Exhibit 10.36
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X .QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
.TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period __________ to __________
Commission File Number 000-53611
THE DIGITAL DEVELOPMENT GROUP CORP.
(Exact name of registrant as specified in its charter)
Nevada | 98-0515726 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
6630 West Sunset Blvd.
Los Angeles, CA 90028
(Address of principal executive offices)
1-800-783-3128
(Registrant’s telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes X . No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definition of “large accelerated filer”, “accelerated filer” and “small reporting company” 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 . No X .
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
May 28, 2014: 142,803,533 common shares.
FORWARD-LOOKING STATEMENTS
This Current Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements that involve risks and uncertainties. Forward-looking statements in this document include, among others, statements regarding our capital needs, business plans and expectations. Such forward-looking statements involve assumptions, risks and uncertainties regarding, among others, the success of our business plan, availability of funds, government regulations, operating costs, our ability to achieve significant revenues, our business model and products and other factors. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. In evaluating these statements, you should consider various factors, including the assumptions, risks and uncertainties set forth in reports and other documents we have filed with or furnished to the Securities and Exchange Commission (the “SEC”). These factors or any of them may cause our actual results to differ materially from any forward-looking statement made in this document. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding future events, our actual results will likely vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. The forward-looking statements in this document are made as of the date of this document and we do not intend or undertake to update any of the forward-looking statements to conform these statements to actual results, except as required by applicable law, including the securities laws of the United States.
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PART I. | FINANCIAL INFORMATION |
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ITEM 1. | Condensed Consolidated Financial Statements (unaudited) | 4 |
| Condensed Consolidated Balance Sheets as at March 31, 2014 (unaudited) and December 31, 2012 | 5 |
| Condensed Consolidated Statements of Operations For the three months ended March 31, 2014 and March 31, 2013 | 6 |
| Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 andMarch 31, 2013 | 7 |
| Notes to the Condensed Consolidated Financial Statements(unaudited) | 8 |
ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk | 21 |
ITEM 4. | Controls and Procedures | 21 |
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PART II. | OTHER INFORMATION |
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ITEM 1. | Legal Proceedings | 22 |
ITEM 1A. | Risk Factors | 23 |
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 32 |
ITEM 3. | Defaults Upon Senior Securities | 33 |
ITEM 4. | Mine Safety Disclosures | 33 |
ITEM 5. | Other Information | 33 |
ITEM 6. | Exhibits | 34 |
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| SIGNATURES. | 35 |
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PART I – FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
The accompanying condensed consolidated balance sheets of The Digital Development Group Corp. (formerly Regency Resources, Inc.) (a Pre-exploration stage company) at March 31, 2014 unaudited and the condensed statement of operations unaudited for the three months ended March 31, 2014 and for the period from January 25, 2012 (date of inception) to March 31, 2014 and the condensed statement of cash flows unaudited for the period from January 25, 2012 (date of inception) to March 31, 2014 have been prepared by the Company’s management in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
Operating results from January 25, 2012 (date of inception) to March 31, 2014 are not necessarily indicative of the results that can be expected for the year ending December 31, 2014.
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The Digital Development Group Corp. | ||||||
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CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
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| March 31, |
| December 31, |
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| 2014 |
| 2013 |
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| (unaudited) |
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ASSETS |
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| Current Assets |
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| Cash | $ | − | $ | 6,371 |
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| Prepaid expense |
| 249,424 |
| 217,287 |
| Total current assets |
| 249,424 |
| 223,658 | |
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| Debt issuance costs |
| 74,209 |
| 84,810 |
TOTAL ASSETS | $ | 323,633 | $ | 308,468 | ||
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LIABILITIES |
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| Current Liabilities |
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| Bank overdraft | $ | 6,027 | $ | − |
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| Accounts payable |
| 267,521 |
| 340,864 |
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| Accrued liabilities |
| 919,418 |
| 805,152 |
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| Related party note payable |
| 103,060 |
| 126,160 |
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| Notes payable, net of discount |
| 2,157,659 |
| 2,286,869 |
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| Derivative liability |
| 1,244,407 |
| 4,272,031 |
| Total current liabilities |
| 4,698,092 |
| 7,831,076 | |
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| Contingent liability (note 8) |
| 1,146,146 |
| 1,137,708 |
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TOTAL LIABILITIES |
| 5,844,238 |
| 8,968,784 | ||
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STOCKHOLDERS' DEFICIT |
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| Common stock, 500,000,000 shares authorized, par value $0.001, 106,340,371and 81,280,441 shares issued and outstanding |
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| 106,340 |
| 81,280 | |
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| Common stock subscribed |
| 120,000 |
| 45,000 |
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| Additional paid in capital |
| 4,739,877 |
| 3,369,583 |
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| Accumulated deficit |
| (10,486,822) |
| (12,156,179) |
| Total stockholders' deficit |
| (5,520,605) |
| (8,660,316) | |
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 323,633 | $ | 308,468 | ||
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. | ||||||
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The Digital Development Group Corp. | ||||||
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||
(Unaudited) | ||||||
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| For the three months ended | ||
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| March 31, 2014 |
| March 31, 2013 |
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Net revenue | $ | 25,837 | $ | 4,756 | ||
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Operating expenses |
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| General and administrative |
| 573,692 |
| 2,287,931 | |
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| Total operating expenses |
| 573,692 |
| 2,287,931 |
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| Operating loss |
| (547,855) |
| (2,283,175) | |
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Other (income) expenses |
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| Interest expense |
| 279,860 |
| 293,010 | |
| (Gain) loss on derivative liability |
| (2,497,072) |
| 564,061 | |
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| Total other (income) expenses |
| (2,217,212) |
| 857,071 |
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| Income/(loss) before income taxes |
| 1,669,357 |
| (3,140,246) | |
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Provision for income taxes |
| − |
| − | ||
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| Net Income/(loss) | $ | 1,669,357 | $ | (3,140,246) | |
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| Earnings per share - basic |
| 0.02 |
| (0.05) | |
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| Earnings per share - diluted |
| 0.01 |
| (0.05) | |
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| Weighted average shares outstanding - basic |
| 94,786,247 |
| 59,084,280 | |
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| Weighted average shares outstanding - diluted |
| 161,157,145 |
| 59,084,280 | |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. | ||||||
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The Digital Development Group Corp. | |||||
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
(Unaudited) | |||||
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| For the three months ended | ||
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| March 31, 2014 |
| March 31, 2013 |
Operating Activities |
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Net loss | $ | 1,669,357 | $ | (3,140,246) | |
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Adjustments to reconcile net loss to cash flows used in operating activities |
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| Depreciation & amortization expense |
| − |
| 23,422 |
| Stock based compensation |
| 78,888 |
| 778,007 |
| Shares issued for services |
| 295,875 |
| − |
| Interest expense - beneficial conversion features new note and discount amortization |
| 72,034 |
| 249,710 |
| Interest expense – noncash |
| 153,024 |
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| Interest expense - contingencies |
| 8,438 |
| 8,438 |
| Change in fair value of derivative liability |
| (2,497,072) |
| 564,061 |
| Amortization of debt issue costs |
| 10,601 |
| 10,601 |
Changes in operating assets and liabilities: |
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| − | |
| Prepaid expense |
| (32,137) |
| 60,999 |
| Accounts payable |
| (73,342) |
| 24,775 |
| Accrued liabilities |
| 117,266 |
| 1,025,372 |
Cash flows used in operating activities |
| (197,068) |
| (394,861) | |
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Investing Activities |
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| Purchase of intangible assets |
| − |
| (12,767) |
| Purchase of equipment |
| − |
| (5,723) |
Cash flows used in investing activities |
| − |
| (18,490) | |
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Financing Activities |
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| Bank overdraft |
| 6,027 |
| 2,724 |
| Proceeds from notes payable |
| 199,650 |
| 260,591 |
| Payments of notes payable |
| (68,879) |
| (20,695) |
| Related party note payable |
| (23,100) |
| 140,807 |
| Common stock subscription |
| 75,000 |
| − |
| Stock issued for cash |
| 2,000 |
| 31,199 |
Cash flows provided by financing activities |
| 190,698 |
| 414,626 | |
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Change in cash during period |
| (6,371) |
| 1,275 | |
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Cash, beginning of period |
| 6,371 |
| 831 | |
Cash, end of period | $ | − | $ | 2,106 | |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements | |||||
7
NOTES
1. – ORGANIZATION
Digital Development Group Corp. (the “Company”) (originally Regency Resources Inc.) was incorporated under the laws of the State of Nevada on December 11, 2006, with authorized capital stock of 200,000,000 shares at $0.001 par value. The Company was originally organized for the purpose of acquiring and developing mineral properties. Subsequent to a merger transaction described below, the Company ceased mineral exploration activities.
The Company entered into a binding letter of intent with Digitally Distributed Acquisition Corp., a Delaware corporation (“DDAC”), effective April 10, 2012 (the “LOI”), in connection with a proposed reverse acquisition transaction by and between the Company and DDAC whereby the Company acquired all of the shares of outstanding capital stock of DDAC in exchange for the issuance of a certain ownership interest in the Company to the shareholders of DDAC (the “Share Exchange”). DDAC is expected to have certain valuable products and intellectual property rights comprised of a web-based multi-tiered billing infrastructure and related to proprietary software and other means of syndicating and encoding media content that it will acquire from Digitally Distributed, LLC, (DDLLC), a Delaware limited liability company prior to or concurrently with the closing of the transaction.
On July 31, 2012, DDAC acquired from Digitally Distributed, LLC, a Delaware limited liability company ("DDLLC") (the “Merger”), certain tangible and intangible property including certain intellectual property related to a web-based multi-tiered billing infrastructure and to software and other means of syndicating and encoding media content, in exchange for the issuance by DDAC to DDLLC of 13,500,000 shares of DDAC common stock pursuant to a Subscription Agreement by and between DDAC and DDLLC dated July 31, 2012.
In accordance with the terms of Exchange Agreement, on the Closing Date, the Registrant issued 20,000,000 shares of its common stock to the Selling Shareholders in exchange for 100% of the issued and outstanding capital stock of DDAC (the "Exchange Transaction"). As a result of the Exchange Transaction, the Selling Shareholders acquired 21.39% of our issued and outstanding common stock, DDAC became our wholly-owned subsidiary, and the Registrant acquired the business and operations of DDAC.
The Company amended its Articles of Incorporation to change its name from Regency Resources, Inc. to the Digital Development Group Corp., effective May 2, 2012.
2. – REVERSE MERGER ACCOUNTING
The Merger was accounted for as a reverse-merger and recapitalization in accordance with generally accepted accounting principles in the United States (“GAAP”). DDAC is the acquirer for financial reporting purposes and Digital Development Group Corp. is the acquired company. DDAC was incorporated on January 25, 2012 (“Inception”). Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the Merger are those of DDAC from Inception and are recorded at the historical cost basis of DDAC, and the consolidated financial statements after completion of the Merger include the assets and liabilities of the Company and DDAC; and historical operations of DDAC and the Company since the closing date of the Merger. Common stock and the corresponding capital of the Company pre-merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the Merger. In conjunction with the Merger, DDAC received no cash and assumed no liabilities from Digital Development Group Corp.
3. – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements primarily reflect the financial position, results of operations and cash flows of the Company (as discussed above). The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) GAAP for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, these interim condensed financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or for any other period.
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Going Concern
The Company has minimal revenue and has incurred losses since its inception on January 25, 2012. The Company's continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and /or obtain additional financing from its stockholders and/or other third parties.
These unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. The continuation of the Company as a going concern is dependent upon financial support from its stockholders and the ability of the Company to obtain necessary equity financing to continue operations.
There is no assurance that the Company will ever be profitable. The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
Principles of Consolidation
The condensed consolidated balance sheets include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
In preparing these condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions included in the Company’s condensed consolidated financial statements relate to the estimated life of equipment, valuation of long-lived assets, accruals for potential liabilities and valuation assumptions related to share based payments and the derivative liability related to the convertible notes payable.
Revenue Recognition
Revenues are recognized on monthly basis when subscribers sign up for the services on the Company’s website.
Cash & Cash Equivalents
We consider cash equivalents with original maturities of 90 days or less to be cash equivalents. As of March 31, 2014 and December 31, 2013, we have no cash equivalents.
Fair Value of Financial Instruments
When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, we consider the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. We use the following three levels of inputs in determining the fair value of our assets and liabilities, focusing on the most observable inputs when available:
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Level 1 -Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
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Level 2 -Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
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Level 3 -Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable.
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To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement. The Company’s financial instruments include cash, prepaid expense and accrued liability. The estimated fair value of these instruments approximates its carrying amount due to the short maturity of these instruments.
Accounts Receivable Factoring
On October 1, 2013, the Company entered into an accounts receivable purchase agreement (the “Agreement”) with Summit Capital Investors, LLC (“Summit”), with an initial term of five years and renewing annually thereafter. The Company may obtain advances up to $300,000 from Summit and shall establish a separate merchant bank account in the name of Summit (the “Lockbox”) into which all of the Company’s monthly membership or accounts receivable shall be deposited. The funds in the lockbox account will be used to pay 120% of each advance received from Summit plus any other fees or costs. Total advances received from Summit through March 31, 2014 amounted to $120,000 and total accounts receivable deposited in the lockbox account amounted to $49,430. As of March 31, 2014 and December 31, 2013, the Company has payable related to this factoring agreement of $121,440 and $84,407, respectively, which was calculated based on 120% of advances received reduced by total accounts receivable deposited into the lockbox. All revenue from the Company will be paid directly into this bank account which is not under the Company’s ownership until the advances are paid off.
Income Taxes
The Company follows ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company’s deferred tax assets primarily consist of net operating loss carry-forwards and stock-based compensation. However, the Company established a full valuation allowance for these deferred tax assets as the Company has determined that it is more likely than not to fully realize these deferred tax assets prior to their expiration.
Stock Based Compensation
We may periodically grant stock or stock options and issue warrants to employees and non-employees in non-capital raising transactions for services rendered and to obtain financing. We account for stock option grants and warrant issuance to employees based on Financial Accounting Standards Board (FASB) ASC Topic 718, “Compensation – Stock Compensation”, whereas the award is measured at its fair value at the date of grant and is amortized ratably over the vesting period. We account for stock option grants and warrant issued to non-employees in accordance with ASC Topic 505, “Equity”, whereas the value of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.
Earnings per Share
The Company computes net income per share in accordance with ASC 260, "Earnings per Share". ASC 260 requires presentation of both basic and diluted earnings (loss) per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. As of March 31, 2014, diluted EPS gives effect to all dilutive potential common shares outstanding during the period including 9,809,200 stock options and warrants, using the treasury stock method, and 56,561,698 shares for convertible loan notes, using the if-converted method In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive.
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Recent Accounting Pronouncements
Adopted
In February 2013, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. The objective of the amendments in this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for those obligations addressed within existing guidance in U.S. GAAP. The amendment requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and an additional amount the reporting entity expects to pay on behalf of its co-obligors. The entity is required to disclose the nature and amount of the obligation as well as other information about those obligations. The Company adopted this ASU as of January 1, 2014. This adoption did not have an effect on our financial statements.
On July 18, 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. Topic 740 does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The objective of the amendments in this update is to eliminate that diversity in practice. The Company adopted this ASU as of January 1, 2014. This ASU did not have an effect on our financial statements.
Not Adopted
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to reduce diversity in practice for reporting discontinued operations. Under the previous guidance, any component of an entity that was a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group was eligible for discontinued operations presentation. The revised guidance only allows disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The updated guidance is effective for periods beginning after December 15, 2014.
Other recent pronouncements issued by FASB (including its Emerging Task Force), the American Institute of Certified Public Accountants, and the United States Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
4. – PREPAID EXPENSES
The components of prepaid expense were as follows:
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| March 31, 2014 |
| December 31, 2013 |
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Prepaid services | $ | 1,217 | $ | 1,218 |
Royalties advance |
| 248,207 |
| 216,069 |
Total prepaid expense | $ | 249,424 | $ | 217,287 |
5. – OTHER ASSETS
The Company recorded an amount of $127,214 debt issuance cost as other assets from the issuance of a convertible promissory note payable to Stuart Subotnik of $240,000; and will be amortized over the term of the note to interest expense. Amortization expense for the three months ended March 31, 2014 and 2013 amounted to $10,601. The balance of debt issuance costs as of March 31, 2014 and December 31, 2013 are $74,209 and $84,810, respectively.
11
6. – NOTES PAYABLE, NET
Notes payable consisted of the following:
|
| March 31, 2014 |
| December 31, 2013 |
|
| (unaudited) |
|
|
|
|
|
|
|
Convertible notes payable to Coventry Capital, LLC, net of discount | $ | 810,000 | $ | 960,000 |
Convertible note payable to Stuart Subotnik, net of discount |
| 263,801 |
| 247,201 |
Asher Enterprises |
| 183,000 |
| 183,000 |
Note payable to QuickLoan Funding |
| 37,573 |
| 65,010 |
Notes payable to Charlie Sheen |
| 510,000 |
| 510,000 |
Convertible note payable to Tonaquint, net of discount |
| 43,590 |
| 81,614 |
Other notes payable, net of discount |
| 309,695 |
| 240,044 |
|
|
|
|
|
Total notes payable, net of discount | $ | 2,157,659 | $ | 2,286,869 |
Coventry Capital, LLC Notes
During 2012, the Company issued a total of $950,000 convertible notes payable to Coventry Capital, LLC. These convertible promissory notes are payable on demand and carried an interest rate of 1% per month (simple interest), until the closing of the voluntary share exchange transaction contemplated under the letter of intent. Thereafter, the interest rate shall adjust to 3% per year, simple interest. Upon closing of the voluntary share exchange transaction contemplated under the letter of intent, the unpaid principal and any accrued and unpaid interest shall be immediately due and payable upon written demand by the holder at any time.
At any time on or before the maturity date, the holder, at its sole discretion may elect to have all or part of the principal and the accrued and unpaid interest thereon, converted into a number of shares of common stock of the Company determined by dividing (i) the unpaid principal and any accrued and unpaid interest thereon, as of the conversion date, by (ii) the lower of (a) the price per share at which shares of capital stock of the Company are sold in any financing, or (b) $0.50 per share. A "financing" means the sale of shares of capital stock of the Company occurring within twenty four (24) months after the closing.
The embedded conversion feature of these notes was recorded as a derivative liability due to the down-round protection of the conversion price. The Company recorded a debt discount of $714,077, representing the value of the embedded conversion feature. The Company recognized $0 and $178,819 of interest expense for the amortization of the discount during the three months ended March 31, 2014 and 2013, respectively.
In January 2013, the Company borrowed an additional $10,000 from Coventry Capital, LLC.
On January 27, 2014, The Company entered into a Debt Conversion Agreement with Cemblance LTD (“Cemblance”) pursuant to which the Company and Cemblance agreed to convert $150,000 of outstanding Company debt due to Coventry Capital LLC, which Cemblance is the assignee, into 4,000,000 shares of Company common stock.
Stuart Subotnik Notes
On September 10, 2012, the Company issued a $240,000 convertible note payable to Stuart Subotnik. This note was issued with 800,000 warrants and exercisable into the Company’s common stock. The warrants have a three year term and the exercise price is $0.30. The embedded conversion feature of this note and related warrants was recorded as a derivative liability due to the down-round protection of the conversion prices. The Company recorded a debt discount of $118,619, representing the value of the embedded conversion feature and additional debt discount of $121,381 for the fair value of the warrants. The Company recognized $16,600 of interest expense for the amortization of the discount during the three months ended March 31, 2014 and 2013.
This convertible promissory note and accrued and unpaid interest are payable upon the earlier of i) at any time after three year anniversary of the issue date of this note at the written request of the holder to the company or ii) when, upon or after the occurrence of an event of default. The note carries an interest rate of 8% per annum (simple interest).
12
At any time on or before the maturity date, the holder, at its sole discretion may elect to have all or part of the principal and the accrued and unpaid interest thereon, converted into a number of shares of common stock of the Company. The conversion price is $0.30 per share. At any time which the volume weighted average pricing “VWAP” for the common stock is $1.00 or greater for a period of twenty consecutive trading days, then at the election of the Company in its sole discretion may elect to convert all of the outstanding amount of principal and accrued interest into shares of the common stock at $1.00 per share.
During October and November 2012, the Company issued additional notes payable to Mr. Subotnik in the aggregate amount of $140,000. These notes accrue interest at rates ranging from 8% to 12% and are due by November 2013. The Company is currently in default of these $140,000 notes payable because the principal balance and accrued interest are not paid on the due date.
QuickLoan Funding
On March 13, 2013, The Company, entered into a Convertible Promissory Note (the “Convertible Promissory Note”) with QuickLoan Funding, an accredited lender (the “Lender”). Under the terms of the Promissory Note, the Lender paid $110,000 to the Company upon execution of the Convertible Promissory Note, and the Lender may fund additional amounts in such amounts and at such dates as the Lender may choose in its sole discretion, up to an additional $150,000 above the initial $110,000 funded. Thereafter, the Lender may provide additional amounts only by mutual agreement with the Company, up to a total principal sum of $400,000. All amounts advanced by Lender are subject to a 10% original issue discount such that the total amount funded to the Company would be $360,000 if the Lender advances all funds under the Convertible Promissory Note. The maturity date is one year from the effective date of each payment by the Lender, and all outstanding principal and interest is due and payable by the Company on the maturity date. If the Company repays the Note in full within the first ninety days after the effective date, then the interest rate is zero percent. If the Company does not repay the Note in full within the first 90 days after the effective date, then a one-time interest charge of twelve percent shall be applied to the unpaid principal.
During the three months ended March 31, 2014, QuickLoan Funding converted $55,160 of their notes into 3,233,333 shares of the Company’s common stock. In addition, the Company used the proceed it received from the sale of shares of its common stock to pay $68,879 in principal due to QuickLoan Funding.
In the three months ended March 31, 2014, the Company received additional $55,000 from the lender.
During the three months ended March 31, 2014, the Company executed an agreement with an investor to issue 5,000,000 shares of the Company’s common stock valued at $75,000 and in return the investor will pay $68,879 of the outstanding debt of Quickloan. As of March 31, 2014, these 5,000,000 shares were not issued and accordingly the $75,000 was recorded as stock subscription. Additionally, during the three months ended March 31, 2014, Quickloan converted $55,160 of their notes into 3,233,333 shares of the Company’s common stock.
The Lender has the right, at any time from 180 days after the effective date, at its election, to convert all or part of the outstanding and unpaid principal and accrued interest under the Convertible Promissory Note into shares of Company common stock at the conversion price. The conversion price is the lesser of $0.20 per share, or 60% of the lowest trade price of the Company’s common stock in the 25 trading days prior to the date of conversion. The Lender also has piggyback registration rights to have the shares it would receive upon conversion of the Promissory Note included within the next registration statement which the Company may file with the Securities and Exchange Commission.
Charlie Sheen
On April 16, 2013, the Company executed a Promissory Note (the “Promissory Note”) in favor of celebrity actor, Charlie Sheen, pursuant to which Charlie Sheen has loaned the Company $150,000. Under the terms of the Promissory Note, the principal accrues interest at the rate of 6% per annum and is due and payable on April 10, 2015, with interest only payments of $750 per month to commence on November 1, 2013. During the three months ended September 30, 2013, the Company borrowed an additional $390,000 from Mr. Sheen and repaid $2,500 to Mr. Sheen under the same terms as the Promissory Note.
Tonaquint Convertible note
On April 3, 2013, the Company, entered into a Securities Purchase Agreement, Secured Convertible Promissory Note, Security Agreement, Warrant, Deed of Trust, Deed of Trust Notes, Confession of Judgment and ancillary agreements (the “Financing Documents”) with Tonaquint, Inc., (the “Buyer”).
13
Under the terms of the Financing Documents, the Buyer entered into the Secured Convertible Promissory Note in the principal amount of $340,000.00 (the “Note”). The Company is obligated to commence repayment of the Note on the 180 th day after the Note issuance date by making monthly installments of $28,333. Provided certain equity conditions are met, the Company may repay the monthly installment payments through the issuance of Company common stock at the market price (the “Market Price”) which means 60% of the arithmetic average of the three (3) lowest volume weighted average pricing “VWAP” of the shares of Common Stock during the twenty (20) consecutive trading day period immediately preceding the date of repayment. Additionally, if the Company pays the installment payment in Company common stock, then 23 days following the installment payment date the Buyer shall receive additional shares of Company common stock if the Market Price on the 23 rd day is less than the Market Price on the installment payment date. The entire outstanding balance under the Note is due and payable 17 months after the date of issuance. The Note bears interest at the rate of eight percent (8%) per annum, provided that upon the occurrence of an event of default, interest shall accrue on the outstanding balance both before and after judgment at the rate of twenty-two percent (22%) per annum. The Note carries an original issue discount of $30,000. In addition, the Company agreed to pay $10,000 to the Buyer to cover the Buyer’s legal fees, accounting costs, due diligence, monitoring and other transaction costs, all of which amount is included in the initial principal balance of the Note.
In consideration for the Note, the Buyer paid the Company (i) $100,000, and (ii) issued to the Company two Buyer Deed of Trust Notes in the amount of $100,000 each, one which will be prepaid by Buyer within 2 months and 4 months, respectively, of April 3, 2013 provided that an equity conditions failure has not occurred under the Note. The Note is secured by a Security Agreement executed by the Company and listing the Buyer Deed of Trust Notes as security for the Company’s obligations under the Financing Documents (the “Security Agreement”). Each of the Buyer Deed of Trust Notes is secured by a Deed of Trust (the “Deed of Trust”). The outstanding balance under the Note may be converted by the Buyer at any time into shares of Company common stock at the rate of $0.20 per share (the “Conversion Price”), subject to adjustment in the event of certain issuances of variable price or unrestricted securities by the Company after the date of the Note. Upon an event of default, the outstanding balance under the Note shall increase to 135% and will be immediately due and payable, and the Buyer may convert the outstanding balance into shares of Company common stock at the lower of the Conversion Price then in effect and the Market Price.
The Company also issued Buyer a warrant to purchase up to 1,400,000 shares of Company common stock at an exercise price of $0.20 per share, subject to adjustment in the event of certain issuances of variable price and unrestricted securities by the Company after the date of the Note. The Warrants may be exercised for a term of 5 years and have a “cashless exercise” provision.
The embedded conversion feature of this note and related warrants was recorded as a derivative liability due to the down-round protection of the conversion prices. The Company recorded a total debt discount of $111,412 representing the value of the embedded conversion feature of $23,804, additional debt discount of $47,608 for the fair value of the warrants, and $40,000 original issue discount and fees. The Company recognized $6,317 and $0 of interest expense for the amortization of the discount during the three months ended March 31, 2014 and 2013, respectively.
During the three months ended March 31, 2014, Tonaquint converted $51,855 of their notes into 7,947,964 shares of the Company’s common stock.
Asher Enterprises Note
During 2013 the Company entered into several Note Purchase Agreement and Convertible Promissory Note with Asher Enterprises, Inc. pursuant to which Asher purchased a $183,000 Convertible Promissory Note (the “Asher Notes”). The Asher Notes accrues interest at the rate of 8% per annum; is due and payable in several dates in 2014; and may be converted by Asher at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 60% of the market price (as determined in the Asher Note) calculated at the time of conversion. The Asher Note Purchase Agreement and Note also contain certain representations, warranties, covenants and events of default. The Company is in default in this note because the Company did not file the 10-Q on time according to SEC filing requirements.
During the three months ended March 31, 2013, Asher Notes in the amount of $128,000 became convertible. The embedded conversion feature of these Asher Notes was recorded as a derivative liability due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The Company recorded an interest expense of $149,424 representing the value of the embedded conversion feature.
During the three months ended March 31, 2014, Asher Notes in the amount of $75,000 in principal, along with $3,000 of accrued interest, where converted into 3,347,077 shares of the Company’s common stock.
14
In addition, during the three months ended March 31, 2014, the Company entered into two additional notes with Asher Enterprises for a total of $75,000. The notes accrue interest at the rate of 8% per annum; are due and payable in the first quarter of 2015; and may be converted by Asher at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 60% of the market price (as determined in the Asher Note) calculated at the time of conversion.
Other Notes Payable
During the three months ended March 31, 2014, the Company borrowed a net total of $69,650 from several individuals under notes payable.
Related Party Note Payable
Effective January 30, 2013, the Company entered into a Promissory Note with Martin W. Greenwald, the Company’s Chief Executive Officer, pursuant to which Mr. Greenwald has agreed to loan the Company up to $250,000 to fund Company operations. The Promissory Note provides that Mr. Greenwald may advance funds to the Company from to time to time, up to the amount of $250,000. The amounts advanced shall be due within one year from the date of the promissory note and shall accrue interest at 3% per annum. The Company has $103,060 and 126,160 outstanding under the loan agreement as March 31, 2014 and December 31, 2013.
7. – DERIVATIVE LIABILITY
The following table represents the Company’s derivative liability activity for both the embedded conversion features and the warrants for the three months ended March 31, 2014:
|
| Amount |
|
|
|
Derivative Liability balance, January 1, 2014 | $ | 4,272,031 |
Issuance of derivative financial instrument in 2014 |
| 153,024 |
Conversion of debt in 2014 |
| (683,576) |
Change in FMV of derivative liability |
| (2,497,072) |
|
|
|
Derivative liability balance, March 31, 2014 (Unaudited) | $ | 1,244,407 |
8. – COMMITMENTS AND CONTINGENCIES
Contingent liability
On December 19, 2011, DDLLC entered into two promissory notes with an accredited investor pursuant to which the Company issued two 14% convertible promissory notes (the "Notes") to advance of up to $280,000 to the Company. As of this date, the Company has only received $118,000 of the agreed to $280,000.
The Notes were offered and sold in reliance on the exemption from registration afforded by Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended. The Notes have a six-month term due June 16, 2012, and are convertible by the holder into Common Stock of a contemplated merger or acquisition and a subsequent newly formed company ("Acquireco") at a price of $0.10 per share. The Company may prepay all or a portion of the outstanding principal and interest under the Notes upon 10 days' written notice without penalty. The amount due under the Notes will become immediately due and payable if the Company fails to pay unpaid principal on the maturity date of June 16, 2012, any representation or warranty made by the Company is false, incorrect, incomplete or misleading, or the Company dissolves, liquidates, ceases operations, is unable to pay its debts when due, a receiver or trustee is appointed or bankruptcy proceedings are instituted. While any amount of the Note is outstanding, the borrower is obligated to the covenants of (i) paying no dividends.
The Company is in default of these notes because it did not repay principal and accrued interest on the maturity date of June 16, 2012. Due to the default provisions of the Note, the Company will begin accruing interest at the default rate of 29% per annum from the maturity date going forward. In July 2012, the Company tried to begin negotiations with the investor; however, it has been unsuccessful in contacting the investor to date. The Company has recorded a contingent liability of $186,146 as of March 31, 2014, to reflect the obligation that it believes it owes to investor. The investor is claiming that the Company owes an additional $162,000 plus accrued interest but the Company never received the additional funds as described under the Notes and intends to defend against any position that the investor takes pertaining to the additional $162,000. The Company has treated this matter as a contingent liability because at this time the Company is uncertain as to how and when this matter will be resolved. The Company believes it has accrued its estimate in the condensed consolidated financial statements of the most likely amount to be settled with the investor.
15
Ironridge
Effective December 19, 2012, the Company terminated the Securities Purchase Agreement, Registration Rights Agreement and Debenture dated November 6, 2012 (the “Financing Documents”) with Ironridge Media Co., a division of Ironridge Global IV, Ltd. (“Ironridge”), for the sale of up to $3,000,000 of Convertible Subordinated Debentures and Series A Preferred Stock. On January 11, 2013, Ironridge submitted a claim with JAMS, Inc. in Santa Monica, California for binding arbitration under the Financing Documents and requested that it be awarded damages relating to the termination of the Financing Documents. The Company submitted counter-claims in the JAMS arbitration claiming that it was fraudulently induced to enter into the Financing Documents, and that a fully performed oral stock purchase agreement caused the Financing Documents to be abandoned by the parties, justifying rescission of the financing documents. In May 2013, the Arbitrator in the JAMS arbitration announced an interim award to Ironridge shall recover from the Company in the amount of $850,000 plus attorney fees and costs. On July 10, 2013, the Arbitrator made the interim award final, and awarded Ironridge an additional $110,168 in attorneys’ fees and costs. The Company does not have adequate cash to pay the final arbitration award. The judgment resulting from the arbitration award would adversely affect the business, future operations and the financial condition of the Company, and may cause the Company to default under its existing loan obligations which would provide the lenders with the right for immediate repayment. The Company recorded an accrual of $960,000 under contingent liability in the accompanying condensed consolidated balance sheet as of March 31, 2014 and December 31, 2013 related to this case.
Sheen Agreement
On March 25, 2013, the Company entered into an Agreement with celebrity actor, Charlie Sheen, pursuant to which he has agreed to work with the Company to develop and promote his own channel and original content, and to promote and endorse the Company and its channels through various media. Under the terms of the Agreement, Mr. Sheen’s involvement with the Company is to include his creation of original content; his promotion and endorsement of the Company’s channels and the creation and promotion of the Charlie Sheen Channel; his personal appearances; the use of Mr. Sheen’s name, voice and likeness for promotional purposes; and the promotion of the Company and its channels across social media, including postings on Facebook and Twitter. The Agreement has a term of twelve months, unless extended as provided in the Agreement.
In consideration for his services, the Company has agreed to pay Charlie Sheen a $300,000 fee payable in installments. In addition, the Company has agreed to pay Mr. Sheen a percentage of Company gross revenues generated by the distribution and sale of original programming featuring Mr. Sheen and his affiliates, including gross revenues from the Charlie Sheen Channel and other pay per view events and episodes. In consideration of Mr. Sheen’s obligations, the Company has also agreed to issue to Mr. Sheen options to purchase up to seven million shares of the Company’s common stock as follows: options to purchase one million shares of the Company’s common stock vested upon the date of the Agreement, and options to purchase the remaining six million shares of the Company’s common stock shall vest in equal installments of one million shares every six months after the date of the Agreement, each exercisable at an exercise price of $0.10 per share. The Company and Charlie Sheen are in mutual dispute with regards to this agreement.
Operating lease
The Company leases office space under an operating lease, which began on July 1, 2012 and expires on November 15, 2013. The average rental payment including utilities and operating expenses for the facility is approximately $5,935 per month. Rent expense for the periods ended March 31, 2014 and 2013 amounted to $23,335 and $16,505, respectively.
9. – COMMON STOCK
From January 1, 2014 to March 31, 2014, the Company issued 6,475,000 common shares for services provided valued at $295,875 and was recorded as stock based compensation, 56,556 common shares for cash valued at $2,000, 18,528,374 common shares upon conversion of notes payable valued at $335,015.
During the quarter ended March 31, 2014, the Company has received $75,000 in stock subscription for the purchase of 5,000,000 of its common stock.
10. – STOCK-BASED COMPENSATION
On January 3, 2013, our board of directors approved the adoption of The Digital Development Group Corp. 2013 Equity Incentive Plan (the "2013 Plan”). The 2013 Plan is intended to aid the Company in recruiting and retaining key employees, directors or consultants and to motivate them by providing incentives through the granting of awards of stock options or other stock-based awards. The 2013 Plan is administered by the board of directors. Directors, officers, employees and consultants of the Company and its affiliates are eligible to participate under the 2013 Plan.
16
Effective January 30, 2013, the Company approved the re-pricing of all of the 3,370,000 previously granted options under the Company’s 2012 Equity Incentive Plan from $0.451 per share to $0.11 per share. All of the other terms of the options remained unchanged. The fair value of the these options after re-pricing was lower than the fair value before re-pricing and accordingly the Company will continue to amortize the original fair value over the remaining vesting period in accordance with US GAAP.
On January 30, 2013, the Company granted a total of 950,000 options to employees under the 2012 Plan. The options have an exercise price of $0.11 per share; 400,000 of the options vested immediately and the remaining 550,000 options vest 1/12 monthly over a period of one year, and vest immediately upon a change of control of the Company; and have a 10 year term.
On March 25, 2013 and in connection with the Sheen Agreement, the Company has agreed to issue to Mr. Sheen options to purchase up to seven million shares of the Company’s common stock as follows: options to purchase one million shares of the Company’s common stock vested upon the date of the Agreement, and options to purchase the remaining six million shares of the Company’s common stock shall vest in equal installments of one million shares every six months after the date of the Agreement, each exercisable at an exercise price of $0.10 per share and have a 5 year term.
The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions in the following table. The expected volatility is based on the daily historical volatility of comparative companies, measured over the expected term of the option. The risk-free rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.
The following assumptions were used to determine the fair value of the options at date of grant:
Expected volatility (%) |
| 95%-109% |
|
|
|
Risk free rate |
| 0.27%-0.38% |
Expected term |
| 2-3 years |
|
|
|
Dividend yield |
| 0% |
Total stock-based compensation expense included in general and administrative expense for the period from January 1, 2014 to March 31, 2014 was $78,888.
As of March 31, 2014, there was $270,893 of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted average period of 5.72 years. The Company’s current practice is to issue new shares to satisfy option exercises. Compensation expense for all stock-based compensation awards is recognized using the straight-line method.
A summary of stock option activity is as follows:
|
|
|
| Weighted- |
| Average |
|
|
|
|
|
| Average |
| Remaining |
| Aggregate |
|
|
|
| Exercise |
| Contractual |
| Intrinsic |
|
| Options |
| Price |
| Life (Years) |
| Value |
Outstanding at December 31, 2013 |
| 11,320,000 | $ | 0.10 |
| 5.97 | $ | − |
Granted |
| − |
| − |
| − |
| − |
Exercised |
| − |
| − |
| − |
| − |
Forfeited or expired |
| − |
| − |
| − |
| − |
Outstanding at March 31, 2014 |
| 11,320,000 | $ | 0.10 |
| 5.72 | $ | − |
Exercisable at March 31, 2014 |
| 6,774,167 | $ | 0.10 |
| 6.75 | $ | − |
17
11. – SUBSEQUENT EVENTS
On April 2, 2014, the Company entered into a Convertible Promissory Note with Coventry Enterprises LLC (“Coventry”) in the original principal amount of $50,000 (the “Note”). The Note bears interest at the rate of 10% per annum; is due and payable twelve months after the date of issuance; and may be converted by Coventry at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 60% of the market price (as determined in the Note) calculated at the time of conversion. The foregoing is only a brief description of the material terms of the Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor.
On May 7, 2014, the Company entered into a Convertible Promissory Note with Vista Capital Investments, LLC (“Vista”) in the original principal amount of $150,000 (the “Note”), pursuant to which Vista funded $50,000. The Note has a one time interest charge of 12%; is due and payable one year after the date of issuance; and may be converted by Vista at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 60% of the market price (as determined in the Note) calculated at the time of conversion. The Note also contains certain representations, warranties, covenants and events of default, and is collateralized by the issuance of 20,000,000 shares of Company common stock. The foregoing is only a brief description of the material terms of the Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor.
On May 9, 2014, the Company entered into a Convertible Promissory Note with LG Capital Funding LLC (“LG”) in the original principal amount of $26,500 (the “Note”). The Note bears interest at the rate of 8% per annum; is due and payable twelve months after the date of issuance; and may be converted by LG at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 55% of the market price (as determined in the Note) calculated at the time of conversion. The foregoing is only a brief description of the material terms of the Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor.
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On May 9, 2014, the Company entered into a Convertible Promissory Note with KBM Worldwide, Inc. (“KBM”) in the original principal amount of $29,500 (the “Note”). The Note bears interest at the rate of 8% per annum; is due and payable on February 12, 2015; and may be converted by KBM at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 55% of the market price (as determined in the Note) calculated at the time of conversion. The foregoing is only a brief description of the material terms of the Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor.
On May 12, 2014, the Company entered into Securities Purchase Agreement with Union Capital LLC (“Union”) pursuant to which the Company issued three convertible promissory notes in the aggregate principal amount of $90,000 (the “Notes”), pursuant to which Union funded $30,000 (less discounts and fees). The Notes accrue interest at the rate of 10% per annum; are due and payable 12 months after their date of issuance; and may be converted by Union at any time into shares of Company common stock at a conversion price equal to 56% of the market price (as determined in the Note) calculated at the time of conversion. The Securities Purchase Agreement and Notes also contain certain representations, warranties, covenants and events of default. The foregoing is only a brief description of the material terms of the Securities Purchase Agreement and Notes, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor.
On May 12, 2014, the Company entered into an Exchange Agreement with Tonaquint, Inc. (“Tonaquint”) pursuant to which the Company exchanged a previously issued warrant for a Convertible Promissory Note in the principal amount of $285,000 (the “Note”). The Note accrues interest at the rate of 8% per annum; is due and payable 17 months after the date of issuance; and may be converted by Tonaquint at any time into shares of Company common stock at a conversion price equal to 90% of the market price (as determined in the Note) calculated at the time of conversion, up to $28,000 per month. The Note Purchase Agreement and Note also contain certain representations, warranties, covenants and events of default. The foregoing is only a brief description of the material terms of the Exchange Agreement and Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor.
On May 21, 2014, the Company entered into a Common Stock Purchase Agreement with St. George Investments, LLC pursuant to which the Company sold 8,421,053 shares of Company common stock for $160,000. The issuance of the shares was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the shares was an accredited investor.
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information contained in the financial statements of The Digital Development Group Corp. (“Digital” or the “Company”) and the notes which form an integral part of the financial statements which are attached hereto. The financial statements mentioned above have been prepared in conformity with accounting principles generally accepted in the United States of America and are stated in United States dollars.
Overview of Business
The Company develops technologies that provide content owners distribution capabilities across multiple platforms using existing internet protocol (“IP”) services. The Company’s technology and assets are focused on the opportunity presented by over-the-top (“OTT”) home entertainment media, which targets DVD players, video game consoles, Smart TVs and stand-alone internet connected devices which delivers content such as Video-on-Demand services by connecting to users’ IP services. The Company’s technology is intended to help content owners distribute and monetize their products by delivery to OTT devices. As of the date of this report, the Company has launched 30 channels on the Roku Channel Store, including Media Blasters, Cinema Libre Studio, Kontakt TV, Something Weird, Synapse Films, Sci-Fi Station, Silent Era Films, and G2R Media. The Company plans to launch additional channels. Our business is based in Hollywood, California.
The Company commenced generating revenues from monthly subscribers during March 2013. As of the date of this report, the Company has approximately 2,800 monthly subscribers.
Overview of Business Prior to July 31, 2012
The Company was originally incorporated under the laws of the State of Nevada on December 11, 2006 under the name of Regency Resources Inc. (“Regency”). The Company amended its Articles of Incorporation to change its name from Regency Resources, Inc. to The Digital Development Group Corp. effective May 2, 2012. Our fiscal year end is December 31. Our executive offices are located at 6630 West Sunset Blvd. Los Angeles, CA, 90028.
The Company was a pre-exploration stage company engaged in the acquisition and exploration of mineral properties. On July 31, 2012 (the “Closing Date”), the Company closed a voluntary share exchange transaction with DDAC and the shareholders of DDAC (the “Selling Shareholders”) pursuant to a Share Exchange Agreement dated July 31, 2012 (the “Exchange Agreement”) by and among the Company, DDAC, and the Selling Shareholders. In accordance with the terms of Exchange Agreement, on the Closing Date, the Company issued 20,000,000 shares of its common stock to the Selling Shareholders in exchange for 100% of the issued and outstanding capital stock of DDAC (the “Exchange Transaction”). As a result of the Exchange Transaction, the Selling Shareholders acquired 21.93% of the Company’s issued and outstanding common stock, DDAC became a wholly-owned subsidiary of the Company, and the Company acquired the business and operations of DDAC.
Results For Three and Nine Months Ended March 31, 2014 and 2013
Net revenue for the three months ended March 31, 2014 and March 31, 2013 was $25,837 and $4,756 respectively.
Selling, general and operating expenses (S,G&A)
S,G&A for the three months ended March 31, 2014 was $573,692, compared to $2,287,931 for the three months ended March 31, 2013. S,G&A for the three months ended March 31, 2014 mainly consisted of approximately $403,263 for share based compensation, $18,365 for rent expense, $43,943 in product development, $43,481 in professional fees and the remainder for daily operating expense for the Company.
Interest expense
Interest expense totaled $279,860 during the three months ended March 31, 2014, compared to $293,010 during the three months ended March 31, 2013. Interest expense was primarily the result of amounts accrued and debt discount amortized under notes payable.
Change in derivative liability
The derivative liability gain totaled $2,497,072 during the three months ended March 31, 2014. The change was mainly related to the decrease in fair value of the derivative liability which was the result of the change in our stock prices.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2014, we had cash of $0 and working capital deficit of $4,448,668. The Company issued a total of $199,650 in note payables for the three months ended March 31, 2014.
For the three months ended March 31, 2014, net cash used in operations was $197,068. The use was primarily due to net operating losses of approximately $547,855 and offset by non-cash expense of about $2,217,212 and a net change in operating assets and liabilities of additional $11,787 from daily operating expenses. .
To date, we have financed our operations through the issuance of common stock and securities convertible into common stock. Given estimates of our Company’s future operating results, we are currently forecasting that we will need to secure additional financing to obtain adequate financial resources to reach profitability. As of the date of this report, we estimate that the cash necessary to implement our current business plan for the next twelve months is approximately $1,200,000.00. However, we cannot provide any assurances that we will be able to raise additional funds to meet our cash needs; that the cash required to implement our current plan will not exceed our estimated amount of cash necessary; or that we can achieve profitability with the estimated amounts we determined above, or that we will ever achieve profitability. We also cannot provide any assurances that we will be able to receive additional funds under our production line of credit.
Based on our need to raise additional funds to implement our business plans for the next twelve months, we have included a discussion concerning the presentation of our financial statements on a going concern basis in the notes to our financial statements and our independent public accountants have included a similar discussion in their opinion on our financial statements through December 31, 2013. We will be required in the near future to issue debt or sell our Company’s equity securities in order to raise additional cash, although there are no firm arrangements in place for any such financing at this time. We cannot provide any assurances as to whether we will be able to secure the necessary financing, or the terms of any such financing transaction if one were to occur. The failure to secure such financing could severely curtail our plans for future growth or in more severe scenarios, the continued operations of our Company.
Off-balance Sheet Arrangements
We have no off-balance sheet.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (who is our Principal Executive Officer) who is also our Chief Financial Officer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of March 31, 2014, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Principal Executive Officer who is also our Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2014 in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s (the “SEC”) rules and forms. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.
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In performing the above-referenced assessment, our management identified the following material weaknesses:
i)
As of March 31, 2014, the Company did not have a separate functioning audit committee.
ii)
Due to the significant number and magnitude of out-of-period adjustments identified during the year- end closing process, management has concluded that the controls over the period-end financial reporting process were not operating effectively. A material weakness in the period-end financial reporting process could result in us not being able to meet our regulatory filing deadlines and, if not remedied, has the potential to cause a material misstatement or to miss a filing deadline in the future. Management override of existing controls is possible given the small size of the organization and lack of personnel.
iii)
There is no system in place to review and monitor internal control over financial reporting. The Company maintains an insufficient complement of personnel to carry out ongoing monitoring responsibilities and ensure effective internal control over financial reporting.
Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer and Principal Accounting Officer, to allow timely decisions regarding required disclosure.
Our management feels the weaknesses identified above have not had any material effect on our financial results. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the near term, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.
Our management team will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Notwithstanding the assessment that our internal control over financial reporting was not effective and that there were material weaknesses as identified above, we believe that our financial statements contained in our Quarterly Report on Form 10-Q for the period ended March 31, 2014 fairly present our financial condition, results of operations and cash flows in all material respects.
Changes in Internal Controls Over Financial Reporting
There were no changes in the Company’s internal controls over financial reporting during the period ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Effective December 19, 2012, the Company terminated the Securities Purchase Agreement, Registration Rights Agreement and Debenture dated November 6, 2012 (the “Financing Documents”) with Ironridge Media Co., a division of Ironridge Global IV, Ltd. (“Ironridge”), for the sale of up to $3,000,000 of Convertible Subordinated Debentures and Series A Preferred Stock. Subsequent to the termination, Ironridge submitted a claim with JAMS, Inc. in Santa Monica, California for binding arbitration under the Financing Documents and requested that it be awarded damages relating to the termination of the Financing Documents. The Company submitted counter-claims in the JAMS arbitration claiming that it was fraudulently induced to enter into the Financing Documents, and that a fully performed oral stock purchase agreement caused the Financing Documents to be abandoned by the parties, justifying rescission of the financing documents. On May 24, 2013, the Arbitrator in the JAMS arbitration announced an interim award to Ironridge in the amount of $850,000 plus attorney fees and costs. On July 10, 2013, the Arbitrator ruled the interim award to be final, awarded Ironridge an additional $110,168 in attorneys’ fees and costs On April 1,2014, the Los Angeles Superior Court reduced such award to a judgment in that about (including the attorney’s fees and costs). The Company does not have adequate cash to pay the arbitration award. The judgment resulting from the arbitration award will adversely affect the business, future operations and the financial condition of the Company, and may cause the Company to default under its existing loan obligations which would provide the lenders with the right for immediate repayment.
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On February 25, 2014, John Knight obtained a Small Claims judgment against the Company for $10,000.00. Mr. Knight has commenced collection procedures which have been wholly ineffective as to this date. The Company will attempt to resolve such judgment with Mr. Knight.
ITEM 1A.
RISK FACTORS
This report includes forward-looking statements about our business and results of operations that are subject to risks and uncertainties. See "Forward-Looking Statements," above. Factors that could cause or contribute to such differences include those discussed below. In addition to the risk factors discussed below, we are also subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. If any of these known or unknown risks or uncertainties actually occur, our business could be harmed substantially.
Risks Related to Our Business and Industry
We have a limited operating history on which to evaluate our business or base an investment decision.
Our business prospects are difficult to predict because of our limited operating history, early stage of development, unproven business strategy and unproven product. We just started generating revenues during March 2013. We face numerous risks and uncertainties in the competitive markets. In particular, we have not proven that we can: develop our product offering in a manner that enables us to be profitable and meet our customers’ requirements; develop and maintain relationships with key customers and strategic partners that will be necessary to optimize the market value of our products; raise sufficient capital in the public and/or private markets; or respond effectively to competitive pressures. If we are unable to accomplish these goals, our business is unlikely to succeed and you should consider our prospects in light of these risks, challenges and uncertainties.
If we fail to raise additional capital, our ability to implement our business model and strategy could be compromised.
We have limited capital resources. To date, our operations have been funded entirely from the proceeds from equity and debt financings. We expect to require substantial additional capital in the near future to develop and market new products, services and technologies. If we are unable to raise capital when needed, our business, financial condition and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.
If we are unable to compete effectively, our business will be adversely affected.
The market for content distribution is intensely competitive and subject to rapid change. New technologies and evolving business models for delivery of entertainment video continue to develop at a fast pace. The growth of Internet-connected devices, including TV’s, computers and mobile devices has increased the consumer acceptance of Internet delivery of entertainment video. Through these new and existing distribution channels, consumers are afforded various means for consuming entertainment video. The various economic models underlying these differing means of entertainment video delivery include subscription, pay-per-view, ad-supported and piracy-based models. All of these have the potential to capture meaningful segments of the entertainment video market. Most of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. They may secure better terms from suppliers, adopt more aggressive pricing and devote more resources to technology, fulfillment, and marketing. New entrants may enter the market with unique service offerings or approaches to providing entertainment video and other companies also may enter into business combinations or alliances that strengthen their competitive positions. If we are unable to successfully or profitably compete with current and new competitors, programs and technologies, our business will be adversely affected, and we may not be able to increase or maintain market share, revenues or profitability.
Changes in consumer viewing habits, including more widespread usage of video-on-demand or other similar on demand methods of entertainment video consumption could adversely affect our business.
The manner in which consumers view entertainment video is changing rapidly. Digital cable, wireless and Internet content providers are continuing to improve technologies, content offerings, user interface, and business models that allow consumers to access entertainment video-on-demand with interactive capabilities including start, stop and rewind. The devices through which entertainment video can be consumed are also changing rapidly. Today, content from cable service providers may be viewed on laptops and content from Internet content providers may be viewed on TVs. Although we will provide our own Internet-based delivery of content allowing our customers to stream certain programs and movies to their Internet-connected televisions and other devices, if other providers of entertainment video address the changes in consumer viewing habits in a manner that is better able to meet content distributor and consumer needs and expectations, our business could be adversely affected.
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If we are not able to manage our growth, our business could be adversely affected.
We are currently engaged in an effort to expand our operations both domestically and internationally, as well as grow our content base and develop our technology platform across more devices. Many of our systems and operational practices implemented now at our earlier stage with limited resources will require undertaking efforts to migrate the vast majority of our systems to cloud-based processors. As we undertake all these changes, if we are not able to manage the growing complexity of our business, including improving, refining or revising our systems and operational practices, our business may be adversely affected.
If the market segment for consumer paid commercial free Internet streaming of programs and movies saturates, our business will be adversely affected.
The market segment for consumer paid commercial free Internet streaming of programs and movies has grown significantly. Much of the increasing growth can be attributed to the ability of consumers to stream TV shows and movies on their TVs, computers and mobile devices. A decline in the rate of growth could indicate that the market segment for online subscription-based entertainment video is beginning to saturate. While we believe that this segment will continue to grow for the foreseeable future, if this market segment were to saturate, our business would be adversely affected.
If our efforts to build strong brand identity and improve customer satisfaction and loyalty are not successful, we may not be able to attract or retain customers, and our operating results may be adversely affected.
We must continue to build and maintain strong brand identity. We believe that strong brand identity will be important in attracting customers and content providers who may have a number of choices from which to obtain services we provide. If our efforts to promote and maintain our brand are not successful, our operating results and our ability to attract customers or content providers may be adversely affected. To the extent dissatisfaction with our service is widespread or not adequately addressed, our brand may be adversely impacted and our ability to attract and retain customers or content providers may be adversely affected. With respect to our planned international expansion, we will also need to establish our brand and to the extent we are not successful, our business in new markets would be adversely impacted.
The increasingly long-term and fixed-cost nature of our content acquisition licenses may adversely affect our financial condition and future financial results.
In connection with obtaining content, particularly for streaming content, we will typically enter into multi-year, fixed-fee licenses with content providers, studios and distributors. Furthermore, we plan on increasing the level of committed content licensing in anticipation of our service and customer base growing. To the extent customer and/or revenue growth do not meet our expectations, our liquidity and results of operations could be adversely affected as a result of these content licensing commitments and our flexibility in planning for, or reacting to changes in our business and the market segments in which we operate could be limited.
If we become subject to liability for content that we distribute through our service, our results of operations would be adversely affected.
As a distributor of content, we face potential liability for negligence, copyright, patent or trademark infringement or other claims based on the nature and content of materials that we distribute. If we become liable, then our business may suffer. Litigation to defend these claims could be costly and the expenses and damages arising from any liability could harm our results of operations. We cannot assure that we are insured or indemnified to cover claims of these types or liability that may be imposed on us.
If we do not respond effectively and on a timely basis to rapid technological change, our business could suffer.
Our industry is characterized by rapidly changing technologies, industry standards, customer needs and competition, as well as by frequent new product and service introductions. We must respond to technological changes affecting both our customers and content providers. We may not be successful in developing and marketing, on a timely and cost-effective basis, new services that respond to technological changes, evolving industry standards or changing customer requirements. Our success will depend, in part, on our ability to accomplish all of the following in a timely and cost-effective manner:
·
Effectively developing, using and integrating new technologies;
·
Continuing to develop our technical expertise;
·
Enhancing our engineering and system designs;
·
Developing products that meet changing customer needs;
·
Advertising and marketing our products; and
·
Influencing and responding to emerging industry standards and other changes.
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Growth of internal operations and business may strain our financial resources.
We intend to significantly expand the scope of our operating and financial systems in order to build and expand our business. Our growth rate may place a significant strain on our financial resources for a number of reasons, including, but not limited to, the following:
·
The need for continued development of our financial and information management systems;
·
The need to manage strategic relationships and agreements with content providers; and
·
Difficulties in hiring and retaining skilled management, technical and other personnel necessary to support and manage our business.
We cannot give you any assurance that we will adequately address these risks and, if we do not, our ability to successfully expand our business could be adversely affected.
Current global economic conditions may adversely affect our industry, business and result of operations.
The recent disruptions in the current global credit and financial markets has included diminished liquidity and credit availability, a decline in consumer confidence, a decline in economic growth, an increased unemployment rate, and uncertainty about economic stability. There can be no assurance that there will not be further deterioration in credit and financial markets and confidence in economic conditions. These economic uncertainties affect businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. The current adverse global economic conditions and tightening of credit in financial markets may lead consumers to postpone spending, which may cause our customers to cancel, decrease or delay their existing and future orders with us. We are unable to predict the likely duration and severity of the current disruptions in the credit and financial markets and adverse global economic conditions. If the current uncertain economic conditions continue or further deteriorate, our business and results of operations could be materially and adversely affected.
If we are not able to adequately protect our intellectual property, we may not be able to compete effectively.
Our ability to compete depends in part upon the strength of our proprietary rights in our technologies, brands and content. We expect to rely on a combination of U.S. and foreign patents, copyrights, trademark, trade secret laws and license agreements to establish and protect our intellectual property and proprietary rights. The efforts we have taken and expect to take to protect our intellectual property and proprietary rights may not be sufficient or effective at stopping unauthorized use of our intellectual property and proprietary rights. In addition, effective trademark, patent, copyright and trade secret protection may not be available or cost-effective in every country in which our products are made available. There may be instances where we are not able to fully protect or utilize our intellectual property in a manner that maximizes competitive advantage. If we are unable to protect our intellectual property and proprietary rights from unauthorized use, the value of our products may be reduced, which could negatively impact our business. Our inability to obtain appropriate protections for our intellectual property may also allow competitors to enter our markets and produce or sell the same or similar products and services. In addition, protecting our intellectual property and other proprietary rights is expensive and diverts critical managerial resources. If we are otherwise unable to protect our intellectual property and proprietary rights, our business and financial results could be adversely affected.
If we are forced to resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive. In addition, our proprietary rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings. In addition, the possibility of extensive delays in the patent issuance process could effectively reduce the term during which a marketed product is protected by patents.
We may also need to obtain licenses to patents or other proprietary rights from third parties. We may not be able to obtain the licenses required under any patents or proprietary rights or they may not be available on acceptable terms. If we do not obtain required licenses, we may encounter delays in development or find that the development, manufacture or sale of products and services requiring licenses could be foreclosed. We may, from time to time, support and collaborate in research conducted by universities and governmental research organizations. We may not be able to acquire exclusive rights to the inventions or technical information derived from these collaborations, and disputes may arise over rights in derivative or related research programs conducted by us or our collaborators.
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Assertions against us by third parties for infringement of their intellectual property rights could result in significant costs and cause our operating results to suffer.
Our industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which results in protracted and expensive litigation for many companies. Other companies with greater financial and other resources than us have gone out of business from costs related to patent litigation and from losing a patent litigation. We may be exposed to future litigation by third parties based on claims that our technologies or activities infringe the intellectual property rights of others. Although we try to avoid infringement, there is the risk that we will use a patented technology owned or licensed by another person or entity and be sued for patent infringement or infringement of another party’s intellectual property or proprietary rights. If we or our products and services are found to infringe the intellectual property or proprietary rights of others, we may have to pay significant damages or be prevented from making, using, selling, and offering for sale or importing such products or services or from practicing methods that employ such intellectual property or proprietary rights.
Further, we may receive notices of infringement of third-party intellectual property rights. Specifically, we may receive claims from various industry participants alleging infringement of their patents, trade secrets or other intellectual property rights in the future. Any lawsuit resulting from such allegations could subject us to significant liability for damages and invalidate our proprietary rights. These lawsuits, regardless of their success, would likely be time-consuming and expensive to resolve and would divert management time and attention. Any potential intellectual property litigation also could force us to do one or more of the following:
·
stop selling content or services or using technology that contain the allegedly infringing intellectual property;
·
pay damages to the party claiming infringement;
·
attempt to obtain a license for the relevant intellectual property, which may not be available on commercially reasonable terms or at all; and
·
attempt to redesign those products or services that contain the allegedly infringing intellectual property with non-infringing intellectual property, which may not be possible.
The outcome of a dispute may result in our need to develop non-infringing technology or enter into royalty or licensing agreements. We may agree to indemnify certain customers for certain claims of infringement arising out of the sale of our products. Any intellectual property litigation could have a material adverse effect on our business, operating results or financial condition.
Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information.
Our success depends upon the skills, knowledge and experience of our technical personnel, our consultants and advisors as well as our licensors and contractors. Because we operate in a highly competitive field, we rely almost wholly on trade secrets to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality and intellectual property assignment agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third parties confidential information developed by us during the course of the receiving party’s relationship with us. These agreements also generally provide that inventions conceived by the receiving party in the course of rendering services to us will be our exclusive property. However, these agreements may be breached and may not effectively assign intellectual property rights to us. Our trade secrets also could be independently discovered by competitors, in which case we would not be able to prevent use of such trade secrets by our competitors. The enforcement of a claim alleging that a party illegally obtained and was using our trade secrets could be difficult, expensive and time consuming and the outcome would be unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain meaningful trade secret protection could adversely affect our competitive position.
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If studios and other content owners or distributors refuse to license content to us upon acceptable terms, our business could be adversely affected.
Our ability to distribute content or provide our customers with content they can watch instantly depends on studios and other content owners or distributors licensing us content specifically for Internet delivery. The license periods and the terms and conditions of such licenses vary. If the studios and other content distributors change their terms and conditions or are no longer willing or able to license us content, our ability to distribute content or stream content to our customers will be adversely affected. Streaming content is not subject to the First Sale Doctrine. As such, we are completely dependent on the studio or other content distributor to license us content in order to access, distribute, sublicense and stream content. Many of the licenses provide for the studios or other content distributor to withdraw content from our service relatively quickly. Because of these provisions as well as other actions we may take, content available through our service can be withdrawn on short notice. In addition, the studios and other content distributors have great flexibility in licensing content. They may elect to license content exclusively to a particular provider or otherwise limit the types of services that can deliver streaming content. If we are unable to secure and maintain rights to streaming content or if we cannot otherwise obtain such content upon terms that are acceptable to us, our ability to distribute content will be adversely impacted, and our customer acquisition and retention could also be adversely impacted. As streaming content license agreements expire, we must renegotiate new terms which may not be favorable to us. If this happens, the cost of obtaining content could increase and our margins may be adversely affected. As we grow, we will have to spend an increasingly larger amount for the licensing of streaming content. Any failure to secure content will manifest in lower customer acquisition and retention. Given the multiple-year duration and largely fixed nature of content licenses, if we do not experience customer acquisition and retention as forecasted, our margins may be impacted by these fixed content licensing costs. To the extent that we are unable to resolve any of these issues in an amicable manner, our relationship with the studios and other content distributors or our access to content may be adversely impacted.
Any significant disruption in our technology platform or those of third-parties that we utilize in our operations could result in a loss or degradation of service and could adversely impact our business.
Customers and potential customers access our service through our Web site or their TVs, computers, game consoles or mobile devices. Our reputation and ability to attract, retain and serve our customers is dependent upon the reliable performance of our technology platform and those of third-parties that we utilize in our operations. Interruptions in our ability to deliver content, or with the Internet in general, including discriminatory network management practices, could make our service unavailable or degraded or otherwise hinder our ability to deliver streaming content. Much of our software is proprietary, and we rely on the expertise of our engineering and software development teams for the continued performance of our software and computer systems. Service interruptions, errors in our software or the unavailability of computer systems used in our operations could diminish the overall attractiveness of our service to existing and potential customers.
Our servers and those of third-parties we use in our operations are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions and delays in our service and operations as well as loss, misuse or theft of data. Our Web site may periodically experience directed attacks intended to cause a disruption in service. Any attempts by hackers to disrupt our service or our internal systems, if successful, could harm our business, be expensive to remedy and damage our reputation. We do not have insurance to cover expenses related to attacks on our Web site or internal systems. Efforts to prevent hackers from entering our computer systems are expensive to implement and may limit the functionality of our services. Any significant disruption to our service or internal computer systems could result in a loss of customers and adversely affect our business and results of operations.
If government regulations relating to the Internet or other areas of our business change, we may need to alter the manner in which we conduct our business, or incur greater operating expenses.
The adoption or modification of laws or regulations relating to the Internet or other areas of our business could limit or otherwise adversely affect the manner in which we currently conduct our business. In addition, the growth and development of the market for online commerce may lead to more stringent consumer protection laws, which may impose additional burdens on us. If we are required to comply with new regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur additional expenses or alter our business model.
The adoption of any laws or regulations that adversely affect the growth, popularity or use of the Internet, including laws limiting Internet neutrality, could decrease the demand for our services and increase our cost of doing business. For example, in late 2010, the Federal Communications Commission adopted so-called net neutrality rules intended, in part, to prevent network operators from discriminating against legal traffic that transverse their networks. The rules are currently subject to legal challenge. To the extent that these rules are interpreted to enable network operators to engage in discriminatory practices or are overturned by legal challenge, our business could be adversely impacted. As we expand internationally, government regulation concerning the Internet, and in particular, network neutrality, may be nascent or non-existent. Within such a regulatory environment, coupled with potentially significant political and economic power of local network operators, we could experience discriminatory or anti-competitive practices that could impede our growth, cause us to incur additional expense or otherwise negatively affect our business.
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Our reputation and relationships with customers would be harmed if our customer data, particularly billing data, were to be accessed by unauthorized persons.
We will maintain personal data regarding our customers, including names and, in many cases, mailing addresses. With respect to billing data, such as credit card numbers, we will rely on licensed encryption and authentication technology to secure such information. We will take measures to protect against unauthorized intrusion into our customers’ data. If, despite these measures, we, or our payment processing services, experience any unauthorized intrusion into our customers’ data, current and potential customers may become unwilling to provide the information to us necessary for them to become customers, we could face legal claims, and our business could be adversely affected. Similarly, if a well-publicized breach of the consumer data security of any other major consumer Web site were to occur, there could be a general public loss of confidence in the use of the Internet for commerce transactions which could adversely affect our business.
If we are unable to protect our domain names, our reputation and brand could be adversely affected.
We currently hold various domain names relating to our brand, including www.digidev.com. Failure to protect our domain names could adversely affect our reputation and brand and make it more difficult for users to find our Web site and our service. The acquisition and maintenance of domain names generally are regulated by governmental agencies and their designees. The regulation of domain names in the United States may change in the near future. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may be unable to acquire or maintain relevant domain names. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. We may be unable, without significant cost or at all, to prevent third-parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights.
In the event of an earthquake or other natural or man-made disaster, our operations could be adversely affected.
Our executive offices and data centers are located in the Los Angeles area, an earthquake sensitive area. Our business and operations could be adversely affected in the event of an earthquake or other natural disaster, as well as from electrical blackouts, fires, floods, power losses, telecommunications failures, break-ins or similar events. We may not be able to effectively shift our operations to handle disruptions in service arising from these events. Because Los Angeles is located in an earthquake-sensitive area, we are particularly susceptible to the risk of damage to, or total destruction of, our executive offices and data centers. We are not insured against any losses or expenses that arise from a disruption to our business due to earthquakes and may not have adequate insurance to cover losses and expenses from other natural disasters.
We may lose key employees or may be unable to hire qualified employees.
We rely on the continued service of our senior management, including our Chief Executive Officer and Chairman, Martin Greenwald, President, Joe Bretz and members of our executive team and other key employees and the hiring of new qualified employees. In our industry, there is substantial and continuous competition for highly skilled business, product development, technical and other personnel. We may not be successful in recruiting new personnel and in retaining and motivating existing personnel, which may be disruptive to our operations.
Risks Relating to our Securities and our Status as a Public Company
The relative lack of public company experience of certain members of our management team may put us at a competitive disadvantage.
Certain members of our management team lack public company experience and are generally unfamiliar with the requirements of the United States securities laws and U.S. Generally Accepted Accounting Principles, which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002. Some of these individuals who now constitute our senior management team have never had responsibility for managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our senior management may not be able to implement programs and policies in an effective and timely manner that adequately responds to such increased legal, regulatory compliance and reporting requirements. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties and distract our management from attending to the growth of our business.
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Shares of our common stock that have not been registered under the Securities Act of 1933, as amended, regardless of whether such shares are restricted or unrestricted, are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a “shell company.” In addition, any shares of our common stock that are held by affiliates, including any received in a registered offering, will be subject to the resale restrictions of Rule 144(i).
Pursuant to Rule 144 of the Securities Act of 1933, as amended (“Rule 144”), a “shell company” is defined as a company that has no or nominal operations; and, either no or nominal assets; assets consisting solely of cash and cash equivalents; or assets consisting of any amount of cash and cash equivalents and nominal other assets. As such, we may be deemed a “shell company” pursuant to Rule 144 prior to the Exchange, and as such, sales of our securities pursuant to Rule 144 are not able to be made until a period of at least twelve months has elapsed from the date on which our Current Report on Form 8-K is filed with the Commission reflecting our status as a non- “shell company.” Therefore, any restricted securities we sell in the future or issue to consultants or employees, in consideration for services rendered or for any other purpose will have no liquidity until and unless such securities are registered with the Commission and/or until a year after the date of the filing of our Current Report on Form 8-K and we have otherwise complied with the other requirements of Rule 144. As a result, it may be harder for us to fund our operations and pay our employees and consultants with our securities instead of cash. Furthermore, it will be harder for us to raise funding through the sale of debt or equity securities unless we agree to register such securities with the Commission, which could cause us to expend additional resources in the future. Our previous status as a “shell company” could prevent us from raising additional funds, engaging employees and consultants, and using our securities to pay for any acquisitions (although none are currently planned), which could cause the value of our securities, if any, to decline in value or become worthless. Lastly, any shares held by affiliates, including shares received in any registered offering, will be subject to the resale restrictions of Rule 144(i).
We will be required to incur significant costs and require significant management resources to evaluate our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act, and any failure to comply or any adverse result from such evaluation may have an adverse effect on our stock price.
As a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, we are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Section 404 requires us to include an internal control report with the Annual Report on Form 10-K. This report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Failure to comply, or any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price of our equity securities. Management believes that its internal controls and procedures are currently not effective to detect the inappropriate application of U.S. GAAP rules. Management realize there are deficiencies in the design or operation of our internal control that adversely affect our internal controls which management considers to be material weaknesses including those described below:
i)
As of March 31, 2014, the Company did not have a separate functioning audit committee.
ii)
Due to the significant number and magnitude of out-of-period adjustments identified during the year- end closing process, management has concluded that the controls over the period-end financial reporting process were not operating effectively. A material weakness in the period-end financial reporting process could result in us not being able to meet our regulatory filing deadlines and, if not remedied, has the potential to cause a material misstatement or to miss a filing deadline in the future. Management override of existing controls is possible given the small size of the organization and lack of personnel.
iii)
There is no system in place to review and monitor internal control over financial reporting. The Company maintains an insufficient complement of personnel to carry out ongoing monitoring responsibilities and ensure effective internal control over financial reporting
Achieving continued compliance with Section 404 may require us to incur significant costs and expend significant time and management resources. We cannot assure you that we will be able to fully comply with Section 404 or that we and our independent registered public accounting firm would be able to conclude that our internal control over financial reporting is effective at fiscal year-end. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our securities, as well as subject us to civil or criminal investigations and penalties. In addition, our independent registered public accounting firm may not agree with our management’s assessment or conclude that our internal control over financial reporting is operating effectively.
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If we lose our key management personnel, we may not be able to successfully manage our business or achieve our objectives, and such loss could adversely affect our business, future operations and financial condition.
Our future success depends in large part upon the leadership and performance of our executive management team and key consultants. If we lose the services of one or more of our executive officers or key consultants, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives. We do not have “Key-Man” life insurance policies on our key executives. If we lose the services of any of our key consultants, we may not be able to replace them with similarly qualified personnel, which could harm our business. The loss of our key executives or our inability to attract and retain additional highly skilled employees may adversely affect our business, future operations, and financial condition.
The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.
Our Articles of Incorporation contain a provision permitting us to eliminate the personal liability of our directors to our company and shareholders for damages for breach of fiduciary duty as a director or officer to the extent provided by Nevada law. The foregoing indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.
Our stock is categorized as a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a shareholder’s ability to buy and sell our stock.
Our stock is categorized as a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than US$5.00 per share or an exercise price of less than US$5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
To date, we have not paid any cash dividends and no cash dividends will be paid in the foreseeable future.
We do not anticipate paying cash dividends on our common stock in the foreseeable future and we may not have sufficient funds legally available to pay dividends. Even if the funds are legally available for distribution, we may nevertheless decide not to pay any dividends. We presently intend to retain all earnings for our operations.
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A limited public trading market exists for our common stock, which makes it more difficult for our stockholders to sell their common stock in the public markets.
Our common stock is currently traded under the symbol “DIDG” but currently with low volume, based on quotations on the “OTC Markets,” meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is still relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our stock until such time as we became more viable. Additionally, many brokerage firms may not be willing to effect transactions in the securities. As a consequence, there may be periods of several days or more when trading activity in our stock is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that trading levels will be sustained.
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
Our articles of incorporation authorize the issuance of up to 200,000,000 shares of common stock with a par value of $0.001 per share. Our Board of Directors may choose to issue some or all of such shares to acquire one or more companies or properties and to fund our overhead and general operating requirements. The issuance of any such shares may reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
We may not qualify to meet listing standards to list our stock on an exchange.
The SEC approved listing standards for companies using reverse acquisitions to list on an exchange may limit our ability to become listed on an exchange. We would be considered a reverse acquisition company (i.e., an operating company that becomes an Exchange Act reporting company by combining with a shell Exchange Act reporting company) that cannot apply to list on NYSE, NYSE Amex or Nasdaq until our stock has traded for at least one year on the U.S. OTC market, a regulated foreign exchange or another U.S. national securities market following the filing with the SEC or other regulatory authority of all required information about the merger, including audited financial statements. We would be required to maintain a minimum $4 share price ($2 or $3 for Amex) for at least thirty (30) of the sixty (60) trading days before our application and the exchange’s decision to list. We would be required to have timely filed all required reports with the SEC (or other regulatory authority), including at least one annual report with audited financials for a full fiscal year commencing after filing of the above information. Although there is an exception for a firm underwritten IPO with proceeds of at least $40 million, we do not anticipate being in a position to conduct an IPO in the foreseeable future. To the extent that we cannot qualify for a listing on an exchange, our ability to raise capital will be diminished.
We may not have the ability to pay our promissory notes when due.
The Company has issued convertible and other promissory notes in the amount of $2,157,659 as of March 31, 2014. The Company does not have sufficient capital to repay the notes as of the date of this report, and may not have sufficient capital to repay the notes when due. The Company’s inability to repay the notes when due would permit the note holders to exercise their default remedies against the Company which could have a material adverse effect on the Company. Additionally, many of the note holders have the right to declare entire amount of the outstanding debt immediately due and payable upon the occurrence of events of default, which include events such as our late filing of this Quarterly Report on Form 10-Q.
Conversion of our convertible notes into common stock will result in additional dilution to our stockholders.
We have issued numerous convertible notes which are convertible into shares of our common stock at conversion prices which are at a discount to the then current trading price of our common stock. Additionally, upon the occurrence of certain events of default (including conditions outside of our control) the note holders are entitled to increased repayment and interest rates, as well as other remedies. For example, our late filing of this Quarterly Report on Form 10Q entitled several of the note holders to increased repayment amounts and interest rates. Also, some of the note holders have anti-dilution and conversion reset provisions which are triggered by the issuance of lower priced securities. As shares of our common stock are issued due to conversion of some or all of the convertible notes, the ownership interests of existing stockholders are being diluted. As of March 31, 2013, there were 61,783,716 shares outstanding, and this amount increased to 106,340,371 shares outstanding as of March 31, 2014, and increased to 142,803,533 shares outstanding as of May 28, 2014, which was partly as the result of the issuance of shares of Company common stock resulting from the conversion of convertible notes outstanding. The Company expects that note holders will continue to convert and the number of outstanding shares to continue to increase significantly.
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We do not have the ability to pay the Ironridge arbitration award and subsequent judgment.
On May 24, 2013, the Arbitrator in the JAMS arbitration announced an interim award to Ironridge in the amount of $850,000 plus attorney fees and costs, and on July 10, 2013 the Arbitrator ruled the interim award to be final, and awarded Ironridge an additional $110,168 in attorneys’ fees and costs. That award was reduced to a Judgment by the Los Angeles Superior Court on April 1, 2014. The Company does not have adequate cash to pay the judgment. Such judgment will adversely affect the business, future operations and the financial condition of the Company, and may cause the Company to default under its existing loan obligations which would provide the lenders with the right for immediate repayment, and/or cause the Company to file for protection under the United States Bankruptcy Code or similar proceedings which could cause all the shareholders to lose the entire value of their investment in the Company.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 27, 2014, the Company entered into a Debt Conversion Agreement (the “Debt Conversion Agreement”) with Cemblance LTD (“Cemblance”) pursuant to which the Company and Cemblance agreed to convert $150,000 of outstanding Company debt into 4,000,000 shares of Company common stock.
On March 12, 2014, the Company executed a Subscription Agreement with Stuart Subotnick pursuant to which the Company sold him 5,000,000 restricted shares of Company common stock in consideration for $75,000. Mr. Subotnick is an affiliate of the Company by nature of the percentage of shares of Company common stock which he beneficially owns. The issuance of shares was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the shares was an accredited investor.
NOTE: We need to list out all convertible note conversions during the Quarter:
On January 7, 2014, the Company issued 2,556,354 shares of common stock to Tonaquint Inc. in consideration of their conversion of $13,885.44 under the terms of their convertible promissory note dated April 2, 2013;
On January 24, 2014, the Company issued 2,306,273 shares of common stock to Tonaquint Inc. in consideration of their conversion of $12,500.00 under the terms of their convertible promissory note dated April 2, 2013;
On January 27, 2014, the Company issued 655,738 shares of common stock to Asher Enterprises II in consideration of their conversion of $22,500.00 under the terms of their convertible promissory note dated July 22, 2013;
On February 3, 2014, the Company issued 468,750 shares of common stock to Asher Enterprises II in consideration of their conversion of $12,000 under the terms of their convertible promissory note dated July 22, 2013;
On February 6, 2014, the Company issued 613,065 shares of common stock to Asher Enterprises II in consideration of their conversion of $10,500 under the terms of their convertible promissory note dated July 22, 2013;
On February 11, 2014, the Company issued 700,000 shares of common stock to JMJ Financial in consideration of their conversion of $12,600 under the terms of their convertible promissory note dated March 13, 2013;
On February 21, 2014, the Company issued 2,398,524 shares of common stock to Tonaquint Inc. in consideration of their conversion of $13,000 under the terms of their convertible promissory note dated April 2, 2013;
On February 28, 2014, the Company issued 1,000,000 shares of common stock to JMJ Financial in consideration of their conversion of $16,800 under the terms of their convertible promissory note dated March 13, 2013;
On March 12, 2014, the Company issued 952,381 shares of common stock to Asher Enterprises II in consideration of their conversion of $20,000 under the terms of their convertible promissory note dated September 4, 2013;
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On March 17, 2014, the Company issued 1,533,333 shares of common stock to JMJ Financial in consideration of their conversion of $25,760 under the terms of their convertible promissory note dated March 13, 2013;
On March 17, 2014, the Company issued 657,143 shares of common stock to Asher Enterprises II in consideration of their conversion of $13,800 under the terms of their convertible promissory note dated September 4, 2013;
On March 20, 2014, the Company issued 686,813 shares of common stock to Tonaquint Inc. in consideration of their conversion of $12,500 under the terms of their convertible promissory note dated April 2, 2013;
Each of the above issuances of shares was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
On May 7, 2014, the Company entered into a Convertible Promissory Note with Vista Capital Investments, LLC (“Vista”) in the original principal amount of $150,000 (the “Note”), pursuant to which Vista funded $50,000. The Note has a one time interest charge of 12%; is due and payable one year after the date of issuance; and may be converted by Vista at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 60% of the market price (as determined in the Note) calculated at the time of conversion. The Note also contains certain representations, warranties, covenants and events of default, and is collateralized by the issuance of 20,000,000 shares of Company common stock. The foregoing is only a brief description of the material terms of the Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor.
On May 9, 2014, the Company entered into a Convertible Promissory Note with LG Capital Funding LLC (“LG”) in the original principal amount of $26,500 (the “Note”). The Note bears interest at the rate of 8% per annum; is due and payable twelve months after the date of issuance; and may be converted by LG at any time after 180 days of the date of issuance into shares of Company common stock at a conversion price equal to 55% of the market price (as determined in the Note) calculated at the time of conversion. The foregoing is only a brief description of the material terms of the Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor.
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On May 12, 2014, the Company entered into Securities Purchase Agreement with Union Capital LLC (“Union”) pursuant to which the Company issued three convertible promissory notes in the aggregate principal amount of $90,000 (the “Notes”), pursuant to which Union funded $30,000 (less discounts and fees). The Notes accrue interest at the rate of 10% per annum; are due and payable 12 months after their date of issuance; and may be converted by Union at any time into shares of Company common stock at a conversion price equal to 56% of the market price (as determined in the Note) calculated at the time of conversion. The Securities Purchase Agreement and Notes also contain certain representations, warranties, covenants and events of default. The foregoing is only a brief description of the material terms of the Securities Purchase Agreement and Notes, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor.
On May 12, 2014, the Company entered into an Exchange Agreement with Tonaquint, Inc. (“Tonaquint”) pursuant to which the Company exchanged a previously issued warrant for a Convertible Promissory Note in the principal amount of $285,000 (the “Note”). The Note accrues interest at the rate of 8% per annum; is due and payable 17 months after the date of issuance; and may be converted by Tonaquint at any time into shares of Company common stock at a conversion price equal to 90% of the market price (as determined in the Note) calculated at the time of conversion, up to $28,000 per month. The Note Purchase Agreement and Note also contain certain representations, warranties, covenants and events of default. The foregoing is only a brief description of the material terms of the Exchange Agreement and Note, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the agreements and their exhibits which are filed as an exhibit to this Quarterly Report. The issuance of the Note was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the Note was an accredited investor.
On May 21, 2014, the Company entered into a Common Stock Purchase Agreement with St. George Investments, LLC pursuant to which the Company sold 8,421,053 shares of Company common stock for $160,000. The issuance of the shares was made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the shares was an accredited investor.
ITEM 6.
EXHIBITS
Exhibit Number |
| Description |
10.36 |
| Convertible Note dated May 7, 2014 with Vista Capital Investments, LLC |
10.37 |
| Convertible Note dated May 9, 2014 with LG Capital Funding LLC |
10.38 |
| Securities Purchase Agreement dated May 12, 2014 with Union Capital LLC |
10.39 |
| Convertible Promissory Note dated May 12, 2014 with Union Capital LLC |
10.40 |
| Exchange Agreement dated May 12, 2014 with Tonaquint, Inc. |
10.41 |
| Convertible Promissory Note dated May 12, 2014 with Tonaquint, Inc. |
10.42 |
| Convertible Promissory Note with KBM Worldwide, Inc. |
10.43 |
| Convertible Promissory Note with Coventry Enterprises |
31 |
| Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, for Chief Executive Officer and Chief Financial Officer (1) |
32 |
| Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, for Chief Financial Officer and Chief Financial Officer (1) |
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| THE DIGITAL DEVELOPMENT GROUP CORP. |
| (Registrant) |
|
|
Date: June 4, 2014 | /s/ Martin W. Greenwald |
| Martin W. Greenwald Chief Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
35
Exhibit 10.36
Exhibit 10.37
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT”)
US $26,500.00
DIGITAL DEVELOPMENT GROUP CORP.
8% CONVERTIBLE REDEEMABLE NOTE
DUE MAY 9, 2015
FOR VALUE RECEIVED, Digital Development Group Corp. (the “Company”) promises to pay to the order of LG CAPITAL FUNDING, LLC and its authorized successors and permitted assigns ("Holder"), the aggregate principal face amount of Twenty Six Thousand Five Hundred Dollars exactly (U.S. $26,500.00) on May 9, 2015 ("Maturity Date") and to pay interest on the principal amount outstanding hereunder at the rate of 8% per annum commencing on May 9, 2014. The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note are payable at 1218 Union Street, Suite #2, Brooklyn, NY 11225, initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein.
This Note is subject to the following additional provisions:
1.
This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.
2.
The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.
3.
This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended ("Act") and applicable state securities laws. Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company's records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted ("Notice of Conversion") in the form annexed hereto as Exhibit A. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.
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Initials
4.
(a)
The Holder of this Note is entitled, at its option, at any time after 180 days, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") without restrictive legend of any nature, at a price ("Conversion Price") for each share of Common Stock equal to 55% of the lowest closing bid price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion. Once the Holder has received such shares of Common Stock, the Holder shall surrender this Note to the Company, executed by the Holder evidencing such Holder's intention to convert this Note or a specified portion hereof, and accompanied by proper assignment hereof in blank. Accrued, but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 45% instead of 55% while that “Chill” is in effect.
(b)
Interest on any unpaid principal balance of this Note shall be paid at the rate of 8% per annum. Interest shall be paid by the Company in cash only.
(c)
During the first six months this Note is in effect, the Company may redeem this Note by paying to the Holder an amount as follows: (i) if the redemption is within the first 90 days this Note is in effect, then for an amount equal to 130% of the unpaid principal amount of this Note along with any interest that has accrued during that period, (ii) if the redemption is after the first ninety days this note is in effect but before the 181st day this Note is in effect, then for an amount equal to 150% of the unpaid principal amount of this Note along with any accrued interest. This Note may not be redeemed after 180 days. The redemption must be closed and paid for within 3 business days of the Company sending the redemption demand or the redemption will be invalid and the Company may not redeem this Note.
(d)
Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization or other change or exchange of outstanding shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 140% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.
(e)
In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.
5.
No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
6.
The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.
2
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Initials
7.
The Company agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.
8.
If one or more of the following described "Events of Default" shall occur:
(a)
The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or
(b)
Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, or the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect; or
(c)
The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of the Company under this Note or any other note issued to the Holder; or
(d)
The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or
(e)
A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or
(f)
Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or
(g)
One or more money judgments, writs or warrants of attachment, or similar process, in excess of fifty thousand dollars ($50,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder, excluding Ironridge v. DDGC, (BS144048), Venezia v. DDGC and Tibshiranny v. DDGC, employee back pay totaling less than $50,000.
(h)
The Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period; or
(i)
The Company shall have its Common Stock delisted from an exchange (including the OTCBB exchange) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days;
(j)
If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the Board;
(k)
The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within 3 business days of its receipt of a Notice of Conversion; or
(l)
The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder.
3
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Initials
Then, or at any time thereafter, unless cured, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue at a default interest rate of 16% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10th day.
If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
9.
In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.
10.
Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.
11.
The Company represents that it is not a “shell” issuer and has never been a “shell” issuer or that if it previously has been a “shell” issuer that at least 12 months have passed since the Company has reported form 10 type information indicating it is no longer a “shell issuer. Further. The Company will instruct its counsel to either (i) write a 144- 3(a(9) opinion to allow for salability of the conversion shares or (ii) accept such opinion from Holder’s counsel.
12.
The Company shall issue irrevocable transfer agent instructions reserving 5,000,000 shares of its Common Stock for conversions under this Note (the “Share Reserve”). The reserve shall be replenished as needed to allow for conversions of this Note. Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. The Company shall pay all costs associated with issuing and delivering the shares.
13.
The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.
14.
This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.
4
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Initials
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
Dated:
DIGITAL DEVELOPMENT GROUP CORP.
By: __________________________________
Title: _________________________________
5
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Initials
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $___________ of the above Note into _________ Shares of Common Stock of Digital Development Group Corp. (“Shares”) according to the conditions set forth in such Note, as of the date written below.
If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.
Date of Conversion:
Applicable Conversion Price:
Signature:
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
6
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Initials
Exhibit 10.38
![[f10q033114_ex10z38001.jpg]](f10q033114_ex10z38001.jpg)
![[f10q033114_ex10z38002.jpg]](f10q033114_ex10z38002.jpg)
![[f10q033114_ex10z38003.jpg]](f10q033114_ex10z38003.jpg)
![[f10q033114_ex10z38004.jpg]](f10q033114_ex10z38004.jpg)
![[f10q033114_ex10z38005.jpg]](f10q033114_ex10z38005.jpg)
![[f10q033114_ex10z38006.jpg]](f10q033114_ex10z38006.jpg)
![[f10q033114_ex10z38007.jpg]](f10q033114_ex10z38007.jpg)
![[f10q033114_ex10z38008.jpg]](f10q033114_ex10z38008.jpg)
![[f10q033114_ex10z38009.jpg]](f10q033114_ex10z38009.jpg)
![[f10q033114_ex10z38010.jpg]](f10q033114_ex10z38010.jpg)
![[f10q033114_ex10z38011.jpg]](f10q033114_ex10z38011.jpg)
![[f10q033114_ex10z38012.jpg]](f10q033114_ex10z38012.jpg)
![[f10q033114_ex10z38013.jpg]](f10q033114_ex10z38013.jpg)
![[f10q033114_ex10z38014.jpg]](f10q033114_ex10z38014.jpg)
Exhibit 10.39
![[f10q033114_ex10z39001.jpg]](f10q033114_ex10z39001.jpg)
![[f10q033114_ex10z39002.jpg]](f10q033114_ex10z39002.jpg)
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![[f10q033114_ex10z39004.jpg]](f10q033114_ex10z39004.jpg)
![[f10q033114_ex10z39005.jpg]](f10q033114_ex10z39005.jpg)
![[f10q033114_ex10z39006.jpg]](f10q033114_ex10z39006.jpg)
![[f10q033114_ex10z39007.jpg]](f10q033114_ex10z39007.jpg)
![[f10q033114_ex10z39008.jpg]](f10q033114_ex10z39008.jpg)
![[f10q033114_ex10z39009.jpg]](f10q033114_ex10z39009.jpg)
Exhibit 10.40
![[f10q033114_ex10z40001.jpg]](f10q033114_ex10z40001.jpg)
![[f10q033114_ex10z40002.jpg]](f10q033114_ex10z40002.jpg)
![[f10q033114_ex10z40003.jpg]](f10q033114_ex10z40003.jpg)
![[f10q033114_ex10z40004.jpg]](f10q033114_ex10z40004.jpg)
![[f10q033114_ex10z40005.jpg]](f10q033114_ex10z40005.jpg)
![[f10q033114_ex10z40006.jpg]](f10q033114_ex10z40006.jpg)
![[f10q033114_ex10z40007.jpg]](f10q033114_ex10z40007.jpg)
![[f10q033114_ex10z40008.jpg]](f10q033114_ex10z40008.jpg)
![[f10q033114_ex10z40009.jpg]](f10q033114_ex10z40009.jpg)
![[f10q033114_ex10z40010.jpg]](f10q033114_ex10z40010.jpg)
![[f10q033114_ex10z40011.jpg]](f10q033114_ex10z40011.jpg)
![[f10q033114_ex10z40012.jpg]](f10q033114_ex10z40012.jpg)
![[f10q033114_ex10z40013.jpg]](f10q033114_ex10z40013.jpg)
![[f10q033114_ex10z40014.jpg]](f10q033114_ex10z40014.jpg)
![[f10q033114_ex10z40015.jpg]](f10q033114_ex10z40015.jpg)
![[f10q033114_ex10z40016.jpg]](f10q033114_ex10z40016.jpg)
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![[f10q033114_ex10z40018.jpg]](f10q033114_ex10z40018.jpg)
Exhibit 10.41
![[f10q033114_ex10z41001.jpg]](f10q033114_ex10z41001.jpg)
![[f10q033114_ex10z41002.jpg]](f10q033114_ex10z41002.jpg)
![[f10q033114_ex10z41003.jpg]](f10q033114_ex10z41003.jpg)
![[f10q033114_ex10z41004.jpg]](f10q033114_ex10z41004.jpg)
![[f10q033114_ex10z41005.jpg]](f10q033114_ex10z41005.jpg)
![[f10q033114_ex10z41006.jpg]](f10q033114_ex10z41006.jpg)
![[f10q033114_ex10z41007.jpg]](f10q033114_ex10z41007.jpg)
![[f10q033114_ex10z41008.jpg]](f10q033114_ex10z41008.jpg)
![[f10q033114_ex10z41009.jpg]](f10q033114_ex10z41009.jpg)
![[f10q033114_ex10z41010.jpg]](f10q033114_ex10z41010.jpg)
![[f10q033114_ex10z41011.jpg]](f10q033114_ex10z41011.jpg)
![[f10q033114_ex10z41012.jpg]](f10q033114_ex10z41012.jpg)
![[f10q033114_ex10z41013.jpg]](f10q033114_ex10z41013.jpg)
![[f10q033114_ex10z41014.jpg]](f10q033114_ex10z41014.jpg)
![[f10q033114_ex10z41015.jpg]](f10q033114_ex10z41015.jpg)
Exhibit 10.42
![[f10q033114_ex10z42001.jpg]](f10q033114_ex10z42001.jpg)
![[f10q033114_ex10z42002.jpg]](f10q033114_ex10z42002.jpg)
![[f10q033114_ex10z42003.jpg]](f10q033114_ex10z42003.jpg)
![[f10q033114_ex10z42004.jpg]](f10q033114_ex10z42004.jpg)
![[f10q033114_ex10z42005.jpg]](f10q033114_ex10z42005.jpg)
![[f10q033114_ex10z42006.jpg]](f10q033114_ex10z42006.jpg)
![[f10q033114_ex10z42007.jpg]](f10q033114_ex10z42007.jpg)
![[f10q033114_ex10z42008.jpg]](f10q033114_ex10z42008.jpg)
![[f10q033114_ex10z42009.jpg]](f10q033114_ex10z42009.jpg)
![[f10q033114_ex10z42010.jpg]](f10q033114_ex10z42010.jpg)
![[f10q033114_ex10z42011.jpg]](f10q033114_ex10z42011.jpg)
![[f10q033114_ex10z42012.jpg]](f10q033114_ex10z42012.jpg)
![[f10q033114_ex10z42013.jpg]](f10q033114_ex10z42013.jpg)
![[f10q033114_ex10z42014.jpg]](f10q033114_ex10z42014.jpg)
![[f10q033114_ex10z42015.jpg]](f10q033114_ex10z42015.jpg)
![[f10q033114_ex10z42016.jpg]](f10q033114_ex10z42016.jpg)
![[f10q033114_ex10z42017.jpg]](f10q033114_ex10z42017.jpg)
![[f10q033114_ex10z42018.jpg]](f10q033114_ex10z42018.jpg)
![[f10q033114_ex10z42019.jpg]](f10q033114_ex10z42019.jpg)
![[f10q033114_ex10z42020.jpg]](f10q033114_ex10z42020.jpg)
![[f10q033114_ex10z42021.jpg]](f10q033114_ex10z42021.jpg)
![[f10q033114_ex10z42022.jpg]](f10q033114_ex10z42022.jpg)
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Exhibit 10.43
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT”)
US $50,000.00
DIGITAL DEVELOPMENT GROUP CORP.
10% CONVERTIBLE REDEEMABLE NOTE
DUE APRIL 2, 2015
FOR VALUE RECEIVED, Digital Development Group Corp. (the “Company”) promises to pay to the order of COVENTRY ENTERPRISES, LLC and its authorized successors and permitted assigns ("Holder"), the aggregate principal face amount of Fifty Thousand Dollars exactly (U.S. $50,000.00) on April 2, 2015 ("Maturity Date") and to pay interest on the principal amount outstanding hereunder at the rate of 10% per annum commencing on April 2, 2014. The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note are payable at 80 S.W. 8th Street, Suite 2000, Miami, FL 33130, initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein.
This Note is subject to the following additional provisions:
1.
This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.
2.
The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.
3.
This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended ("Act") and applicable state securities laws. Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company's records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted ("Notice of Conversion") in the form annexed hereto as Exhibit A. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.
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4.
(a)
The Holder of this Note is entitled, at its option, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") at a price ("Conversion Price") for each share of Common Stock equal to 60% of the lowest closing bid price of the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for the twenty prior trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion. Once the Holder has received such shares of Common Stock, the Holder shall surrender this Note to the Company, executed by the Holder evidencing such Holder's intention to convert this Note or a specified portion hereof, and accompanied by proper assignment hereof in blank. Accrued, but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 50% instead of 60% while that “Chill” is in effect.
(b)
Interest on any unpaid principal balance of this Note shall be paid at the rate of 10% per annum. Interest shall be paid by the Company in cash only.
(c)
During the first six months this Note is in effect, the Company may redeem this Note by paying to the Holder an amount as follows: (i) if the redemption is within the first 30 days this Note is in effect, then for an amount equal to 125% of the unpaid principal amount of this Note along with any interest that has accrued during that period, (ii) if the redemption is after the first thirty days this note is in effect but before the 61st day this Note is in effect, then for an amount equal to 135% of the unpaid principal amount of this Note along with any accrued interest (iii) if the redemption is after the 61st day this Note is in effect, but less than the 151st day this Note is in effect, then for an amount equal to 145% of the unpaid principal amount of this Note along with any accrued interest and (iv) if the redemption is after the 151st day this Note is in effect, but less than the 181st day this Note is in effect, then for an amount equal to 150% of the unpaid principal amount of this Note along with any accrued interest This Note may not be redeemed after 180 days. The redemption must be closed and paid for within 3 business days of the Company sending the redemption demand or the redemption will be invalid and the Company may not redeem this Note.
(d)
Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization or other change or exchange of outstanding shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.
(e)
In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.
5.
No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
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6.
The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.
7.
The Company agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.
8.
If one or more of the following described "Events of Default" shall occur:
(a)
The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or
(b)
Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, or the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect; or
(c)
The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of the Company under this Note or any other note issued to the Holder; or
(d)
The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or
(e)
A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or
(f)
Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or
(g)
One or more money judgments, writs or warrants of attachment, or similar process, in excess of fifty thousand dollars ($50,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or
(h)
The Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period; or
(i)
The Company shall have its Common Stock delisted from an exchange (including the OTCBB exchange) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days;
(j)
If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the Board;
(k)
The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within 3 business days of its receipt of a Notice of Conversion; or
(l)
The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder.
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Then, or at any time thereafter, unless cured within 10 days, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue at a default interest rate of 16% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10th day.
If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
9.
In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.
10.
Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.
11.
The Company represents that it is not a “shell” issuer and has never been a “shell” issuer or that if it previously has been a “shell” issuer that at least 12 months have passed since the Company has reported form 10 type information indicating it is no longer a “shell issuer. Further. The Company will instruct its counsel to either (i) write a 144- 3(a(9) opinion to allow for salability of the conversion shares or (ii) accept such opinion from Holder’s counsel.
12.
The Company shall issue irrevocable transfer agent instructions reserving 8,865,000 shares of its Common Stock for conversions under this Note (the “Share Reserve”). The reserve shall be replenished as needed to allow for conversions of this Note. Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. The Company shall pay all costs associated with issuing and delivering the shares.
13.
The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.
14.
This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
Dated:
DIGITAL DEVELOPMENT GROUP CORP.
By: __________________________________
Title: _________________________________
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $___________ of the above Note into _________ Shares of Common Stock of Digital Development Group Corp. (“Shares”) according to the conditions set forth in such Note, as of the date written below.
If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.
Date of Conversion:
Applicable Conversion Price:
Signature:
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
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Exhibit 31
The certification required by Rule 13a-14a (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17CFR 240. 15d-14(a))
I, Martin W. Greenwald, certify that:
1.
I have reviewed this Form 10-Q of The Digital Development Group Corp. (the “registrant”);
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.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act 13a-15(e) and 15d – 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) 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 controls over financing 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 to the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal year (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.
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 operations 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.
Dated: June 4, 2014
/s/ Martin W. Greenwald
Martin W. Greenwald
Chief Executive Officer (Principal Executive Officer) and
Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)
Exhibit 32
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report (the “Report”) on the Form 10-Q of The Digital Development Group Corp. (the “Company”) for the three months ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof, I, Martin W. Greenwald, Chief Executive Officer, Chief Financial Officer and Director, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
1.
The Quarterly Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities and Exchange Act of 1934, as amended; and
2.
The information contained in this Quarterly Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
Date: June 4, 2014
/s/ Martin W. Greenwald
Martin W. Greenwald
Chief Executive Officer and
Chief Financial Officer
(Principal Accounting Officer and Principal Financial Officer)