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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K/A

 

ANNUAL REPORT

Under Section 13 or 15(d) of the Securities Act of 1934

 

þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  

 

For the fiscal year ended June 30, 2011

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ______ to ______

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION

 (Exact name of registrant is specified in its Charter)

 

UTAH   34-1413104
(State or Other Jurisdiction of   I.R.S. Employer
Incorporation or Organization)   Identification No.

 

720 Fifth Avenue, New York, New York, 10019

10th Floor

(Address of principal executive offices)

 

(212) 247-0581

 

Securities registered under Section 12(b) of the Act:

 

Title of Each Class   Name of each exchange on which registered
None   None

 

Securities registered under Section 12(g) of the Act:     Common Stock, $.01 par value

 

 

 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No

 

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. o Yes x No

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes x No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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.

 

Large Accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). x Yes o No

 

State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act).-----$414,600

 

Note: if determining whether a person is an affiliate will involve an unreasonable effort and expense, the issuer may calculate the aggregate market value of the common equity held by non-affiliates on the basis of reasonable assumptions, if the assumptions are stated.

 

Shares outstanding: 53,864,165 at September 12, 2011

 

 

 

 

 

TABLE OF CONTENTS

 

  Page
PART I  
   
Item 1     Business 1
   
Item 2     Properties 3
   
Item 3     Legal Proceedings 3
   
Item 4.    Executive Officers of the Registrant 3
   
PART II  
   
Item 5     Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 3
   
Item 7     Management's Discussion and Analysis of Financial Condition and Results of Operations 4
   
Item 7A   Quantitative and Qualitative Disclosures About Market Risk 5
   
Item 8     Financial Statements and Supplementary Data 6
   
Item 9A     Controls and Procedures 6
   
PART III  
   
Item 10    Directors, Executive Officers and Corporate Governance 7
   
Item 11    Executive Compensation 8
   
Item 12    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 9
   
Item 13    Certain Relationships and Related Transactions, and Director Independence 10
   
Item 14    Principal Accounting Fees and Services 10
   
PART IV  
   
Item 15    Exhibits, Financial Statement Schedules 15
   
Index to Financial Statement Schedules F-

 

 

 

 

 

PART I    BACKGROUND

 

Digital Creative Development Corporation (the “Company”) is principally engaged in creating and providing media content to businesses and consumers as well as managing its ownership interest in Broadcaster, Inc. (“Broadcaster”), formerly known as  International Microcomputer Software, Inc. (“IMSI”). Prior to this, the Company’s primary business was the operation, franchising, ownership and development of fast food restaurant concepts. Currently the Company does not have existing operations.

 

Item 1. Description of Business

 

Overview

 

Digital Creative Development Corporation (the “Company”) is principally engaged in creating and providing media content to businesses and consumers as well as managing its ownership interest in Broadcaster, Inc. (“Broadcaster”), formerly known as  International Microcomputer Software, Inc. (“IMSI”).

 

Plan of Business

 

The Company intends to locate and enter into a transaction with an existing, public or privately-held company that in management's view has growth potential (a "Target Business"). A transaction with a Target Business may be structured as a merger, consolidation, exchange of the Company's common stock for stock or assets of the Target Business or any other form which will result in the combined enterprise remaining a publicly-held corporation. Acquisitions or business combinations may not be available at the times or on terms acceptable to us, or at all. In addition, acquiring, or combining with, a business involves many risks, including:

 

  · unforeseen obligations or liabilities;

 

  ·

difficulty assimilating the acquired operations and personnel;

 

  · risks of entering markets in which we have little or no direct prior experience;

 

  · potential impairment of relationships with employees or customers as a result of changes in management; and

 

  · potential dilutive issuances of equity, large and immediate write-offs, the incurrence of debt, and amortization of goodwill or other intangible assets.

 

The Company cannot make assurances that it will make any acquisitions or business combinations or that it will be able to obtain financing for such acquisitions or combinations. If any acquisitions or combinations are made, the Company cannot make assurances that will be able to successfully integrate the acquired or combined business into operations or that the acquired or combined business will perform as expected. Furthermore, Federal and state tax laws and regulations have a significant impact upon the structuring of transactions. Management will evaluate the possible tax consequences of any prospective transaction and will endeavor to structure a transaction so as to achieve the most favorable tax treatment. There can be no assurance that the Internal Revenue Service or relevant state tax authorities will ultimately assent to the tax treatment of a particular consummated transaction. To the extent the Internal Revenue Service or any relevant state tax authorities ultimately prevail in recharacterizing the tax treatment of a transaction, there may be adverse tax consequences to us, a target business and their respective stockholders. Tax considerations as well as other relevant factors will be evaluated in determining the precise structure of a particular transaction, which could be effected through various forms of a merger, consolidation or stock or asset acquisition. Pending negotiation and consummation of a transaction, the Company anticipates that it will have, aside from carrying on its search for a transaction partner, no business activities, and, thus, no source of revenue. Should the Company incur any significant liabilities prior to a combination with a Target Business, it may not be able to satisfy, without additional financing, such liabilities as are incurred.

 

 

-1-

 

  

Employees

 

As of June 30, 2011 and through the present, the Company has no employees. Gary Herman, the Company’s Chairman, Chief Executive Officer, President and Secretary and Vincent De Lorenzo the Company’s Chief Financial Officer serve on a management consulting basis.

 

Mr. De Lorenzo became Chief Financial Officer upon the resignation of Skuli Thorvaldsson, effective July 12, 2007.

 

Acquisitions

 

The Company has never held itself out as an investment company. Its historical development has focused almost exclusively on restaurant, software and digital entertainment businesses. Although the Company continues to search for candidates with which to enter into business combinations or strategic transactions, it does not have an operating business except for its ownership interest in Broadcaster, Inc..  As of  September 22, 2011 the Company owns approximately 3,000,000 shares of common stock of Broadcaster, or approximately 9.0% of the total outstanding shares of Broadcaster’s common stock. An additional 225,000 shares of common stock, or approximately 0.43% of Broadcaster, Inc. is beneficially owned by Gary Herman, the Company’s Chairman, and 468,575 shares of common stock, or approximately 0.91% of Broadcaster, Inc. is beneficially owned by Bruce Galloway, the Company’s principal shareholder. Mr. Galloway also owns options to purchase, (i) 250,000 shares of Broadcaster, Inc.’s common stock at $1.62 per share; (ii) 50,000 shares at $1.80 per share; (iii) 32,500 shares at $3.80 per share; and (iv) 5,000 shares at $3.76 per share.

 

The Investment Company Act of 1940 (the “Act”) was primarily meant to regulate “investment companies,” which generally include families of mutual funds of the type offered by the Fidelity and Vanguard organizations (to pick two of many), closed-end investment companies that are traded on the public stock markets, and certain non-managed pooled investment vehicles such as unit investment trusts. These entities are in the business of investing, reinvesting and trading in securities and generally own relatively diversified portfolios of publicly traded securities that are issued by companies not controlled by these entities. A company can, either deliberately or inadvertently, come to have the defining characteristics of an investment company within the meaning of the Act without proclaiming that fact or being willing to voluntarily submit itself to regulation as an acknowledged investment company. The Act and rules under it contain provisions to differentiate “true” operating companies from companies that may be considered to have sufficient investment-company-like characteristics to require regulation by the Act’s complex procedural and substantive requirements. These provisions apply to companies that own or hold securities, as well as companies that invest, reinvest and trade in securities, and particularly focus on determining the primary nature of a company’s activities, including whether an investing company controls and does business through the entities in which it invests or, instead, holds its securities investments passively and not as part of an operating business. For instance, under what is, for most purposes, the most liberal of the relevant tests, a company may become subject to the Act’s registration requirements if it either holds more than 45% of its assets in, or derives more than 45% of its income from, investments in companies that the investor does not primarily control or through which it does not actively do business. In making these determinations the Act generally requires that a company’s assets be valued on a current fair market value basis, determined on the basis of securities’ public trading price or, in the case of illiquid securities and other assets, in good faith by the company’s board of directors.

 

The Company has a significant position in Broadcaster, Inc. and believes that it has a minimum of one year after it no longer controls Broadcaster to comply with the provisions of the Act since it no longer controls Broadcaster.

 

If the SEC takes the view that the Company has been operating and continues to operate as an unregistered investment company in violation of the Act, and does not provide the Company with a sufficient period to either register as an investment company or divest itself of investment securities and/or acquire non-investment securities, the Company may be subject to significant potential penalties.

 

In the absence of exemptions granted by the SEC (which are discretionary in nature and require the SEC to make certain findings), the Company would be required either to register as a closed-end investment company or a business development company under the Act. If the Company elects to register as a closed-end investment company under the Act, a number of significant requirements will be imposed upon the Company, including limits on the values of its investment securities as a percentage of its total assets, the make up of its board of directors and transactions with affiliates. In order to comply with the Act, the Company may need to acquire additional operating assets that would have a material effect on the Company’s operations. There can be no assurance that the Company could identify such operating assets to acquire or could successfully acquire such assets. Any such acquisition could result in the Company issuing additional shares that may dilute the equity of the Company’s existing stockholders, and/or result in the Company incurring additional indebtedness, which could have a material impact on the Company’s balance sheet and results of operations. Any of the above risks could result in a material adverse effect on the Company’s results of operations and financial condition.

 

 

-2-

 

 

Item 2.  Description of Property.

 

The Company's principal executive offices are located at 720 Fifth Avenue, 10th Floor New York, NY 10019. The Company is utilizing office space of its President at no cost to the Company until an acquisition or business transaction is consummated. The amount of office space currently utilized by the Company is insignificant.

 

Item 3.  Legal Proceedings.

 

The Company and its subsidiaries are from time to time involved in ordinary and routine litigation. At present, there is no litigation.

 

Item 4. (Removed and Reserved)

 

None

 

PART II

 

Item 5. Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

The following table sets forth the high and low prices for the periods indicated as reported by the National Daily Quotation Service, Inc. between dealers and do not include retail mark-ups, mark-downs, or commissions and do not necessarily represent actual transactions, as reported by the National Association of Securities Dealers Composite Feed or other qualified inter-dealer quotation medium. On June 14, 2011 the closing bid price was $0.013/share.

 

    High     Low  
2010 Fiscal Year            
First Quarter   $ 0.017     $ 0.003  
Second Quarter   $ 0.014     $ 0.007  
Third Quarter   $ 0.03     $ 0.008  
Fourth Quarter   $ 0.03     $ 0.00612  
                 
2011 Fiscal Year                
First Quarter   $ .03       .01  
Second Quarter   $ .03       .01  
Third Quarter   $ .02       .01  
Fourth Quarter   $ .02       .01  

 

The Common Stock was recorded on the OTC Bulletin Board with the symbol DCDC.

 

In May 2009, the Company's stock was delisted from the OTC Bulletin Board due to its failure to timely file its Form 10-QSB with the Securities and Exchange Commission.

 

The stock is now traded on the Pink Sheets. On September 12, 2011 the number of record holders of the Company's Common Stock was 484.

 

 

-3-

 

 

 

Dividends

 

In November and December 1997, the Company consummated a private placement with respect to equity units consisting of shares of its Series C Preferred Stock and warrants to purchase shares of common stock for aggregate proceeds of $990,000. The Company sold 9,900 shares of Series C Preferred Stock with warrants to purchase 148,500 shares of common stock attached. The preferred stock is not convertible, but may be redeemed at the option of the Company at a redemption price of $100/share plus accrued and unpaid dividends, at any time. The holders of the preferred stock are entitled to a cumulative dividend of 10% per annum, payable semi-annually, if and when the Board declares a dividend. On September 28, 1998, the Company sold 4,000 shares of Series D Preferred Stock and Common Stock Purchase Warrants with gross proceeds of an aggregate amount of $400,000. The preferred stock is convertible into 400,000 shares of common stock. The holders of the preferred stock are entitled to a cumulative dividend of 15% per annum, payable semi annually, if and when the Board declares a dividend. To date, the Company has not paid any dividends on its Common Stock or Preferred Stock. The payment of dividends, if any, in the future is within the discretion of the Board of Directors and will depend upon the Company's earnings, its capital requirements and financial condition, and other relevant factors. The Company does not intend to declare any dividends in the foreseeable future, but instead intends to retain all earnings, if any, for use in the Company's business operations. No dividends may be distributed with respect to the Common Stock so long as there are accrued and unpaid dividends on the Series A and Series C Preferred Stock. The amount of accumulated and unpaid dividends on the Series A Preferred Stock, Series C Preferred Stock and Series D Preferred Stock was approximately $1,943,900 as of June 30, 2011. 

 

Item 6.  Selected Financial Data

 

The Company is a smaller reporting company and is not required to provide information by this item.

 

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

 

This Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company should be read in conjunction with the Financial Statements and Notes thereto.

 

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995.

 

The financial and business analysis below provides information that the Company believes is relevant to an assessment and understanding of the Company's consolidated financial condition, changes in financial condition, and results of operations. This financial and business analysis should be read in conjunction with the consolidated financial statements and related notes.

 

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 Certain matters and statements made in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Wherever possible, the Company has identified these forward-looking statements by words such as "anticipates," "may," "believes," "estimates," "projects," "expects" "intends," and words of similar import. In addition to the statements included in this Annual Report on Form 10-K, the Company and its representatives may from time to time make other oral or written forward-looking statements. All forward-looking statements involve certain assumptions, risks and uncertainties that could cause actual results to differ materially from those included in or contemplated by the statements. These assumptions, risks, and uncertainties include, but are not limited to, general business conditions, including the timing or extent of any recovery of the economy, the highly competitive nature of the industry in which the Company operates and other risks and uncertainties. All such forward-looking statements may be affected by inaccurate assumptions or by known or unknown risks and uncertainties, and therefore, those statements may turn out to be incorrect. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. All forward-looking statements are made as of the date of filing or publication. We undertake no obligation to publicly update any forward looking statements, whether as a result of new information, future events or otherwise. Investors are advised, however, to consult any further disclosures the Company makes in future filings with the Securities and Exchange Commission or in any of its press releases. This report contains certain statements of a forward-looking nature relating to future events or the future performance of the Company. Prospective investors are cautioned that such statements are only predictions and those actual events or results may differ materially.

 

Results of Operations Fiscal 2011 and Fiscal 2010

 

The Company had no operating revenues in fiscal years 2011 or 2010.  General and administrative expenses and other income and expenses were approximately the same in the 2011 and 2010 fiscal years as interest on notes in default and certain administrative costs  resulted in a net loss of $257,900 in the 2011 fiscal year compared to a $242,100 net loss for the 2010 fiscal year.

 

 

-4-

 

 

New Accounting Standards

 

There are no recently issued accounting pronouncements that are not yet effective that are expected to have a material impacton the Company’s financial position, results of operations, or disclosures in the consolidated financial statements

 

Item 7a. Liquidity and Capital Resources

 

The Company’s current liabilities exceeded its current assets by $2,227,900 at June 30, 2011, compared to current liabilities exceeding its current assets by $1,910,100  at June 30, 2010. The change in working capital is primarily the result of continuing operating losses.  As of June 30, 2011 and 2010, marketable securities—current portion, had a market value of approximately $150,400 and $180,600 respectively. Current and Total Liabilities were $2.4 million and $2.1 million at June 30, 2011 and 2010, respectively.

 

In April 2003, the Company issued $345,000 of secured promissory notes with interest at 10% to a group of seven investors. The notes matured in August 2005 and are now delinquent and due on demand.

 

In addition, for each $60,000 of notes issued, the Company issued a warrant to purchase 1,000,000 shares of common stock at an exercise price of $0.01 per share. Approximately 373,845 shares of Broadcaster common stock currently held by the Company collateralize these promissory notes. The amount reflects the 1 for 2 reverse split of shares of Broadcaster on June 25, 2007. The proceeds of these notes were used to repay a loan to Mr. Galloway and for the Company’s working capital requirements.

 

The warrants issued in 2003 were valued at $392,500 and charged to interest expense over the term of the notes. The holders of promissory notes have exercised 4,750,000 of the warrants associated with their notes at $0.01 per share. All of the $345,000 Secured Promissory Notes are now currently in default beyond their extended due dates.  The Company's management is confident that future extensions can be obtained if necessary, but there can be no assurance that the Company will be able to obtain such extensions.

 

On September 18, 2003, the Company entered into a 15% one-year note (the “Note”) with IMSI (n/k/a Broadcaster) whereby the Company borrowed $350,000. On January 5, 2005, Broadcaster sold and assigned the Note, which then had a principal amount of $325,000, to Multi-Mag Corporation ("Multi-Mag").

 

The Company and Multi Mag by way of various extension amendments and interest payments, had agreed to extend the Note through December 31, 2007. The Note with Multi Mag is currently in default and due on demand.

 

The Company's management is confident that future extensions can be obtained. Although extensions were obtained in the past, there can be no assurance that the Company will be able to obtain these extensions, if needed.

 

The Company believes that it will need additional financing and working capital to finance its activities. Without additional financing, the Company will be unable to continue. Although the Company has obtained additional financing in the past and believes it could meet its needs through either additional borrowings or the sale of additional equity; however, there can be no assurance that the Company would succeed in obtaining any such financing, or that the terms of such transactions could be effected, or that such strategy will be successful.

 

From time to time, the Company has sold and may sell a certain amount of its holdings in Broadcaster, Inc.

 

The proceeds of any such sales are anticipated to be principally used by the Company for general working capital purposes.

 

The Company sold 150,000 shares of Broadcaster, Inc. from July 1, 2008 to June 30, 2011 and has used the proceeds of approximately $22,400 for general working capital purposes.

 

The amount of proceeds available to the Company from the sale of shares of Broadcaster depends upon the market for Broadcaster, which is subject to volatility in price and market volume.

 

The proceeds of any such sales are anticipated to be principally used by the Company for general working capital purposes. The Company anticipates that its working capital needs will be financed by sales of Broadcaster shares until and unless the Company acquires a profitable operating business or makes other investments.

 

 

-5-

 

 

Quantitative and Qualitative Disclosures about Market Risk

 

The Company’s equity investments are concentrated in Broadcaster, Inc. At June 30, 2011, 100% of the total fair value of equity investments was concentrated in Broadcaster, Inc. The Company’s present preferred strategy is to hold equity investments for trading purposes and for long-term strategic purposes. Thus, the Company’s management is not necessarily troubled by short term equity price volatility with respect to its investments provided that the underlying business, economic and management characteristics of the investees remain favorable. The carrying values of investments subject to equity price risks are based on quoted market prices or management’s estimates of fair value as of the balance sheet dates. Market prices are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold. Insofar as the Company’s liabilities are concerned, all loans to the Company have been made with fixed interest rates, and, accordingly, the market risk to the Company prior to the maturity of those instruments is minimal.

 

Item 8.  Financial Statements and Supplementary Data

 

The financial statements are filed as part of this Annual Report on Form 10-K.

 

Item 9. Changes in and Disagreements with Accountants.

 

None

 

Item 9A. Controls and Procedures

 

(a) Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our principal executive and financial officers, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) or Rule 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended) within 90 days of the filing date of this quarterly report and, based on their evaluation, our principal executive and financial officers have concluded that these controls and procedures are not effective and do not meet the requirements thereof. We are, however, working diligently on having these requirements met. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in Internal Control Over Financial Reporting. There were no significant changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) or Rule 15d-15(d) that occurred during the period covered by this quarterly report, or to our knowledge in other factors, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

-6-

 

 

Management Report on Internal Control Over Financial Reporting

 

The management of Digital Creative Development Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control system was designed to provide reasonable assurance to the Company's management and board of directors regarding the preparation and fair presentation of published financial statements.

 

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Digital Creative Development Corporation's management assessed the effectiveness of the Company's internal control over financial reporting as of June 30, 2011. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-integrated Framework. Based on that assessment management believes that, as of June 30, 2011, the Company's internal control over financial reporting is effective based on those criteria.

 

PART III

 

Item 10.  Directors, Executive Officers, Promoters and Control Persons.

 

Name   Age   Position
         
Gary Herman   47   Chairman of the Board, Chief Executive Officer, and Secretary
         
Skuli Thorvaldsson   69   Director, Former Chief Financial Officer, Treasurer Resigned July 2007
         
Vincent De Lorenzo   65   Chief Financial Officer, Treasurer

 

Directors

 

Gary Herman. Mr. Herman was elected to the Board of Directors in May 2001 and became Chairman and Chief Executive officer in January 2002. Mr. Herman is also a Managing Member of Galloway Capital Management, LLC. as well as a Managing Director with Arcadia Securities LLC., a FINRA registered broker -dealer based in New York. Prior to this, from 1997 to 2002, he was an investment banker with Burnham Securities, Inc. Prior to joining Burnham, he was the managing partner of Kingshill Group, Inc., a merchant banking and financial firm with offices in New York and Tokyo. Mr. Herman has a B.S. from the State University of New York at Albany.

 

Skuli Thorvaldsson. Mr. Thorvaldsson has been a member of the Board of Directors since May 1996. From February 2002 to July 2007, Mr. Thorvaldsson was the Company’s Chief Financial Officer. Mr. Thorvaldsson is a private entrepreneur/investor. From 1980 to 2003, Mr. Thorvaldsson was the Chief Executive Officer of the Hotel Holt in Reykjavík, Iceland. He is a director of Holt Holdings s.a., a Luxembourg-based investment company. Mr. Thorvaldsson graduated from the Commercial College of Iceland and the University of Barcelona and holds a law degree from the University of Iceland.

 

Vincent DeLorenzo  Mr. De Lorenzo was appointed Chief Financial Officer in July 2007. Mr. DeLorenzo is a Certified Public Accountant and Financial Analyst with extensive experience in various industries and corporate and SEC accounting. Mr. De Lorenzo, following his graduation from college in 1967, was an accountant with Price Waterhouse & Co. from July 1967 to April 1971. From April 1971 to December 1988, Mr. DeLorenzo worked at Kidde, Inc., where he served as Vice President of Finance. From 1989 to 1993, Mr. De Lorenzo served as Chief Financial Officer and Deputy CEO of a privately held vertically integrated retail automotive company. From October 1993 to February 2000, Mr. De Lorenzo owned and operated three retail automotive franchises.   From 1993 to 2000, a large New Jersey law firm specializing in bankruptcies engaged Mr. De Lorenzo as a consultant. Since 2000, Mr. DeLorenzo has been engaged as a sole practitioner in finance and accounting, focused on litigation support; business planning & strategies; SEC compliance; financial analysis, and business restructuring. Since 2005, Mr. De Lorenzo has served as a consultant to the Registrant, principally satisfying SEC compliance and financial analysis for the Registrant.

 

 

-7-

 

 

Each Director is elected to serve until the Company's next annual meeting of shareholders and until his successor is duly elected and qualified.

 

There are no agreements with respect to the election of directors. Executive officers are appointed annually by the Board of Directors and each executive officer serves at the discretion of the Board of Directors.

 

The Company has adopted a Code of Ethics, which is administered by the Board of Directors. A copy is available upon request from the Company. Beneficial Ownership Reporting Compliance

  

Section 16 A (a) of the Securities Exchange Act of 1934 requires the Company's officers, directors and persons who own more than ten percent of the Company's common shares to file reports of ownership with the SEC and to furnish the Company with copies of these reports. Based solely upon its review of reports received by it, or upon written representations from certain reporting persons that no reports were required, the Company believes that during fiscal year ended June 30, 2011 all filing requirements were met.

 

Item 11.  Executive Compensation.

 

The following table provides certain summary information concerning the compensation paid or accrued by the Company to or on behalf of its Chief Executive Officer and the other named executive officers of the Company for services rendered in all capacities to the Company and its subsidiaries for the fiscal years ended June 30, 2011; 2010; and 2009.

 

(a)   Summary Compensation Table

 

Name and                         Restricted     Securities              
Principal                   Other Annual     Stock     Underlying     LTIP     All Other  
Position   Year   Compensation     Bonus     Compensation     Awards     Options     Payouts     Compensation  
                                               
Gary Herman   2011   $ -     $ -     $ -     $ -     $ -     $ -     $ -  
President   2010   $ -     $ -     $ -     $ -     $ -     $ -     $ -  
    2009   $ 8,900     $ -     $ -     $ -     $ -     $ -     $ -  
                                                             
Vincent De Lorenzo   2011   $ -     $ -     $ -     $ -     $ -     $ -     $ -  
CFO   2010   $ -     $ -     $ -     $ -     $ -     $ -     $ -  
    2009   $ 5,750     $ -     $ -     $ -     $ -     $ -     $ -  

 

* The compensation listed above is in the form of consulting payments to GH Ventures, LLC Gary Herman or a related entity ; VDL Associates LLC, and Vincent De Lorenzo.

 

 

-8-

 

 

Executive Compensation

 

GH Ventures LLC, an entity of which Gary Herman is the sole member, provides services as the Company's Chairman, Chief Executive Officer, Secretary and Management Consultant. Due to the limited available working capital of the Company, he has received minor compensation since taking office in January 2002. Although Mr. Herman does not receive any recurring compensation, he is compensated from time to time for his services and as funds are available..

 

VDL Associates LLC, an entity of which Vincent DeLorenzo is the sole member, provides services as the Company's Chief Financial Officer

 

In October, 2005, the Company made a contingent award to each of its current directors, Gary Herman and Skuli Thorvaldsson, as well as an award to a former director and significant shareholder, Bruce Galloway, options to purchase 7,440,000 shares of common stock at exercise prices ranging from of $.0732 per share to $0.1385 and expiring through June 2015. These options, awarded for services rendered in connection with past services, including the restructuring of the Company in fiscal year 2002; director services; and other services, were valued at approximately $798,500.

 

The Company’s Board of Directors has approved this compensation for services rendered to the Company by Messrs. Herman and Thorvaldsson contingent upon the receipt of a fairness opinion from an independent advisory firm and approval of such fairness opinion by the Board of Directors. That fairness opinion has been received and approved by the Board on February 2, 2011.  The value of the related awards will approximate $798,500. Further, the Company finalized compensation agreements for Messrs. Herman and Thorvaldsson which include amounts to be paid for past services to the Company for the calendar years 2002, 2003, 2004, 2005 and 2006.

 

Although the Board approved the plan on February 2, 1011, the Board may revise this plan in light of the Company’s current financial situation.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth information as of September 23, 2011 with respect to officers, directors and persons who are known by the Company to be beneficial owners of more than 5% of the Company's Common Stock. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.

 

Shareholder   Shares     Percentage  
Bruce R. Galloway (1)     14,809,407       27.49  
Skuli Thorvaldsson (2)     1,435,125       2.66  
Gary Herman (3)     3,845,275       7.14  
James and Alexander Goren     3,619,750         6.72  
Officers and Directors as a group     5,280,400            9.80  
Total Outstanding shares     53,864,165          

 

(1) Includes 3,320,375 shares held by an investment fund, Strategic Turnaround Equity Partners, LP (Cayman) (“STEP”) which is managed by Galloway Capital Management, LLC. Mr. Galloway, a managing member of Galloway Capital Management, LLC disclaims beneficial ownership of the shares held by STEP except to the extent of being a limited partner in STEP.  Mr. Galloway, along with Mr.  Herman, also a member of Galloway Capital Management, LLC, has the discretion to vote and sell all of these shares; 6,699,812 shares of common stock 940,404 shares owned by Jacombs Investments, Ltd for which Mr. Galloway has the power to vote and dispose such shares; 47,500 shares of common stock held by Rexon Galloway Capital Growth, LLC an investment company in which Mr. Galloway is a member and retains investment and voting discretion; and 523,600 shares held by Mr. Galloway’s children for which he has the power to vote and dispose.

 

(2) Includes 1,435,125 shares as well as giving effect to the conversion of 4,000 shares of Series D Preferred Stock into 400,000 shares of Common Stock for no additional consideration.

 

(3) Includes options to purchase 1,750,000 shares of Common Stock at an exercise price of $.01 per share through June 2015. Also includes 3,320,375 shares held by an investment fund Strategic Turnaround Equity Partners, LP (Cayman) (“STEP”) which is managed by Galloway Capital Management, LLC. Mr. Herman, a managing member of Galloway Capital Management, LLC disclaims beneficial ownership of the shares held by STEP except to the extent of being a limited partner in STEP.   Mr. Herman, along with Mr. Bruce Galloway, also a member of Galloway Capital Management, LLC, has the discretion to vote and sell all of these shares.

 

 

-9-

 

 

Item 13. Certain Relationships and Related Transactions.

 

None

 

Item 14. Principal Accountant Fees and Services.

 

The following table presents fees for professional audit services rendered by Rosen Seymour Shapss Martin & Company LLP for the audit of our annual financial statements and fees for other services for the years ended June 30, 2011 and 2010.

 

    2011     2010  
             
Audit fees: (1)   $ 7,500     $ 20,000  
                 
Audit related fees: (2)                
                 
Tax fees: (3)   None     None  
                 
All other fees: (4)   None     None  
                 
Total   $ 7,500     $ 20,000  

 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services of Independent Auditors

 

We do not currently have an Audit Committee and all actions that would otherwise be handled by the Audit Committee are undertaken by our full Board of Directors. If and when we find a suitable merger candidate and we successfully enter into a merger transaction whereby a company with assets and operations survives, we intend to establish an Audit Committee that fulfills the independent and other requirements promulgated by the SEC. However, recognizing the SEC policies regarding auditor independence, our Board of Directors has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, our Board of Directors has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.

 

Prior to engagement of the independent auditor for the next year’s audit, management will submit an aggregate of services expected to be rendered during that year for each of the following four categories of services to our Board of Directors for approval.

 

  1.    Audit services include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.

 

2.    Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.

 

 

-10-

 

 

3.    Tax services include all services performed by the independent auditor’s tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.

 

4.    Other Fees are those associated with services not captured in the other categories.

 

Prior to engagement, our Board of Directors pre-approves these services by category of service. The fees are budgeted and our Board of Directors requires the independent auditor and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage the independent auditor for additional services not contemplated in the original pre-approval. In those instances, our Board of Directors requires specific pre-approval before engaging the independent auditor.

 

Our Board of Directors may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to our Board of Directors at its next scheduled meeting.

 

Our Board of Directors has accepted the resignation of Miller, Ellin & Company, LLP for all audit, audit-related and tax services for 2009 and engaged the firm of Rosen Seymour Shapss Martin & Company LLP.  Our former auditors effectively merged with the firm of Rosen Seymour Shapss Martin & Company LLP on January 1, 2009.

 

 

-11-

 

 

PART IV

 

Item 15. Exhibits and Report

 

(a)   Exhibits
3.1.1   Certificate of Incorporation. (1)
3.1.2   Agreement and Plan of Reorganization and First Addendum dated December 5, 1983. (1)
3.1.3   Certificate of Merger dated January 23, 1984. (1)
3.1.4   Articles of Merger dated January 27, 1984. (1)
3.1.5   Articles of Amendment to Articles of Incorporation dated January 27, 1984. (1)
3.1.6   Amendment to Articles of Incorporation dated January 27, 1986. (1)
3.1.7   Articles of Amendment to Articles of Incorporation dated June 28, 1996. (1)
3.1.8   Articles of Amendment to Articles of Incorporation dated July 31, 2000. (3)
3.2   Bylaws. (1)
4.2   Certificate of Designation of Series A Preferred Stock. (1)
4.10   Certificate of Designation of Series B Preferred Stock. (1)
4.4   Certificate of Designation of Series C Preferred Stock of Warrant to Burnham Securities Inc. (1)
4.5   Certificate of Designation of Series D Preferred Stock. (1)
10.11   Form of Warrant exercisable at $1.51 per share. (1)
10.12   Form of Warrant to Burnham Securities Inc. (1)
10.13   Form of Stock Option to Employees. (1)
10.18   Form of agreement with holders of Series a Preferred Stock. (1)
 10.25.   Agreement and Plan of Merger between the Company and International Microcomputer Software, Inc. (n/k/a BCAS). dated August 31, 2001.(4)
10.26   Loan Purchase Agreement between the Company and Union Bank of California dated August 22, 2001. (4)
10.29   Option Agreement with Martin Wade dated June 1, 2001.
10.30   Memorandum of Agreement between the Company, Ralph Sorrentino and RJS Consulting Corp. dated October 30, 2001.
10.31   Purchase Agreement between ATI (Delaware) and PAT Franchise dated February 28, 2002. (5)
10.32   Common Stock Purchase Agreement among the Company, DCDC (Delaware) and PAT Services, dated February 28, 2002. (4)
10.33   Guaranty and security Agreement between PAT Franchise and the Company dated February 28, 2002. (5)
10.34   Pledge Agreement between PAT Services and the Company dated February 28, 2002. (5)
10.35   Amended and Restated Senior Secured Promissory Note in favor of the Company dated February 28, 2002. (5)
10.36   Promissory Note Conversion and General Release dated February 28, 2002 between the Company and IMSI (n/k/a BCAS) (5)
10.37   Sale Agreement between International Microcomputer Software, Inc. and the Company dated November, 2001_for the sale of Keynomics, Inc. (7)
10.38   Note Purchase Agreement between the Company and KGS Holdings, Ltd. dated June, 2002.
10.39   Settlement Agreement between the Company and Ralph Sorrentino dated January, 2003. (7)
10.40   Settlement Agreement between the Company and Raymond DeMarco, Michael Morley and Gil Holland dated March, 2003. (7)
10.42   Promissory Note in favor of IMSI (n/k/a BCAS) dated September 18, 2003. (6)
10.43   Promissory Note issued by Access Propeller, LLC in favor of the Company dated September, 2003. (6)
10.44   Amendment No.1 to the Promissory Note in favor of IMSI (n/k/a BCAS) dated September 18, 2004. (6)
10.45   Assignment Agreement of the Promissory Note between the Company, International Microcomputer Software, Inc. and Multi Mag Corporation dated as of February 3, 2005. (7)
10.46   Amendment No.2 to the Promissory Note in favor of Multi Mag dated June 5, 2005. (7)
10.47   Code of Ethics (8)
10.48   Amendment No. 3 to the Promissory Note in favor of Multi Mag dated December 14, 2005.
10.49   Amendment No. 4 to the Promissory Note in favor of Multi Mag dated May 31, 2006.
10.50   Amendment No. 5 to the Promissory Note in favor of Multi Mag dated May 30, 2007.(9)

 

List of Subsidiaries (3)

 

1   Previously Filed with Form 10-SB Declared Effective on August 12, 1997
2   Previously filed with Form 10-KSB for the year ended June 30, 1999
3   Previously filed with Form 10-KSB for the year ended June 30, 2000
4   Previously filed with Form 8-K filed on September 19, 2001
5   Previously filed with Form 8-K filed on March 15, 2002
6   Previously filed with Form 8-K filed on October 20, 2004
7   Previously filed with Form 10-KSB for the year ended June 30, 2002
8   Previously filed with Form 10-KSB for the year ended June 30, 2004
9   Previously filed with Form 10-KSB for the year ended June 30, 2005

 

 

 

-12-

 

 

 

SIGNATURES

 

In accordance with the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION (Registrant)
 
Date: September 30, 2011
 

 

By:  /s/ Gary Herman

Gary Herman, Chief Executive Officer 

Date: January 10, 2012

 
By:  /s/ Vincent De Lorenzo

Vincent De Lorenzo, Chief Financial Officer

Date: January 10, 2012

 

 

 

-13-

 

 


 

 DIGITAL CREATIVE DEVELOPMENT CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Report of Independent Registered Public Accounting Firm F-1
   
Consolidated Balance Sheets F-2
   
Consolidated Statements of Operations and Comprehensive Net Loss F-3
   
Consolidated Statements of Stockholders' Equity (Deficiency) F-4
   
Consolidated Statements of Cash Flows F-5
   
Notes to Consolidated Financial Statements F-6 - F-15

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders Digital Creative Development Corporation and Subsidiary

 

We have audited the accompanying consolidated balance sheets of Digital Creative Development Corporation and  Subsidiary as of June 30, 2011 and 2010, and the related consolidated statements of operations and comprehensive income, stockholders' equity (deficiency), and cash flows for the years then ended. The consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Digital Creative Development Corporation and Subsidiary as of June 30, 2011 and 2010, and the result of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has recurring losses from operations and a net capital and equity deficiency of $ 2,227,900 that raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ ROSEN SEYMOUR SHAPSS MARTIN & COMPANY LLP

CERTIFIED PUBLIC ACCOUNTANTS

New York, New York

September 28, 2011 

 

 

 

F-1

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY  
CONDENSED CONSOLIDATED BALANCE SHEETS  
   
ASSETS  
             
    June 30, 2011     June 30, 2010  
    (in thousands)  
CURRENT ASSETS            
Cash and cash equivalents   $ 0.6     $ 0.6  
Marketable securities     120.2       180.6  
TOTAL CURRENT ASSETS     120.8       181.2  
                 
                 
TOTAL ASSETS   $ 120.8     $ 181.2  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)  
                 
CURRENT LIABILITIES                
Accrued expenses and other liabilities   $ 603.6     $ 543.6  
Accrued interest     937.0       739.6  
Notes payable--related parties     808.1       808.1  
TOTAL CURRENT LIABILITIES     2,348.7       2,091.3  
                 
                 
STOCKHOLDERS' EQUITY (DEFICIT)                
Preferred Stock 2,000,000 Shares Authorized                
  Series A Convertible, Par Value $1 ; 2,200 Shares Issued and                
     Outstanding; Involuntary Liquidation Preference of $ 1 Per Share                
     Plus Accrued and Unpaid Dividends     2.2       2.2  
  Series C, Par Value $100 ; 9,900 Shares Issued and                
     Outstanding; Involuntary Liquidation Preference of $100 Per Share                
     Plus Accrued and Unpaid Dividends     990.0       990.0  
  Series D, Par Value $100 ; 4,000 Shares Issued and                
     Outstanding; Involuntary Liquidation Preference of $100 Per Share                
     Plus Accrued and Unpaid Dividends     400.0       400.0  
Common Stock, Par Value $.01; Authorized 75,000,000 Shares; Issued and Outstanding:                
     53,864,165 Shares at June 30, 2011 and June 30 , 2010     538.6       538.6  
Additional paid in capital     38,242.8       38,242.8  
Accumulated other comprehensive loss     (2,603.3 )     (2,543.4 )
Accumulated deficit     (39,798.2 )     (39,540.3 )
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)     (2,227.9 )     (1,910.1 )
                 
TOTAL LIABILITIES AND  STOCKHOLDERS' EQUITY (DEFICIT)   $ 120.8     $ 181.2  

 

See accompanying Notes to Consolidated Financial Statements

 

F-2

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY  
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS  
FOR THE YEARS ENDED JUNE 30,  
             
    2011     2010  
    (in thousands)  
             
REVENUE   $ -     $ -  
                 
                 
OPERATING EXPENSES                
General and administrative expenses     60.0       60.0  
                 
(LOSS) FROM OPERATIONS     (60.0 )     (60.0 )
                 
                 
OTHER INCOME (EXPENSE)                
Interest expense, net and other     (197.4 )     (179.1 )
Realized losses on investments     (0.5 )     (3.0 )
                 
 TOTAL OTHER INCOME (EXPENSE)     (197.9 )     (182.1 )
                 
NET LOSS     (257.9 )     (242.1 )
                 
UNDECLARED PREFERRED STOCK DIVIDENDS     (145.5 )     (145.5 )
                 
Net Loss applicable to common shareholders   $ (403.4 )   $ (387.6 )
                 
                 
WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES FOR                
BASIC AND DILUTED EARNINGS PER SHARE     53,864.2       53,864.2  
                 
BASIC AND DILUTED LOSS PER SHARE   $ (0.01 )   $ (0.01 )
                 
NET INCOME  (LOSS)   $ (257.9 )   $ (242.1 )
Other comprehensive income (loss)                
Unrealized gain (loss) on marketable securities     (59.9 )     33.2  
Comprehensive income (loss)   $ (317.8 )   $ (208.9 )

 

See accompanying Notes to Consolidated Financial Statements

 

F-3

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY  
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  
FOR THE YEARS ENDED JUNE 30, 2011 AND JUNE 30, 2010  
(in thousands)  
                                                 
                                  Accumulated              
                            Additional     Other              
    Preferred Stock     Common     Paid-in     Comprehensive     Accumulated        
    Series A     Series C     Series D     Stock     Capital     Operations     Deficit     Total  
                                                 
Balance at June 30, 2009   $ 2.2     $ 990.0     $ 400.0     $ 538.6     $ 38,242.8     $ (2,576.6 )   $ (39,298.2 )   $ (1,701.2 )
                                                                 
   Unrealized gain on investments                                             33.2               33.2  
                                                                 
    Net loss                                                     (242.1 )     (242.1 )
                                                                 
Balance at June 30, 2010   $ 2.2     $ 990.0     $ 400.0     $ 538.6     $ 38,242.8     $ (2,543.4 )   $ (39,540.3 )   $ (1,910.1 )
                                                                 
   Unrealized loss on investments                                             (59.9 )             (59.9 )
                                                              -  
    Net loss                                                     (257.9 )     (257.9 )
                                                                 
Balance at June 30, 2011   $ 2.2     $ 990.0     $ 400.0     $ 538.6     $ 38,242.8     $ (2,603.3 )   $ (39,798.2 )   $ (2,227.9 )

 

See accompanying Notes to Consolidated Financial Statements

 

F-4

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
FOR THE YEARS ENDED JUNE 30,2011 AND JUNE 30, 2010  
   
             
    2011     2010  
    (in thousands)  
             
CASH FLOWS FROM OPERATING ACTIVITES:            
Net loss   $ (257.9 )   $ (242.1 )
Adjustments to reconcile net loss to net cash used in operating activities:                
          Net realized  losses  on marketable securities     0.5       3.0  
                 
Changes in assets and liabilities:                
Increase in accounts payable, accrued expenses and other liabilities     257.4       239.1  
                 
NET CASH USED IN OPERATING ACTIVITIES     -       -  
                 
CASH FLOWS FROM INVESTING ACTIVITES:                
          Proceeds from sale of investments, net of purchases     -       0.2  
                 
NET CASH PROVIDED BY INVESTING ACTIVITIES     -       0.2  
                 
CASH FLOWS FROM FINANCING ACTIVITES:                
          Proceeds from issuance of notes payable--related parties     -       -  
                 
NET CASH PROVIDED BY FINANCING ACTIVITIES     -       -  
                 
NET CHANGE IN CASH AND CASH EQUIVALENTS   $ -     $ 0.2  
                 
CASH AND EQUIVALENTS, beginning of period     0.6       0.4  
                 
CASH AND EQUIVALENTS, end of period   $ 0.6     $ 0.6  
                 
CASH PAYMENTS FOR:                
Interest expense   $ -     $ -  
Income taxes   $ -     $ -  
                 

 

See accompanying Notes to Consolidated Financial Statements

 

F-5

 

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

 

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements include the accounts of Digital Creative Development Corporation and its wholly owned subsidiary, (collectively the "Company"), Digital Creative Development Company (Delaware). All significant inter-company accounts and transactions have been eliminated in consolidation.

 

ORGANIZATION

 

Digital Creative Development Corporation (the "Company" or "Digital") was originally founded in 1969 as Arthur Treacher's Fish & Chips, Inc., a Delaware corporation. Since then, the Company has purchased several businesses and has changed its corporate identity by merging into other corporate entities.

 

The Company sold its interest in Arthur Treacher's Fish & Chips, Inc. in 2002 and currently has no active business. In 2001 and 2002, the Company acquired a controlling interest in International Microcomputer Software, Inc. ("IMSI"), (n/k/a Broadcaster, Inc.,--{“Broadcaster”}) which had been a developer and publisher of productivity software in precision design, graphics design and other related business applications, as well as graphics and CAD (Computer Aided Design) software and internet technology. On June 2, 2006 Broadcaster closed on its acquisition of AccessMedia Networks, Inc. The combined company operated an Internet entertainment network under the name Broadcaster. Since its original investment, the Company's ownership interest in Broadcaster, Inc. has decreased to approximately 9 % as of  September 23, 2011.

 

STOCK-BASED COMPENSATION

 

The Company measures  for stock-based compensation using a fair value based method, whereby the grant date fair value of the share-based awards is charged to expenses over their vesting period.

 

CASH AND CASH EQUIVALENTS

 

The Company considers all short-term investments in interest bearing accounts, securities and other investments with an original maturity of three months or less to be a cash equivalent.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

In determining the fair value of its financial instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing as of each balance sheet date. The Company’s financial instruments include debt and stock options and have been valued using standard market conventions and techniques, such as discounted cash flow analysis and option pricing models. All methods of measuring fair value result in a general approximation of value since valuations are inherently not precise.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for impairment of investment assets and the valuation allowance against deferred tax assets.

 

 

 

F-6

 

 

 

 DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

 

 

INVESTMENTS

 

Investments in marketable securities are carried at fair market value and classified as available for sale. Investments in non-marketable debt securities are carried at cost or fair value as determined by management.

  

INCOME TAXES

 

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, the method requires the recognition of future tax benefits, such as net operating loss carry forwards, to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

PER SHARE DATA

 

Net income or loss per share of common stock is computed based upon the weighted-average number of common shares and potential common shares outstanding during the year.

 

CONCENTRATIONS AND CREDIT RISK

 

The Company maintains cash balances in banks and money market accounts, which, at times, may exceed the limits of amounts insured by the Federal Deposit Insurance Corporation (FDIC); however, because deposits are maintained at high quality financial institutions, management does not believe that there is a significant risk of loss of uninsured amounts.

 

 2. DOUBT AS TO CONTINUING AS A GOING CONCERN

 

Our condensed consolidated unaudited financial statements were prepared on the assumption that we will continue as a going concern. We currently have a working capital and equity deficit of $ 2,227,900 and are in default of our notes payable. Our ability to obtain resources sufficient to continue to meet our obligations as they come due is dependent on raising cash through the sale of shares of Broadcaster; and/or raising additional equity; and obtaining forbearance of our debt holders. We intend to use our cash as well as other funds in the event that they shall be available on commercially reasonable terms, to finance our activities, although we can provide no assurance that these additional funds will be available in the amounts or at the times we may require. Management believes that it can obtain the additional funds necessary to continue its operations.

 

 

F-7

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

 

 

3. INVESTMENTS IN MARKETABLE SECURITIES AND NONMARKETABLE SECURITIES

 

The Company had investments and advances in certain marketable and non-marketable securities at June 30, 2011 and 2010, as follows:

 

    June 30,  
    2011     2010  
             
Broadcaster, Inc., - at cost   $ 2,724.0     $ 2,724.0  
Unrealized loss on marketable securities     (2,603.3 )     (2,543.4 )
Realized losses on marketable securities          (0.5)          
Access Propeller Holdings, Inc. - at cost     300.0       300.0  
Less: allowance for impairment     (300.0 )     (300.0 )
                 
    $ 120.2     $ 180.6  

 

Until August 2007 the shares of Broadcaster, Inc. owned were "restricted securities" as defined in Rule 144 under the Securities Act of 1933. Under Rule 144, the Company could publicly sell, within any three month period, a number of shares not to exceed one percent of Broadcaster, Inc.'s then outstanding shares of common stock. In the event that Broadcaster, Inc. became listed on the NASDAQ or on a national securities exchange, the maximum amount that could be sold was the greater of one percent of the outstanding shares and the average weekly trading volume of Broadcaster, Inc.'s common stock for the four weeks preceding the Company's filing of a notice of sale with the SEC. Since these shares were restricted, the shares, which could be sold within one year, were classified as a current asset and the balance of the shares were classified in other assets, as non-current, on the balance sheet.

 

In August 2007, that restriction was removed after the departure of Bruce Galloway in May 2007, a former director and significant shareholder of the Company from the Board of Directors of Broadcaster. Accordingly, the restriction as to the balance sheet classification of these shares was also removed and classified as current assets.

 

Under  GAAP  fair value is the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. GAAP requires the Company to assume that the portfolio investment is sold in principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market.

 

Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with GAAP, the Company has considered its principal market as the market in which the Company exits its portfolio investments with the greatest volume and level of activity. GAAP has established a framework for measuring fair value which specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with GAAP, these inputs are summarized in the three broad levels listed below:

 

Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

 

Level 3 – Valuations based on inputs that are unobservable and significant in the overall fair value measurement.

 

 

F-8

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

 

 

In addition to using the above inputs in investment valuations, we continue to employ the valuation policy approved by our board of directors that is consistent with GAAP (see Note 1).  Consistent with our valuation policy, we

evaluate the source of inputs, including any markets in which our investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value.

 

Our valuation policy considers the fact that  because there is not a readily available market value for most of the investments in our portfolio, the fair value of the investments must typically be determined using unobservable inputs.

 

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize.   Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize significantly less than the value at which we have previously recorded it.

 

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.

 

The following table presents fair value measurements of investments as of June 30, 2011 (dollars in thousands):

 

          Fair Value Measurements Using  
    Total     Level 1     Level 2     Level 3  
Investments   $ 120.2     $ -     $ 120.2     $ -  
                                 

 

The following table’s present changes in investments that use Level 2 inputs for the year ended June  30, 2010:

 

   

Year ended

June 30, 2011 

(in thousands)

 
Balance as of June 30, 2009   $ 180.6  
Net unrealized losses         (59.9)  
Net purchases, sales or redemptions     (.5)  
Net transfers in and/or out of Level 2     -  
Balance as of  June 30, 2010   $ 120.2  

 

As of June 30, 2011, the net unrealized loss on the investments that use Level 2 inputs was $2,603,300

 

 Several of the officers, directors and significant shareholders of Broadcaster were defendants in an action captionedPaul Goodman v. Spelling, et al in New York State Supreme Court. On January 16, 2008, Mr. Goodman commenced an action in New York State Supreme Court against Broadcaster and certain of its officers, directors, and shareholders, seeking monetary damages “in an amount to be determined but not less than $10 million plus other special, punitive and compensatory damages” for alleged defamation contained in a Company filing with the SEC. Mr. Goodman sought and obtained an ex parte temporary restraining order, which was vacated by the Court upon hearing argument from the defendants. This action had been removed and transferred to the Federal District

 

 

F-9

 

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

 

Court for the Southern District of New York and then transferred to United States District Court for the Central District of California. Management of Broadcaster believes that the action is without merit.

 

On December 14, 2009 Broadcaster,. announced  the settlement, of the derivative lawsuit brought by Baytree Capital Associates, LLC in February 2008. Broadcaster and Baytree agreed to a dismissal of the lawsuit with prejudice with no payment being made by either the plaintiff or any of the defendants. As is required when a derivative action is settled and dismissed, the Court found that the settlement was fair, adequate and reasonable to Broadcaster and its shareholders and not a product of collusion.

 

At the same time, Nolan Quan, a Broadcaster shareholder and former officer, and Michael Gardner, the owner of Baytree Capital Associates, both agreed to surrender for cancellation their shares of Broadcaster Common Stock that they own or control and that had been issued as "earnout" shares in connection with the Broadcaster—Access Media transaction completed in 2006. The total number of shares surrendered and cancelled was 18,375,000,  representing approximately 32.93% of the outstanding shares of common stock of Broadcaster, computed immediately prior to the surrender of the shares.

 

The result of the surrender and cancellation of these shares increases the Company’s ownership in  Broadcaster from 5.4% to 9.0 %.

 

A total of  200,000 shares of Broadcaster. common stock secures the Company's 15% $325,000 Promissory Note to Multi Mag Corporation and approximately 373,845 shares of Broadcaster, Inc. common stock secures the $345,000 Notes to investors.. Due to the recent decline in the price of shares of Broadcaster, the Notes are now under-collateralized.

 

The Company has sold 149,500 shares of Broadcaster. from July 1, 2008 through June 30, 2011. The proceeds of approximately $22,400 have been used for general working capital purposes.

 

From time to time, the Company may continue to sell a certain amount of its holdings in Broadcaster The proceeds of these sales are anticipated to be principally used by the Company for general working capital purposes.

 

4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accrued expenses primarily consist of accrued legal and other professional fees and general administrative expenses.

 

 5. NOTES PAYABLE -RELATED PARTIES

 

At June 30, 2010 and 2009, the Company’s long term debt consisted of the following:

 

   

June 30,

2011

   

June 30,

2010

 
Secured Promissory Note with Interest at 15%, due December 31, 2007   $ 325,000     $ 325,000  
Secured Promissory Notes with Interest at 10%, due December 31, 2008     345,000       345,000  
Notes payable to certain former executives     138,100       138,100  
                 
                 
Total     808,100       808,100  
Less: Current portion     808,100       808,100  
    $ -0-     $ -0-  

 

 

F-10

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

 

 

In December 2001, , the Company borrowed $50,000 from its former CEO, Martin Wade, bearing interest at 12%, and due on December 31, 2001. As additional consideration for the loan, Mr. Wade was issued warrants to purchase 500,000 shares of common stock of the Company at $0.01 per share, which were valued at $53,900 and included as interest expense. On July 1, 2005, the maturity date of this loan was extended to December 31, 2005. On January 23, 2007, Mr. Wade agreed to further extend the maturity date of this note to May 31, 2007. Subsequently, on June 14,

2007 Mr. Wade agreed to extend the maturity date of this note to December 31, 2007, and further extended the maturity date to December 31, 2008. The Company's management is confident that future extensions, if necessary can be obtained, but there can be no assurance that the Company will be able to obtain these extensions, if needed.

 

Throughout the period from July 1, 2001 through June 30, 2010, Mr. Bruce Galloway, the Company's former chairman, Gary Herman and a related entity had advanced monies with interest rates up to 10% to allow the Company to satisfy operating expenses and occasional cash shortfalls. The amounts outstanding to both Mr. Galloway and Mr. Herman totaled $75,600 at June 30, 2010 and 2009, respectively, before accrued interest.

 

The due dates of all of these related party notes to current and former directors have been extended to December 31, 2008. The Company's management is confident that future extensions, if necessary, can be obtained, but there can be no assurance of this. All the related party notes are currently due.

 

The Company and Multi-Mag , the holder of the $325,000 Secured Promissory Note have executed various amendments  all of which extended the due date of the Note upon payment of accrued interest to December 31, 2008 The Company and Multi-Mag are currently in negotiations to extend the due date of the note. The Company’s management is confident that future extensions can be obtained. And although extensions were obtained in the past, there can be no assurance that the Company will be able to obtain these extensions, if needed.

 

In April 2003 the Company issued $345,000 of secured promissory notes to a group of seven investors. The notes matured in August 2005 and bore interest at 10%. In addition, for each $60,000 of notes issued, the Company issued a warrant to purchase 1,000,000 shares of stock at an exercise price of $0.01 per share. A total of 5,750,000 warrants were exercised at a price of $0.01 per share. These warrants were valued at $392,500 and charged to interest expense. The notes are collateralized by 373,845 shares of Broadcaster, Inc. common stock currently held by the Company. The proceeds of this offering were used to repay a $300,000 loan that was due to Mr. Galloway and for the Company’s working capital requirements. The shares reflect the 1 for 2 reverse stock split of Broadcaster's shares effected June 25, 2007.

 

The number of shares of Broadcaster. Common Stock pledged as Collateral was subject to adjustment one year after the initial closing date based on the 30-day trailing average of the bid prices of shares of Common Stock of Broadcaster  as listed on the OTC Bulletin Board or such other exchange as such shares are then listed upon. As such, the number of shares that are subject to the pledge agreement as of June 2010 and June 2009 are 373,845 shares. The shares reflect the 1 for 2 reverse stock split of Broadcaster's shares effected June 25, 2007. 

 

Of the $345,000 Secured Promissory Notes, all but three of these noteholders whose notes total $195,000 have extended their notes to December 31, 2008. The Company's management is confident that future extensions can be obtained if necessary, but there can be no assurance that the Company will be able to obtain such extensions. The notes payable to the three remaining noteholders who have not agreed to extend are currently in default. All the Promissory Notes are currently due.

 

The Company considers the carrying value of its notes payable to be a reasonable estimation of its fair value based on the current market rates available to the Company for debt of the same remaining maturities.

 

Related interest expense was approximately $197,400 and $179,100 for the years ended June 30, 2011and 2010, respectively.

 

 

 

F-11

 


 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

 

 

 

6. INCOME TAXES

 

For the years ended June 30, 2011 and 2010, a reconciliation of income taxes computed at the United States federal statutory income tax rate to the provision for income taxes reflected in the Statements of Operations is presented below:

 

    2011     2010  
Federal statutory rate     34 %     34 %
Valuation allowance on net operating loss carryforwards, and investment write-downs     34 %     (34 )%
Effective income tax rate     -0-       -0-  

 

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets result primarily from net operating loss carry-forwards. The components of the Company’s deferred tax assets and liabilities at June 30, 2011 and 2010 are as follows:

 

    2011     2010  
Deferred tax assets:            
Operating loss carryforwards   $ 4,316,000     $ 4,213,000  
Write-down of investments     1,544,000       1,544,000  
Total Deferred Tax Asset     5,860,000       5,757,000  
Valuation Allowance     (5,860,000 )     (5,757,000 )
    $ -0-     $ -0-  

 

A full valuation allowance is provided against all deferred tax assets due to the uncertainty as to the future realization of any benefits.

 

Deferred taxes have not been provided on accumulated other comprehensive income (loss) as management expects that the NOL will be sufficient to offset future gains.

 

GAAP requires that, in applying the liability method, the financial statement effects of an uncertain tax position be recognized based on the outcome that is more likely than not to occur. Under this criterion the most likely resolution of an uncertain tax position should be analyzed based on technical merits and on the outcome that will likely be sustained under examination. The Company has no uncertain tax positions as of June 30, 2011.

 

Digital Creative Development Corporation and subsidiary have not filed an income tax return since the year ended June 30, 2000. As of June 30, 2011 the Company had a net operating loss carryforward of approximately $10,789,000.  The current tax laws as they pertain to the disposal of subsidiaries that generate net operating loss carryforwards ("NOL") essentially eliminate the NOL carryforward and do not allow a company to recognize a loss on disposition of the subsidiary for tax purposes. However, laws do provide for the parent to reallocate the NOL based upon their basis in the companies being disposed of.

 

As of June 30, 2011, the Company had net operating loss carry forwards of approximately $10,789,000 available to offset future federal taxable income. The federal net operating loss carry-forwards will expire in varying amounts through 2030.  The Company is in the process of filing its tax returns for the current and all applicable prior years.

 

 

 

F-12

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

 

 

7. PER SHARE INFORMATION

 

In accordance with GAAP, "Earnings Per Share", basic net income (loss) per common share ("Basic EPS") is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding. Diluted net income (loss) per common share ("Diluted EPS") is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common shares and dilutive common share equivalents on convertible securities, options, and warrants then outstanding. GAAP requires the presentation of both Basic EPS and Diluted EPS on the face of the Company's Consolidated Statements of Operations. There were 750,000 stock options and 500,000 warrants excluded from the computation of Diluted EPS for the years ended June 30, 2011 and 2010 as their effect on the computation of Diluted EPS would have been anti-dilutive.

 

The following table sets forth the computation of basic and diluted per share information:

 

    June 30,  
    2011     2010  
Basic and Diluted   (in thousands)  
Numerator            
Loss attributable to common shareholders   $ (402.9 )   $ (387.6 )
Denominator:                
Weighted average common shares outstanding for basic and full dilution     53,864.2       53,864.2  
Basic and Diluted Per Share Information:                
Net loss per share   $ (.01 )   $ (.01 )
Anti-dilutive instruments excluded from the above computation:                
Common stock options – shares     750,000       750,000  
Common stock warrants – shares     500,000       500,000  

 

8. STOCK OPTIONS

 

In October, 2005, the Company made a contingent award to each of its current directors, Gary Herman and Skuli Thorvaldsson, as well as an award to a former director and significant shareholder, Bruce Galloway. The award consisted of options granted to purchase 7,440,000 shares of common stock at exercise prices ranging from $0.0732 per share to $0.1385 and expiring through June 2015. These options, awarded for services rendered in connection with past services, including the restructuring of the Company in fiscal year 2002; director services; and other services, were valued at approximately $798,500, using the Black-Scholes model.

 

The Company’s Board of Directors has approved this compensation for services rendered to the Company by Messrs. Herman and Thorvaldsson contingent upon the receipt of a fairness opinion from an independent advisory firm and approval of such fairness opinion by the Board of Directors. That fairness opinion has been received and approved by the Board on February 2, 2011. The value of the related awards will approximate $798,500. Further, the Company finalized compensation agreements for Messrs. Herman and Thorvaldsson which include amounts to be paid for past services to the Company for the calendar years 2002, 2003, 2004, 2005 and 2006.

 

Although the Board approved the plan on February 2, 1011, the Board may revise the plan in light of  the current financial situation of the Company.

 

 

F-13

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

 

These options were granted as compensation and the number of options granted was determined based on specific individual circumstances. The shares issuable under these option grants are non-registered shares and the Company has no requirement to register such shares.

 

In November 2000, the Company adopted a Stock Purchase and Option Plan (the "Plan") that permits the issuance of options to selected employees and directors of, and consultants to, the Company. The Plan reserves 15,000,000 shares of Common Stock for issuance underlying the grants of stock options and warrants. Options general1y become exercisable over vesting periods of up to three years and expire five years from the date of grant.

 

A summary of the options issued under the Plan is presented in the table below:

 

    OPTIONS    

WEIGHTED

AVERAGE

EXERCISE

PRICE

 
Outstanding -June 30, 2009     750,000     $ .01  
Expired     -0-       -0-  
Exercised                
Issued     -0-       -0-  
Outstanding -June 30, 2010     750,000     $ .01  
Expired     -0-       -0-  
Exercised     -0-       -0-  
Issued     -0-     $ -0-  
Outstanding -June 30, 2011     750,000     $ .01  

 

9. COMMITMENTS AND CONTINGENCIES

 

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated results of operations or financial position.

 

10. STOCKHOLDERS' EQUITY

 

The holders of the Series A Preferred Stock are entitled to a cumulative dividend of $0.10 per share per annum. Such dividends accrue annually but are payable if and when the Company declares a dividend. The Company has never paid any dividends with respect to the Series A Preferred Stock. The 2,200 outstanding shares of Series A Preferred Stock are convertible into 3,300 shares of Common Stock for no additional consideration at the option of the holder of the stock. The Series A Preferred Stock is entitled to a liquidation preference of $1.00 per share, plus any accrued and unpaid dividends. The Series A Preferred Stock may be redeemed by the Company at a redemption price of $1.00 per share plus all accrued and unpaid dividends. The amount of accumulated and unpaid dividends was approximately $26,200 and $26,000 at June 30, 2011 and 2010, respectively.

 

 

F-14

 

 

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011 and 2010

 

The Series C Preferred stock is not convertible, but may be redeemed at the option of the Company at a redemption price of $100 per share plus accrued and unpaid dividends, at any time after October 31, 1999. The holders of the preferred stock are entitled to a cumulative dividend of 10% per annum, payable semiannually, if and when the board declares a dividend. At June 30, 2010 and 2009, the Company had accumulated and unpaid dividends of approximately $1,152,700 and $1,067,400, respectively, on this series of preferred stock..

 

The holders of the Series D Preferred Stock are entitled to a cumulative dividend of 15% per share per annum. Such dividends accrue annually but are payable if and when the Company declares a dividend. The Company has never paid any dividend with respect to the Series D Preferred Stock. The 4,000 outstanding shares of Series D Preferred Stock are convertible into 400,000 shares of Common Stock for no additional consideration at the option of the holder of the stock. The amount of accumulated and unpaid dividends was approximately $765,000 and $705,000 at June 30, 2010 and 2009, respectively.

 

 

 

F-15