants contain cashless exercise provisions and are exercisable until October 4th, 2011.
The Company incurred an expense of $966,649 as a result of the repricing of these warrants. 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 136%, risk-free interest rate of 1%, and expected warrant life of 18 months
B) 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 during the three months ended March 31, 2010:
During the three months ended March 31, 2010 the Company sold to two individuals a total of 600,000 shares of common for $150,000 ($.25 per share).
During the three months ended March 31, 2010 the Company sold to nine individuals a total of 1,546,974 shares of common for $510,500 ($.33 per share). In addition the Company issued 773,487 common stock warrants with an exercise price of $1.00.
During the three months ended March 31, 2010 the Company sold to an investor 64,103 shares of common for $25,000 ($.39 per share). In addition the Company issued 64,103 common stock warrants with an exercise price of $.80.
Common stock issued for services
During the three months ended March 31, 2010 the Company issued a total of 250,000 shares of common stock for services valued at $72,500 ($.33 per share) the fair market value on the date of issuance.
NOTE 12 — STOCK OPTION PLAN
As of March 31, 2010, the Company had not implemented a stock option plan.
NOTE 13 — COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company headquarters is in Miami, Florida, where it leases office space at $3,237 per month.
NOTE 14 — LITIGATION
On October 1, 2009, Dolphin Digital Media, Inc, Dolphin Entertainment, Inc. and Dolphin Entertainment Capital, Inc. brought suit in the U.S. District Court for the Southern District of Florida against Mark Peikin, Joshua M. Gold, Bespoke Growth Partners, Inc., Gsquared, Ltd., Carta De Dinero, LLC, Nevada Agency And Transfer Co. and Merrill Lynch Pierce Fenner & Smith Incorporated. The suit seeks recovery of corporate stock and damages occasioned by the misfeasance of Peikin, Gold and the corporate entities over which they presided (Bespoke, Gsquared, Carta De Dinero) were employed to divert Plaintiff’s money and opportunities. As alleged in the complaint, Peikin and Gold served as outside and inside counsel to and officers of Plaintiffs in 2008 and 2009, as further alleged. In the course of their affiliation with Plaintiffs, they were able to use their positions of trust to gain access to Plaintiffs’ assets and opportunities and divert same to Bespoke, Gsquared and Carta De Dinero. Among their actions, the Company alleged Peikin and Gold improperly directed Nevada Agency And Transfer Co. to issue one million shares of Dolphin Digital Media, Inc.’s stock to Carta De Dinero, who then transferred such shares to its account at Merrill Lynch and sold them on the open market. In this lawsuit, Plaintiffs seek recovery of the damages occasioned by the improper issuance and sale of the Dolphin Digital Media, Inc. stock, as well as the value of the actual funds and opportunities misappropriated by Peikin and Gold and also alleged civil racketeering counts. On or about April 19, 2010, the Court dismissed the civil racketeering counts on the basis that the alleged enterprise was primarily formed and existed for the commission of the theft of the above-mentioned stock. The Court made no determination on the merits of the underlying allegations. As a result of the dismissal, the Court was deprived of jurisdiction over the cause.

 

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On July 30, 2009, a lawsuit was filed by Superlumin Networks, LLC against the Company in the Common Pleas Court of Montgomery County, Ohio alleging breach of contract and unjust enrichment/quantum merit. On August 24, 2009, the Company received a copy of the Complaint and Summons via certified mail. On August 25, 2009, undersigned counsel contacted counsel for Superlumin and initiated settlement discussions. On October 6, 2009, Superlumin moved for default judgment and the default judgment was granted on October 7, 2009. On or about November 18, 2009, Superlumin filed an action in execution to garnish the Company’s account with Wachovia in the amount of $94,223.90. Thereafter, the Company filed a motion to vacate the default judgment. On March 2, 2010, the Court entered an Order granting the Company’s motion to vacate the October 7, 2009 default judgment. On or about March 9, 2010, the Company filed an Answer and Counterclaim against Superlumin alleging, inter alia, breach of contract. On or about March 18, 2010, the Company filed a motion for release of funds. On or about April 2, 2010, Superlumin filed a Motion for Prejudgment Attachment and the Company filed a response on April 16, 2010 and requested the release of the funds garnished. On May 4, 2010, the Court entered an Order sustaining the Company’s motion to release funds and overruling Superlumin’s motion for prejudgment attachment and further ordered the release of the funds attached. The ultimate results of these proceedings against the Company cannot be predicted with certainty.
On April 20, 2010, Peikin and Gold filed an action in Miami-Dade County Circuit Court against Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc., respectively, relating to their employment with the companies. Peikin has sued Dolphin Entertainment, Inc. for: 1) breach of contract; 2) promissory estoppel; 3) fraud in the inducement; and 4) negligent misrepresentation and Gold has sued Dolphin Digital Media, Inc. for negligent misrepresentation. On or about May 10, 2010, Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc. filed their Answer, Affirmative Defenses, Counterclaim against Peikin and Gold and a Third Party Claim against Bespoke Growth Partners, Inc., Gsquared, Ltd. and Carta De Dinero, LLC, alleging virtually the same counts alleged in the action filed in the U. S. District Court action. The Counterclaim and the Third-Party Claim allege among other things, fraud, civil theft, unjust enrichment and conversion and seek an accounting. Discovery has been served and the ultimate results of these proceedings cannot be predicted with certainty.
On or about January 25, 2010, an action was filed by Tom David against Winterman Group Limited, Dolphin Digital Media (Canada) Ltd., Malcolm Stockdale and Sara Stockdale in the Superior Court of Justice in Ontario (Canada) alleging breach of a commercial lease and breach of a personal guaranty. On or about March 18, 2010, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale filed a Statement of Defense and Crossclaim. In the Statement of Defense, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale deny any liability under the lease and guaranty. In the Crossclaim filed against Dolphin Digital Media (Canada) Ltd., Winterman Group Limited, Malcolm Stockdale and Sara Stockdale seek contribution or indemnity against Dolphin Digital Media (Canada) Ltd. alleging that Dolphin Digital Media (Canada) agreed to relieve Winterman Group Limited, Malcolm Stockdale and Sara Stockdale from any and all liability with respect to the lease or the guaranty. On or about March 19, 2010, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale filed a Third Party Claim against the Company seeking contribution or indemnity against the Company, formerly known as Logica Holdings, Inc., alleging that the Company agreed to relieve Winterman Group Limited, Malcolm Stockdale and Sara Stockdale from any and all liability with respect to the lease or the guaranty. The Third Party Claim was served on the Company on April 6, 2010. On or about April 1, 2010, Dolphin Digital Media (Canada) filed a Statement of Defense and Crossclaim. In the Statement of Defense, Dolphin Digital Media (Canada) denied any liability under the lease and in the Crossclaim against Winterman Group Limited, Malcolm Stockdale and Sara Stockdale, Dolphin Digital Media (Canada) seeks contribution or indemnity against Winterman Group Limited, Malcolm Stockdale and Sara Stockdale alleging that the leased premises were used by Winterman Group Limited, Malcolm Stockdale and Sara Stockdale for their own use. On or about April 1, 2010, Dolphin Digital Media (Canada) also filed a Statement of Defense to the Crossclaim denying any liability to indemnify Winterman Group Limited, Malcolm Stockdale and Sara Stockdale. The Company has yet to respond to the Third Party Claim. The ultimate results of these proceedings against the Company cannot be predicted with certainty.
NOTE 15 — RELATED PARTY TRANSACTIONS
Related party transactions with Mr. William O’Dowd IV, CEO of the Company:
As of March 31, 2010 and December 31, 2009 The Company’s CEO had loaned the Company a total of $1.124.000 and $1,079,000, respectively. This amount has accrued interest at a rate of 10%. The outstanding amount indebted to Mr. William O’Dowd includes accrued interest of $138,823 and $111,278 at March 31, 2010 and December 31, 2009, respectively.
NOTE 16 — SUBSEQUENT EVENTS
On April 6, 2010 T-Squared Investments, LLC paid down an additional $200,000 reducing the exercise price on the warrants to $.1928.
In May 2010 T-Squared Investments, LLC paid down an additional $200,000 reducing the exercise price on the warrants to $.1643.
On May 5, 2010 the Company sold 30,303 shares of common for $10,000 ($.33 per share). In addition the Company issued 15,151 common stock warrants with an exercise price of $1.00.
The company evaluated subsequent events through the filing date of May 24, 2010.

 

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ITEM 2.  
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Summary
Dolphin Digital Media, Inc. is dedicated to the cause of online safety for children. By creating and managing child-friendly social networking websites utilizing state-of the-art fingerprint identification technology, Dolphin Digital Media has taken an industry-leading position with respect to internet safety, as well as digital entertainment.
Our Signature Product
Dolphin Secure is easy-to-use software that downloads onto any computer in a child’s life, and gives parents the ability to guide where their children can go, and who they can talk to, while online.
How “Dolphin Secure” Works: Fingerprint Log-In
In a truly revolutionary offering, and one of the major aspects that makes Dolphin Secure a unique service, a child may fully utilize the “Dolphin Surf” social network and communicate with their friends only following Dolphin Secure fingerprint identification. Upon registration, a new user scans their finger using the Dolphin Secure UPEK fingerprint reader. The scanned fingerprint is then converted into a number and stored in a protected, remote database.
The child’s account details (e.g. parental settings and personal preferences) are associated with this number, which is created by an irreversible algorithm. A copy (or a “print”) of any user’s actual fingerprint is never taken, let alone stored anywhere within the Dolphin Secure system. Only the unique number created by any user’s unique fingerprint is kept.
After registration, each time an internet browser or an IM application is attempted to be used on the computer that is Dolphin Secure, a log-in page is triggered. Children simply enter their user name and scan their fingerprint. Dolphin Secure then verifies the child’s identity by matching the unique number created by this fingerprint scan with the number associated with the child’s user name in the Dolphin Secure database.
Once a match has been created, the Dolphin Secure system promptly loads each child’s personal, customizable home page within Dolphin Surf. That child is now free to surf to websites, and free to seek other children to be friends with, that are within the controls established by the parent. When parents or other adults in the household want to use the same computer, a master username and password can be entered, which unlocks the computer and allows them to freely access the Internet. Once the parent logs out, Dolphin Secure is automatically back in place for the next session.
Dolphin Surf
“Dolphin Surf” is a social network featuring the advanced functionality associated with the leading online communities and virtual worlds. Kids have the opportunity to create a profile, IM with approved friends, search for new friends, upload photos, send e-mails and customize a homepage that includes a widget library of content, friend updates and much more, all under the protection of the Dolphin Secure system. Children can set their own site themes, backgrounds and add or delete widgets on their homepage, making their Dolphin Surf experience totally unique to them.

 

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Dolphin Groups
The launch of Dolphin Groups in February 2010 allows all children’s organizations (e.g. schools, little leagues, after-school programs, charitable organizations, etc.) to create their own mini-sites within Dolphin Surf.
Any group will have the ability to upload content such as videos and photos to the group page, send out messages to the whole group, write on an individual member’s “wall,” create a calendar, schedule events, and much more. Of course, the group sites have the full instant messaging capability that is a revolutionary aspect of Dolphin Secure, thereby allowing the children to chat live with each other while viewing the group’s site. For the first time, a children’s organization can safely create their own environment with full online interactivity occurring by their children.
Dolphin Surf offers different levels of privacy for any group, including: (1) Open: where any child within Dolphin Surf can join (e.g. a “fan club” started by a child in support of a favorite television show), or (2) Semi-Private: where a group administrator can set parameters for who can join their group, such as age range or gender (e.g. a particular Little League Division only open to boys and girls twelve and under), or (3) Private: where a group administrator will have to review and approve each individual who requests to join the group (e.g.: a specific Little League team).
In May, 2010, the functionality of Dolphin Groups was expanded to include the option for group administrators to charge membership fees, on either a monthly or annual basis. Furthermore, the option for individual groups within Dolphin Surf to link to one another was also released.
Links between groups can be either single-direction or dual-direction. Single-direction groups simply means that only the members from one group are automatically invited to join the other group, but not the other way around (i.e. members of a particular local Girl Scout Troop are invited to join the group site for the Girl Scouts in that particular state, but not every Girl Scout in the state is invited to join the group site for that particular local Girl Scout Troop). Dual-direction groups simply means that the members from each group are automatically invited to join the other group (e.g. upon entering into the fan club for the leading actress of a popular television show, a member is automatically invited to the fan club for the leading actor of the same television show, and vice versa).
Management believes that these dual features of affiliation and monetization create a unique and compelling opportunity for any children’s organization or content owner to have their online experience benefit from Dolphin Secure.
Pricing & Availability
An annual child membership to Dolphin Secure costs $59.95 per year (approx. $5 per month) plus an additional one-time fee of $15.00 for a fingerprint reader. Each additional child membership is $29.95 per year; a parent account is free. As of March 2010, a monthly subscription can be purchased for $5.95 per month for the first child, and $2.95 per month for each additional child in the household. Parents pay per child on their family account, not per software download. This way, a family can download Dolphin Secure onto every computer in the home for no additional charge. Extra fingerprint readers can be purchased for $24.95 each.
Dolphin Secure currently works for PCs using Windows XP or Vista operating systems, as well as Mac computers using the Safari operating system.
Approach to Market
In February 2010, we announced a strategic partnership with the United Way of Miami-Dade to promote Dolphin Secure. The United Way of Miami-Dade is committed to helping Dolphin Digital Media in raising awareness around the importance of internet safety for children and the benefits of Dolphin Secure. Through this strategic partnership, the United Way of Miami-Dade will work with Dolphin Digital Media to expand its reach into key markets and audiences.
The first results of this strategic partnership were recognized later in February with the announcement that Dolphin Digital Media and the United Way of Miami-Dade had entered into an alliance with the Miami-Dade County Public Schools to promote Dolphin Secure. Miami-Dade County Public Schools is the fourth-largest public school system in the country, with a diverse enrollment of more than 342,000 students from over 100 countries at its 392 schools. Miami-Dade County Public Schools also has 50,271 employees, including 22,006 teachers. In addition to the safety benefits of Dolphin Secure, all parties are excited about utilizing Dolphin’s biometric authentication to help deliver on the promise of “virtual schooling,” including online classes available to all students, as well as live chat for homework help and tutoring.

 

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In March 2010, we entered into a partnership with the Girl Scout Council of Tropical Florida to promote Dolphin Secure and to utilize Dolphin Secure’s group functionality. The campaign, “SOS: Speak Online Safely,” began March 25, 2010. The Girl Scout Council of Tropical Florida has over 700 troops and over 16,000 members between Miami-Dade County and Monroe County. Each troop will have their own group within Dolphin Surf, open only to their members, while the Council as a whole with have a group open to all 16,000 Girl Scouts in Miami-Dade and Monroe counties. Also, the Girl Scout Council of Tropical Florida will start other groups for additional programs they offer, all open only to the girls that participate in those programs, as well as groups open to all girls, whether they are current Girl Scouts or not. This partnership is a wonderful example of the clear benefits that the group functionality within Dolphin Secure offers to all children’s organizations, large or small.
Management is currently exploring additional sales channels, including electronic retail and traditional brick and mortar.
Results for the three months ended March 31, 2010 compared to the three months ended March 31, 2009
Revenues increased by $256 from $0 for the three months ended March 31, 2009 to $256 for the three months ended March 31, 2010 the Company has begun to generate limited revenues during the three months ended March 31, 2010. The Company expects to begin generating revenues from DolphinSecure and Dolphin Surf websites in the third quarter of 2010.
The cost of sales for the three months ended March 31, 2010 was $240 opposed to $0 for the three months ended March 31, 2009. The $240 increase was due to Company’s limited sales during the three months ended March 31, 2010.
The Company’s general and administration costs decreased by $741,759 from $1,111,928 for the three months ended March 31, 2009 to $370,223 for the three months ended March 31, 2010 as a result of decreased marketing and administrative costs.
The total expenditure for the three months ended March 31, 2010 was $586,226 opposed to $1,262,420 for the quarter ended March 31, 2009. The decrease was a result of decreased marketing, administrative costs and depreciation.
The total other expenses for the three months ended March 31, 2010 was $1,004,757 opposed to $22,254 for the quarter ended March 31, 2009. The increase was a result of $966,649 for the restructuring or warrants and in increase of in interest expense of $15,584.
The net loss was $1,590,968 or $(.03) per share based on 59,997,836 weighted average shares outstanding for the three months ended March 31, 2010 compared to a loss of $1,273,910 or $(.03) per share based on 49,236,904 weighted average shares outstanding for the three months ended March 31, 2009.
Liquidity and Capital Resources
Through the three months ended March 31, 2010 we have relied on advances of $45,000 from our principal founders. We received $200,000 from the pay down of warrants. We sold a total of 1,443,938 shares of common stock for proceeds of $685,000 As of March 31, 2010, we had cash of $179,629 and a working capital deficit of $2,941,109.

 

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ITEM 4T.  
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer (CEO) who also serves as the Company’s principal financial officer (PFO), has evaluated the effectiveness of the Company’s disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (Exchange Act) as of the end of the period covered by the report.
Based upon that evaluation, the Company’s CEO and PFO concluded that as of March 31, 2010 the Company’s disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by the Company in the Reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by the Company in the reports that its files or submits under the Exchange Act is accumulated and communicated to its management, including its CEO and PFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during our second fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1.  
LEGAL PROCEEDINGS
On October 1, 2009, Dolphin Digital Media, Inc, Dolphin Entertainment, Inc. and Dolphin Entertainment Capital, Inc. brought suit in the U.S. District Court for the Southern District of Florida against Mark Peikin, Joshua M. Gold, Bespoke Growth Partners, Inc., Gsquared, Ltd., Carta De Dinero, LLC, Nevada Agency And Transfer Co. and Merrill Lynch Pierce Fenner & Smith Incorporated. The suit seeks recovery of corporate stock and damages occasioned by the misfeasance of Peikin, Gold and the corporate entities over which they presided (Bespoke, Gsquared, Carta De Dinero) were employed to divert Plaintiff’s money and opportunities. As alleged in the complaint, Peikin and Gold served as outside and inside counsel to and officers of Plaintiffs in 2008 and 2009, as further alleged. In the course of their affiliation with Plaintiffs, they were able to use their positions of trust to gain access to Plaintiffs’ assets and opportunities and divert same to Bespoke, Gsquared and Carta De Dinero. Among their actions, the Company alleged Peikin and Gold improperly directed Nevada Agency And Transfer Co. to issue one million shares of Dolphin Digital Media, Inc.’s stock to Carta De Dinero, who then transferred such shares to its account at Merrill Lynch and sold them on the open market. In this lawsuit, Plaintiffs seek recovery of the damages occasioned by the improper issuance and sale of the Dolphin Digital Media, Inc. stock, as well as the value of the actual funds and opportunities misappropriated by Peikin and Gold and also alleged civil racketeering counts. On or about April 19, 2010, the Court dismissed the civil racketeering counts on the basis that the alleged enterprise was primarily formed and existed for the commission of the theft of the above-mentioned stock. The Court made no determination on the merits of the underlying allegations. As a result of the dismissal, the Court was deprived of jurisdiction over the cause.

 

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On April 20, 2010, Peikin and Gold filed an action in Miami-Dade County Circuit Court against Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc., respectively, relating to their employment with the companies. Peikin has sued Dolphin Entertainment, Inc. for: 1) breach of contract; 2) promissory estoppel; 3) fraud in the inducement; and 4) negligent misrepresentation and Gold has sued Dolphin Digital Media, Inc. for negligent misrepresentation. On or about May 10, 2010, Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc. filed their Answer, Affirmative Defenses, Counterclaim against Peikin and Gold and a Third Party Claim against Bespoke Growth Partners, Inc., Gsquared, Ltd. and Carta De Dinero, LLC, alleging virtually the same counts alleged in the action filed in the U. S. District Court action. The Counterclaim and the Third-Party Claim allege among other things, fraud, civil theft, unjust enrichment and conversion and seek an accounting. Discovery has been served and the ultimate results of these proceedings cannot be predicted with certainty.
On or about January 25, 2010, an action was filed by Tom David against Winterman Group Limited, Dolphin Digital Media (Canada) Ltd., Malcolm Stockdale and Sara Stockdale in the Superior Court of Justice in Ontario (Canada) alleging breach of a commercial lease and breach of a personal guaranty. On or about March 18, 2010, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale filed a Statement of Defense and Crossclaim. In the Statement of Defense, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale deny any liability under the lease and guaranty. In the Crossclaim filed against Dolphin Digital Media (Canada) Ltd., Winterman Group Limited, Malcolm Stockdale and Sara Stockdale seek contribution or indemnity against Dolphin Digital Media (Canada) Ltd. alleging that Dolphin Digital Media (Canada) agreed to relieve Winterman Group Limited, Malcolm Stockdale and Sara Stockdale from any and all liability with respect to the lease or the guaranty. On or about March 19, 2010, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale filed a Third Party Claim against the Company seeking contribution or indemnity against the Company, formerly known as Logica Holdings, Inc., alleging that the Company agreed to relieve Winterman Group Limited, Malcolm Stockdale and Sara Stockdale from any and all liability with respect to the lease or the guaranty. The Third Party Claim was served on the Company on April 6, 2010. On or about April 1, 2010, Dolphin Digital Media (Canada) filed a Statement of Defense and Crossclaim. In the Statement of Defense, Dolphin Digital Media (Canada) denied any liability under the lease and in the Crossclaim against Winterman Group Limited, Malcolm Stockdale and Sara Stockdale, Dolphin Digital Media (Canada) seeks contribution or indemnity against Winterman Group Limited, Malcolm Stockdale and Sara Stockdale alleging that the leased premises were used by Winterman Group Limited, Malcolm Stockdale and Sara Stockdale for their own use. On or about April 1, 2010, Dolphin Digital Media (Canada) also filed a Statement of Defense to the Crossclaim denying any liability to indemnify Winterman Group Limited, Malcolm Stockdale and Sara Stockdale. The Company has yet to respond to the Third Party Claim. The ultimate results of these proceedings against the Company cannot be predicted with certainty.
ITEM 2.  
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2010, the Company sold to two individuals a total of 600,000 shares of common stock for $150,000 ($0.25 per share).
During the three months ended March 31, 2010, the Company sold to nine individuals a total of 1,546,974 shares of common stock for $510,500 ($0.33 per share). In addition the Company issued 773,487 common stock warrants with an exercise price of $1.00.
During the three months ended March 31, 2010, the Company sold to an investor 64,103 shares of common stock for $25,000 ($0.39 per share). In addition the Company issued 64,103 common stock warrants with an exercise price of $0.80.
During the three months ended March 31, 2010, the Company issued a total of 250,000 shares of common stock for services valued at $72,500 ($0.33 per share) the fair market value on the date of issuance.

 

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On March 10, 2010, the Company entered into a series of agreements with T Squared Investments LLC, pursuant to which the parties cancelled a total of 4,034,615 Company warrants held by T Squared, which warrants were designated as Warrant “A”, Warrant “B”, Warrant “C” and Warrant 4, and changed the expiration date of Warrant “D” from July 28, 2014 to December 31, 2012. In consideration for the foregoing the Company issued to T Squared a new warrant, designated as Warrant “E”, for 7,000,000 shares of the Company’s common stock, exercisable at an initial price of $0.25 per share. Warrant E expires on December 31, 2012, and provides that the exercise price may be reduced down to $.00001 through a series of payments by T Squared to the Company. As of May 17, 2010 T Squared has made payments in the total amount of $600,000, thereby reducing the exercise price to $0.1643 per share.
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 3.  
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.  
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5.  
OTHER INFORMATION
None.
ITEM 6.  
EXHIBITS
         
No.
  4.1    
Letter Agreement with T Squared Investments LLC (1)
       
 
  4.2    
Common Stock Purchase Warrant “E” (1)
       
 
  31.1    
Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
       
 
  32.1    
Certification of the Chief Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
(1)  
Incorporated by reference to the exhibits filed with the Company’s Form 10-K for the fiscal year ending December 31, 2009, as filed with the Securities and Exchange Commission on April 15, 2010.

 

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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 May 24, 2010.
         
  Dolphin Digital Media Inc.
 
 
  By:   /s/ William O’Dowd IV    
    Name:   William O’Dowd IV
Chief Executive Officer 
 

 

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