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 March 31, 2012
[ ] 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) |
(212) 247-0581 |
(Issuer'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 [ ]
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 [ ] | | Accelerated filer [ ] |
| | |
Non-accelerated filer [ ] (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 [ ]
As of May 1, 2012, there were 53,864,165 shares of the issuer’s common stock, par value $0.01 per share, outstanding.
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
FOR THE SIX MONTHS ENDED
March 31, 2012
INDEX
Part I - FINANCIAL INFORMATION |
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Item 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | |
| | |
| Condensed Consolidated Balance Sheets as March 31, 2012 (Unaudited) and June 30, 2011 | F-1 |
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| Condensed Consolidated (Unaudited) Statements of Operations and Comprehensive Loss for the three months and nine months ended March 31, 2012 and 2011 | F-2 |
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| Condensed Consolidated (Unaudited) Statement of Stockholders’ Equity for the nine months ended March 31, 2012 | F-3 |
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| Condensed Consolidated (Unaudited) Statements of Cash Flows for the nine months ended March 31, 2012 and 2011 | F-4 |
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| Notes to Condensed Consolidated Financial Statements | F-5 - F-9 |
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Item 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION | 3 |
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Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 4 |
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Item 4. | CONTROLS AND PROCEDURES | 4 |
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Part II | OTHER INFORMATION | |
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Item 1. | LEGAL PROCEEDINGS | 5 |
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Item 1 A. | RISK FACTORS | 5 |
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Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES | 5 |
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Item 3. | DEFAULTS UPON SENIOR SECURITIES | 5 |
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Item 4. | SUBMISSION OF MATTERS TO A VOTE | 5 |
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Item 5. | OTHER INFORMATION | 5 |
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Item 6. | EXHIBITS AND REPORTS ON FORM 8-K | 5 |
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| Signatures | 6 |
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| Certifications— pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. | |
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PART 1---FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY |
CONDENSED CONSOLIDATED BALANCE SHEETS |
|
ASSETS |
| | | | |
| | 3/31/12 | | 6/30/2011 |
| | (unaudited) | | (audited) |
| | (in thousands) |
CURRENT ASSETS | | | | |
Cash and cash equivalents | $ | - | $ | 0.6 |
Marketable securities | | 102.4 | | 120.2 |
TOTAL CURRENT ASSETS | | 102.4 | | 120.8 |
| | | | |
| | | | |
TOTAL ASSETS | $ | 102.4 | $ | 120.8 |
| | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
| | | | |
CURRENT LIABILITIES | | | | |
Accrued expenses and other liabilities | $ | 677.9 | $ | 603.6 |
Accrued interest | | 1,093.2 | | 937.0 |
Notes payable--related parties | | 808.1 | | 808.1 |
TOTAL CURRENT LIABILITIES | | 2,579.2 | | 2,348.7 |
| | | | |
| | | | |
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 March 31, 2012 and June 30 , 2011 | | 538.6 | | 538.6 |
Additional paid in capital | | 38,242.8 | | 38,242.8 |
Accumulated other comprehensive loss | | (2,620.6) | | (2,603.3) |
Accumulated deficit | | (40,029.8) | | (39,798.2) |
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | | (2,476.8) | | (2,227.9) |
| | | | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 102.4 | $ | 120.8 |
| | | | |
| | | | |
See accompanying Notes to Condensed Consolidated Financial Statements |
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS |
(Unaudited) |
| | | | | | | | |
| | For the Nine Months Ended March 31 , | | For the Three Months Ended March 31, |
| | 2012 | | 2011 | | 2012 | | 2011 |
| | (in thousands) | | (in thousands) |
| | | | | | | | |
REVENUE | $ | - | $ | - | $ | - | $ | - |
| | | | | | | | |
OPERATING EXPENSES | | | | | | | | |
General and administrative expenses | | 75.0 | | 45.0 | | 25.0 | | 15.0 |
| | | | | | | | |
(LOSS) FROM OPERATIONS | | (75.0) | | (45.0) | | (25.0) | | (15.0) |
| | | | | | | | |
OTHER INCOME (EXPENSE) | | | | | | | | |
Interest expense, net and other | | (156.2) | | (145.9) | | (52.1) | | (49.1) |
Realized losses on marketable securities available for sale | | (0.4) | | - | | - | | - |
| | | | | | | | |
TOTAL OTHER INCOME (EXPENSE) | | (156.6) | | (145.9) | | (52.1) | | (49.1) |
| | | | | | | | |
NET LOSS | | (231.6) | | (190.9) | | (77.1) | | (64.1) |
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UNDECLARED PREFERRED STOCK DIVIDENDS | | (109.1) | | (109.1) | | (36.4) | | (36.4) |
| | | | | | | | |
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS | $ | (340.7) | $ | (300.0) | $ | (113.5) | $ | (100.5) |
| | | | | | | | |
WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES | | | | | | | | |
FOR BASIC AND DILUTED EARNINGS PER SHARE | | 53,864.2 | | 53,864.2 | | 53,864.2 | | 53,864.2 |
| | | | | | | | |
EARNINGS PER COMMON SHARE | | | | | | | | |
Basic | $ | - | $ | - | $ | - | $ | - |
Diluted | $ | - | $ | - | $ | - | $ | - |
| | | | | | | | |
OTHER COMPREHENSIVE INCOME (LOSS) | | | | | | | | |
Unrealized gain (loss) on marketable securities | $ | (17.3) | $ | - | $ | (3.0) | $ | - |
Net loss | | (231.6) | | (190.9) | | (77.1) | | (64.1) |
TOTAL OTHER COMPREHENSIVE INCOME (LOSS) | $ | (248.9) | $ | (190.9) | $ | (80.1) | $ | (64.1) |
| | | | | | | | |
See accompanying Notes to Condensed Consolidated Financial Statements |
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY |
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY |
FOR THE NINE MONTHS ENDED MARCH 31, 2012 |
(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, 2011 (audited) | $ | 2.2 | $ | 990.0 | $ | 400.0 | $ | 538.6 | $ | 38,242.8 | $ | (2,603.3) | $ | (39,798.2) | $ | (2,227.9) |
Unrealized loss on investments | | | | | | | | | | | | (17.3) | | | | (17.3) |
Net loss | | | | | | | | | | | | | | (231.6) | | (231.6) |
Balance at March 31, 2012 (unaudited) | $ | 2.2 | $ | 990.0 | $ | 400.0 | $ | 538.6 | $ | 38,242.8 | $ | (2,620.6) | $ | (40,029.8) | $ | (2,476.8) |
See accompanying Notes to Condensed Consolidated Financial Statements |
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
FOR THE NINE MONTHS ENDED MARCH 31 |
|
| | 2012 (unaudited) | | 2011 (unaudited) |
| | (in thousands) |
| | | | |
CASH FLOWS FROM OPERATING ACTIVITES: | | | | |
Net loss | $ | (231.6) | $ | (190.9) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | |
Net realized losses on marketable securities | | 0.4 | | - |
Changes in assets and liabilities: | | | | |
Increase in accounts payable, accrued expenses and other liabilities | | 230.6 | | 190.9 |
NET CASH USED IN OPERATING ACTIVITIES | | (0.6) | | - |
CASH FLOWS FROM INVESTING ACTIVITES: | | | | |
Proceeds from sale of investments, net of purchases | | - | | - |
NET CASH PROVIDED BY INVESTING ACTIVITIES | | - | | - |
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 | $ | (0.6) | $ | - |
CASH AND EQUIVALENTS, beginning of period | | 0.6 | | 0.6 |
CASH AND EQUIVALENTS, end of period | $ | - | $ | 0.6 |
CASH PAYMENTS FOR: | | | | |
Interest expense | $ | - | $ | - |
Income taxes | $ | - | $ | - |
| | | | |
See accompanying Notes to Condensed Consolidated Financial Statements |
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
(dollars in thousands)
NOTE 1- BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of Digital Creative Development Corporation and its wholly owned subsidiary (collectively, the "Company").
The accompanying condensed consolidated financial statements as of March 31, 2012 and for the three months and nine months ended March 31, 2012 and 2011 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. The accompanying condensed consolidated balance sheet as of June 30, 2011 and other information as of June 30, 2011 have been derived from the Company's audited annual financial statements. These condensed consolidated financial statements do not include all disclosures provided in the Company's annual financial statements. The condensed consolidated financial statements should be read in conjunction with the condensed consolidated financial statements and notes thereto for the year ended June 30, 2011 contained in the Company's Form 10-K filed with the Securities and Exchange Commission. All adjustments of a normal recurring nature, which, in the opinion of management, are necessary to present a fair statement of results for the periods presented have been made. The results of operations for the three months and nine months ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year.
NOTE 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 $2,476.8 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 some or all of our investment in Broadcaster, Inc. shares,and/or raising additional equity,and / or obtaining forbearance of our debt holders. We intend to use our cash as well as other funds, to the extent that they are 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.
NOTE 3- PRINCIPLES OF CONSOLIDATION
The Company has no active business. However, the Company has been involved in acquiring and investing in software and high technology companies, with a focus on acquiring controlling interests and has entered into the software technology industry through the investment in International Microcomputer Software, Inc. (“IMSI”), (n/k/a Broadcaster, Inc). Since 1982, IMSI (n/k/a Broadcaster, Inc.) 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. Broadcaster, Inc. also operates an Internet entertainment network.
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
(dollars in thousands)
NOTE 4- MARKETABLE SECURITIES
The Company had investments and advances in certain marketable and non-marketable debt and equity securities at March 31, 2012 (unaudited) and June 30, 2011 (audited) as follows:
| 3/31/2012 | 6/30/2011 |
| (unaudited) | (audited) |
| | | | |
Broadcaster, Inc at cost | $ | 2,723.0 | $ | 2,723.5 |
Unrealized loss on marketble securities | | 2,620.6 | | 2,603.3 |
Access Propeller Holdings, Inc. - at cost | | 300.0 | | 300.0 |
Less: allowance for impairment | | (300.0) | | (300.0) |
| | | | |
| $ | 102.4 | $ | 120.2 |
Generally Accepted Accounting Principles in the United States (GAAP) includes a framework for measuring fair value and disclosing fair value measurements. 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 a principal market between 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 specifies a hierarchy of valuation techniques based on the extent to which the inputs to those valuation techniques are observable or unobservable. 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 to the overall fair value measurement.
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)
(dollars in thousands)
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. 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 the investments in our portfolio, the fair value of the investments must typically be determined using unobservable inputs.
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 March 31, 2012:
| | | Fair Value Measurements Using |
| Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | | | | |
Investments | | $ | 102.4 | | | $ | - | | | $ | 102.4 | | | $ | - |
| | | | | | | | | | | | | | | |
The following table presents changes in investments that use Level 2 inputs for the nine months ended March 31, 2012:
| Nine months ended |
| 31-Mar-12 |
| |
Balance as of June 30, 2011 | $ | 120.2 |
Net unrealized losses | | (17.3) |
Net purchases, sales or redemptions | | (0.5) |
Net transfers in and/or out of Level 2 | | - |
Balance as of March 31, 2012 | $ | 102.4 |
As of March 31, 2012, the net unrealized loss on the investments that use Level 2 inputs was $2,620.6
DIGITAL CREATIVE DEVELOPMENT CORPORATION AND SUBSIDIARY
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012
(unaudited)