TUMBLEWEED HOLDINGS, INC. - FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended December 31, 2013

¨ 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: 0-22315

DIGITAL CREATIVE DEVELOPMENT CORPORATION

(Exact name of registrant as specified in its charter)

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

	720 Fifth Avenue 10th Floor, New York, New York		10019
	(Address of principal executive offices)		(Zip Code)

	(212) 247-0581
	(Registrant's telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 (Do not check if a smaller reporting company)		Smaller reporting company x

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

As of January 31, 2014, there were 127,170,667 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

FOR THE THREE MONTHS ENDED

DECEMBER 31, 2013

INDEX

Part I - FINANCIAL INFORMATION

Item 1.	Financial Statements.	3

	Condensed Consolidated Balance Sheets as of December 31, 2013 (Unaudited) and June 30, 2013 (Audited)	3

	Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2013 and 2012 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2013 and 2012 (Unaudited)	5

	Notes to Condensed Consolidated Financial Statements	6 - 7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	8

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	9

Item 4.	Controls and Procedures.	9

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings.	10

Item 1A.	Risk Factors.	10

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	10

Item 3.	Defaults Upon Senior Securities.	10

Item 4.	Mine Safety Disclosures.	10

Item 5.	Other Information.	10

Item 6.	Exhibits.	10

	Signatures	11

	Certifications— pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

PART 1---FINANCIAL INFORMATION

Item 1. Financial Statements.

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS


	December 31, 2013			June 30, 2013
	(unaudited)			(audited)
	(in thousands)
ASSETS
CURRENT ASSETS
TOTAL CURRENT ASSETS	$	—		$	—

TOTAL ASSETS	$	—		$	—

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accrued expenses and other current liabilities	$	100.9		$	82.9
Dividends payable		66.1			66.1
TOTAL CURRENT LIABILITIES		167.0			149.0

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
Preferred Stock, Par Value $.01; 15,000,000 Shares Authorized; 2,700 shares designated; 14,997,300 shares undesignated; no undesignated shares issued and outstanding		—			—
Series A Convertible Preferred Stock, Par Value $1 ; 2,200 Shares Authorized, Issued and Outstanding; Liquidation Preference of $29,000		2.2			2.2
Series C Preferred Stock, Par Value $100 ; 500 Shares Authorized, Issued and Outstanding; Liquidation Preference of $128,300		50.0			50.0
Common Stock, Par Value $.01; Authorized 600,000,000 Shares; Issued and Outstanding 127,170,667 Shares		1,271.7			1,271.7
Additional paid in capital		41,296.6			41,296.6
Accumulated deficit		(42,787.5	)		(42,769.5	)
TOTAL STOCKHOLDERS' DEFICIT		(167.0	)		(149.0	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	—		$	—










See accompanying notes to condensed consolidated financial statements.

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	December 31 ,						December 31,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
	(in thousands, except per share data)						(in thousands, except per share data)

REVENUE	$	—		$	—		$	—		$	—


OPERATING EXPENSES
General and administrative expenses		(9.0	)		(25.0	)		(18.0	)		(50.0	)

LOSS FROM OPERATIONS		(9.0	)		(25.0	)		(18.0	)		(50.0	)


OTHER INCOME (EXPENSE)
Interest expense, net and other		—			(57.5	)		—			(115.1	)

TOTAL OTHER INCOME (EXPENSE)		—			(57.5	)		—			(115.1	)

NET LOSS	$	(9.0	)	$	(82.5	)	$	(18.0	)	$	(165.1	)

UNDECLARED PREFERRED STOCK DIVIDENDS		(1.3	)		(36.4	)		(2.6	)		(72.8	)

NET LOSS APPLICABLE TO COMMON STOCKHOLDERS	$	(10.3	)	$	(118.9	)	$	(20.6	)	$	(237.9	)

WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES FOR BASIC AND DILUTED EARNINGS PER SHARE		127,170,667			53,864,165			127,170,667			53,864,165

BASIC AND DILUTED LOSS PER SHARE	$	0.00		$	0.00		$	0.00		$	0.00




















See accompanying notes to condensed consolidated financial statements.

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



	December 31,
	2013 (unaudited)			2012 (unaudited)
	(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(18.0	)	$	(165.1	)
Adjustments to reconcile net loss to net cash used in operating activities:

Changes in assets and liabilities:
Accrued expenses and other current liabilities		18.0			165.1

NET CASH PROVIDED BY OPERATING ACTIVITIES		—			—

NET CASH PROVIDED BY INVESTING ACTIVITIES		—			—

NET CASH PROVIDED BY FINANCING ACTIVITIES		—			—

NET CHANGE IN CASH AND CASH EQUIVALENTS		—			—

CASH AND EQUIVALENTS, beginning of period		—			—

CASH AND EQUIVALENTS, end of period	$	—		$	—

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest expense	$	—		$	—
Income taxes	$	—		$	—























See accompanying notes to condensed consolidated financial statements.

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013

(unaudited)

($’s in thousands)

NOTE 1- BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company in accordance with the rules and regulations of the Securities and Exchange Commission relating to interim financial statements. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the Unites States of America (“U.S. GAAP”) for a complete set of consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the six months ended December 31, 2013 are not necessarily indicative of the results to be expected for the full year.

The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013 which was filed with the Securities and Exchange Commission.

NOTE 2- LIQUIDITY AND FINANCIAL CONDITION

Our consolidated unaudited financial statements were prepared on the assumption that we will continue as a going concern. We currently have a working capital and stockholders’ equity deficit of $167.0 and no cash on hand to satisfy our liabilities. Our ability to obtain resources sufficient to continue to meet our obligations as they come due is dependent on raising additional equity or by additional borrowings. 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.

NOTE 3- 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.

NOTE 4- ACCRUED EXPENSES AND OTHER LIABILITIES

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

NOTE 5- 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 financial position, results of operations or cash flows.

DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2013

(unaudited)

($’s in thousands)

NOTE 6- INCOME (LOSS) PER SHARE

Basic income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares and potentially dilutive common share equivalents using the treasury stock method. Because the Company incurred a net loss in all periods presented, all potentially dilutive securities were excluded from the computation of income (loss) per share because the effect of including them is anti-dilutive.

The following table summarizes the number of common shares attributable to potentially dilutive securities outstanding for each of the periods presented which were excluded from the calculation of diluted income (loss) per share:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2013		2012		2013		2012

Stock options		750,000		750,000		750,000		750,000
Stock warrants		500,000		500,000		500,000		500,000
Total		1,250,000		1,250,000		1,250,000		1,250,000

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statements contained in this Quarterly Report on Form 10-Q, other than the historical financial information, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievement of the Company to be materially different from any future results, performance or achievement expressed or implied by such forward-looking statements. Factors that might cause such a difference include, but are not limited to, risks and uncertainties related to the substantial capital requirements, development of effective internal processes and systems, the ability to attract and retain high quality employees, changing overall economy and other risks described herein and in the Company's June 30, 2013 Annual Report on Form 10-K.

PLAN OF OPERATION

Digital Creative Development Corporation (the “Company”) was principally involved in acquiring and investing in software and high technology companies, with a focus on acquiring controlling interests. At present, the Company does not have an operating business. The Company has since begun to search for candidates with which to enter into business combinations or strategic transactions.

The Company intends to locate and enter into a transaction with an existing, public or privately-held company (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 involve 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;

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

· Unforeseen obligations or liabilities.

We cannot make assurances that the Company will make any acquisitions or business combinations or that the Company will be able to obtain additional financing for such acquisitions or combinations, if necessary. If any acquisitions or combinations are made, we cannot make assurances that we will be able to successfully integrate the acquired or combined business into our 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 our 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, the target business, and/or 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 not have any business activities, aside from carrying on its search for a transaction partner. 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.

RESULTS OF OPERATIONS

Three Month Period Ended December 31, 2013 Compared To The Three Month Period Ended December 31, 2012.

The Company experienced a net loss of $9,000 in the three month period ended December 31, 2013 compared to a net loss of $82,500 in the comparable 2012 period. After settling its notes and other debts in April 2013, the Company did not incur interest charges during the three months ended December 31, 2013. The Company incurred approximately $57,500 of interest expense in the comparable 2012 period.

Six Month Period Ended December 31, 2013 Compared To The Six Month Period Ended December 31, 2012.

The Company experienced a net loss of $18,000 in the six month period ended December 31, 2013 compared to a net loss of $165,100 in the comparable 2012 period. After settling its notes and other debts in April 2013, the Company did not incur interest charges during the six months ended December 31, 2013. The Company incurred approximately $115,100 of interest expense in the comparable 2012 period.

LIQUIDITY AND CAPITAL RESOURCES

The Company's current liabilities exceeded its current assets by approximately $167,000 at December 31, 2013, compared to current liabilities exceeding its current assets by $149,000 at June 30, 2013. The Company increased its operating obligations by $18,000 during the six months ended December 31, 2013. These expenses were necessitated to meet filing requirements as a public reporting entity.

Since the Company is inactive, the Company can only depend on funding from third parties, of which there can be no assurance.

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 additional equity or by additional borrowings until and unless the Company acquires a profitable operating business or makes other investments.

The consolidated unaudited financial statements were prepared on the assumption that the Company will continue as a going concern. Considering the working capital and stockholders’ equity deficit of $167,000, the Company’s ability to obtain financial resources to meet its obligations depends on raising cash by issuing additional equity or by additional borrowings. However, the Company can provide no assurance that these additional funds will be available in the amounts or at the times required. Management currently believes that it can obtain the additional funds necessary to continue its operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The Company's chief executive officer in conjunction with the chief financial officer, after evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report (the "Evaluation Date") has concluded that the Company's disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission.

Changes in Internal Controls

During this fiscal quarter, there were no significant changes in the Company's internal controls over financial reporting or, to the knowledge of the management of the Company, in other factors that could significantly affect those controls subsequent to the Evaluation Date.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is, from time to time, the subject of litigation, claims and assessments arising out of matters occurring during the normal operation of the Company's business. In the opinion of management, the liability, if any, under such current litigation, claims and assessments, that are material, have been properly accrued.

Item 1A. Risk Factors.

Not required for smaller reporting companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

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 $26,750 and $26,640 as of December 31, 2013 and June 30, 2013, respectively.

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. As of December 31, 2013 and June 30, 2013, the Company had accumulated and unpaid dividends of approximately $12,200 and $9,700, respectively, on this series of preferred stock.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information

None.

Item 6. Exhibits

(a)

Exhibits:

31.01 Chief Executive Officer---Certification pursuant to Rule 13a-14 (a) of the Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.02 Chief Financial Officer--- Certification pursuant to Rule 13a-14 (a) of the Exchange Act of 193,4 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.01 Chief Executive Officer---Certification pursuant to Rule 13a-14(b) of the Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.02 Chief Financial Officer-- Certification pursuant to Rule 13a-14(b) of the Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

	DIGITAL CREATIVE DEVELOPMENT CORPORATION

Dated: February 14, 2014	By:	/s/ Gary Herman
		Name: Gary Herman
		Title: Chief Executive Officer

	By:	/s/ Skuli Thorvaldsson
		Name: Skuli Thorvaldsson
		Title: Chief Financial Officer

Exhibit 31.01

SECTION 302 CERTIFICATION

I, Gary Herman, Chief Executive Officer of Digital Creative Development Corporation., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended December 31, 2013 of Digital Creative Development Corporation.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 14, 2014

/s/ Gary Herman

Gary Herman

President

Exhibit 31.02

SECTION 302 CERTIFICATION

I, Skuli Thorvaldsson, Chief Financial Officer of Digital Creative Development Corporation certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the period ended December 31, 2013 of Digital Creative Development Corporation;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 14, 2014

/s/ Skuli Thorvaldsson

Skuli Thorvaldsson

Chief Financial Officer

Exhibit 32.01

CERTIFICATION PURSUANT TO

THE SARBANES-OXLEY ACT OF 2002

CHIEF EXECUTIVE OFFICER

I, Gary Herman, certify that:

In connection with the Quarterly Report on Form 10-Q of Digital Creative Development Corporation for the quarter ending December 31, 2013 (the "Report"), the undersigned officer of the Company, certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; as amended; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 14, 2014

/s/ Gary Herman

Gary Herman

President

Exhibit 32.02

CERTIFICATION PURSUANT TO

THE SARBANES-OXLEY ACT OF 2002

CHIEF FINANCIAL OFFICER

I, Skuli Thorvaldsson, certify that:

(1)

The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; as amended; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 14, 2014

/s/ Skuli Thorvaldsson

Skuli Thorvaldsson

Chief Financial Officer

TUMBLEWEED HOLDINGS, INC. - FORM 10-Q - February 14, 2014

TUMBLEWEED HOLDINGS, INC. Reports