Dolphin Entertainment, Inc. - Quarter Report: 2010 September (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

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

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

Commission file number 000-50621

DOLPHIN DIGITAL MEDIA INC.

(Exact name of registrant as specified in its charter)

Nevada (State of incorporation)		86-0787790 (I.R.S. employer identification no.)

804 Douglas Road, Executive Tower Building, Suite 365, Miami, Florida 33134
(Address of principal executive offices, including zip code)

(305) 774-0407
(Registrant’s telephone number)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

The number of shares of Common Stock outstanding was 64,190,987 as of September 30, 2010.

 

 

DOLPHIN DIGITAL MEDIA INC. AND SUBSIDIARIES
TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION			2
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS			2
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			15
ITEM 4. CONTROLS AND PROCEDURES			18
PART II — OTHER INFORMATION			19
ITEM 1. LEGAL PROCEEDINGS			19
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			20
ITEM 5. OTHER INFORMATION			20
ITEM 6. EXHIBITS			20
Exhibit 31.1
Exhibit 32.1

ITEM 1. FINANCIAL INFORMATION

DOLPHIN DIGITAL MEDIA INC AND SUBSIDIARIES
Consolidated Balance Sheets

		September 30,				December 31,
		2010				2009
		(Unaudited)
ASSETS
Current
Cash		$	81,006			$	3,218
Inventory			8,276				91,860
Prepaid Expenses			—				211,128
Advances			170,500				—
Other Current assets			694				635
Total Current Assets			260,476				306,841
Intangible Assets			1,994,998				1,208,268
Total Assets		$	2,255,474			$	1,515,109
LIABILITIES
Current
Cash overdraft		$	—			$	14,087
Accounts payable			1,467,298				1,573,028
Other current liabilities			360,235				315,350
Deferred licensing — fees			275,000				—
Loans from related party			804,000				1,079,000
Note payable			100,000				—
Notes payable — Convertible (Net of discount of $21,000 and $84,000, respectively)			279,000				216,000
Total Current Liabilities			3,285,533				3,197,465
Long Term Liabilities
Notes payable convertible (Net of discount of $60,331 and $73,032, respectively)			239,669				230,143
Total Liabilities			3,525,202				3,427,608
STOCKHOLDERS’ DEFICIT
Common stock, $0.015 par value, 100,000,000 shares authorized, 64,190,987 and 56,959,454 issued and outstanding as of September 30, 2010 and December 31 2009			962,865				897,141
Preferred stock $0.001 par value, 10,000,000 shares authorized, 500,000 shares issued and outstanding			500				500
Additional Paid-In Capital			28,185,863				24,854,441
Accumulated Deficit			(30,156,891	)			(27,529,526	)
Accumulated Comprehensive loss			(262,065	)			(135,055	)
Total Stockholders’ Deficit			(1,269,728	)			(1,912,499	)
Total Liabilities and Stockholders’ Deficit		$	2,255,474			$	1,515,109

The accompanying notes are an integral part of these unaudited
consolidated financial statements

DOLPHIN DIGITAL MEDIA INC AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations

		For the Three Months Ended								For the Nine Months Ended
		September 30.								September 30.
		2010				2009				2010				2009
Revenues		$	498			$	—			$	976			$	—
Cost of Sales			—				—				320				—
Gross Profit			498				—				656				—
Expenses:
General and Administrative			222,507				1,701,461				794,274				3,415,503
Legal and Professional Fees			155,440				149,832				716,173				353,539
Depreciation			—				8,080				—				22,691
Total Expenses			377,947				1,859,373				1,510,447				3,791,733
Loss from Operations		$	(377,449	)		$	(1,859,373	)			(1,509,791	)		$	(3,791,733	)
Other Expenses
Finance charges			—				—				987,649				—
Income Income			—				—				—				(3	)
Interest Expense			54,184				113,327				129,925				158,518
Total Other Expenses		$	54,184			$	113,327				1,117,574				158,515
Net loss from operations		$	(431,633	)		$	(1,972,700	)		$	(2,627,365	)		$	(3,950,248	)
Foreign Currency Adjustments		$	(105,143	)		$	(5,237	)			(127,010	)			16,130
Comprehensive Loss		$	(536,776	)		$	(1,977,937	)		$	(2,754,375	)		$	(3,934,118	)
Basic and Diluted Loss per Share		$	(0.01	)		$	(0.04	)		$	(0.05	)		$	(0.08	)
Basic and Diluted Weighted Average Number of Shares Outstanding during the Period			62,107,736				53,855,596				60,786,041				52,322,109

The accompanying notes are an integral part of these unaudited
consolidated financial statements

Unaudited Consolidated Statements of Cashflows

		For the Nine Months Ended September 30,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(2,627,365	)		$	(3,950,248	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			—				22,691
Amortization of debt discount			72,526				66,175
Common Stock issued for compensation			—				323,591
Warrants issued for financing			945,614				—
Shares Issued — Services Rendered			128,500				994,870
Changes in operating assets and liabilities:
(Increase) Decrease in prepaid expenses			211,128				(57,127	)
(Increase) Decrease in other current assets			(59	)			79
(Increase) Decrease in Inventory			83,584				35,550
Increase in deferred revenue			275,000				—
Increase (Decrease) in accounts payable			(105,730	)			837,644
Increase (Decrease) in other current liabilities			44,917				(10,375	)
Increase (Decrease) in accrued expenses			—				(30,940	)
Net Cash Used In Operating Activities			(971,885	)			(1,768,090	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of computers			—				(5,264	)
Advances			(170,500	)			—
Purchase of intangible assets			(786,730	)			(874,068	)
Net Cash Used In Investing Activities			(957,230	)			(879,332	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease is cash overdraft			(14,087	)			—
Proceeds from convertible notes payable			—				300,000
Proceeds from notes payable			100,000				—
Proceeds from sale of common stock			1,123,000				1,510,452
Advances from Related Party			45,000				708,819
Repayments to Related Party			(320,000	)			—
Proceeds from exercise of warrants			1,200,000				—
Proceeds from note payable			—				300,000
Net Cash Provided By Financing Activities			2,133,913				2,819,271
Foreign Currency Adjustments			(127,010	)			16,131
NET INCREASE IN CASH AND CASH EQUIVALENTS			77,788				187,980
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD			3,218				51,014
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	81,006			$	238,994
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Interest paid		$	—			$	95,512
Income taxes		$	—				—
SUPPLEMENTAL DISCLOSURES OF NON CASH FLOWS INVESTING AND FINANCING ACTIVITIES:
Conversion of accounts payable to equity		$	—			$	994,870

The accompanying notes are an integral part of these unaudited
consolidated financial statements

DOLPHIN DIGITAL MEDIA, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

NOTE 1 — ORGANIZATION AND BASIS OF PRESENTATION:

Basis of Presentation and Organization

The accompanying unaudited condensed financial statements are presented in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal occurring accruals) considered necessary in order to make the financial statements not misleading, have been included. Operating results for the nine months ended September 30, 2010 are not necessarily indicative of results that may be expected for the year ending December 31, 2010. The condensed financial statements are presented on the accrual basis.

Dolphin Digital Media, Inc. (the “Company”), initially known as Rising Fortune Incorporated, was incorporated in the State of Nevada on March 7, 1995. The Company was inactive between the years 1996 and 2003. On November 19th, 2003, the Company amended its Articles of Incorporation to change its name to Maximum Awards Inc. On July 3 2007 the Company amended its Articles of Incorporation again to change its name to Logica Holdings Inc. On July 29 2008, the Company amended its Articles of Incorporation again to change its name to Dolphin Digital Media Inc

Dolphin Digital Media, Inc. is dedicated to the cause of online safety for children. By creating and managing child-friendly social networking websites utilizing state-of the-art fingerprint identification technology, Dolphin Digital Media has taken an industry-leading position with respect to internet safety, as well as digital entertainment

Dolphin Digital Media (Canada) Inc (Former Plays On The Net Inc) was incorporated in Ontario (Canada) on July 27 2006. The Company changed it name on October 28, 2008.

Curtain Rising Inc was incorporated in Ontario (Canada) on October 19 2006. The company has no current operations, revenues or expenses.

On June 23 2008 Logica Holdings purchased 100% of Dolphin Digital Media Inc. The Company issued a total of 24,063,735 of common shares, equivalent to 51% of its outstanding common stock, for the acquisition of Dolphin Digital Media Inc resulting in a change of control. The total amount of issued and outstanding share for the period ended June 30, 2008 was 47,183,793. The acquisition was accounted for as a reverse merger transaction with Logica Holdings. Historical financials are those of Logica Holdings.

In September 2010 we announced the launch of Dolphin Digital Studios as a new division of the Company. Dolphin Digital Studios will create original programming that premieres online, with an initial focus on content geared toward tweens and teens.

NOTE 2 — GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern. The Company has net losses for the nine months ended September 30, 2010 of $2,627,365. As of September 30, 2010 the Company recorded an accumulated deficit of approximating $30,156,891. Further, the Company has inadequate working capital to maintain or develop its operations, and is dependent upon funds from private investors and the support of certain stockholders.

These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. In this regard, Management is planning to raise any necessary additional funds through loans and additional sales of its common stock. There is no assurance that the Company will be successful in raising additional capital.

NOTE 3 — SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows:

Principles of Consolidation

The accompanying financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company and its wholly owned subsidiaries. The accompanying consolidated financial statements include the accounts of Dolphin Digital Media Inc and its subsidiaries Plays On The Net Plc, Dolphin Digital Media (Canada) Inc, and Curtain Rising Inc and. for the three and nine months ended September 30, 2010 and 2009. Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.

Reclassification

Certain prior period amounts have been reclassified to conform to September 30, 2010 presentations.

Revenue Recognition

Revenue is recognized in accordance with the provision of FASB ASC Topic 605, “Revenue Recognition”. In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered, the selling price is fixed and determinable, and collectability is reasonably assured.

The Company recognizes the monthly and annual subscription revenues over the service period. Advertising revenue is recognized over the period the advertisement is displayed. Online shopping revenues and affiliate commission income are both recognized when a customer incurs in a purchase.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At September 30, 2010 and December 31, 2009, there were no cash and cash equivalents. Cash and cash equivalents are defined to include cash on hand and cash in the bank.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. These inventories consisted of fingerprint readers. At September 30, 2010 and December 31 2009 the value of the Company’s inventory was $8,276 and $91,860, respectively. During the nine months ended September 31, 2010 the Company sold inventory in the amount of $75,000 at cost to a licensor of our technology.

Property and Equipment

Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized thereon. Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized. The range of estimated useful lives to be used to calculate depreciation for principal items of property and equipment are as follow:

		Depreciation/
		Amortization
Asset Category		Period
Furniture and Fixture		5 Years
Computer equipment		3 Years
Leasehold improvements		5 Years

Goodwill and Intangible Assets

The Company adopted Accounting Standard Codification (“ASC”) Topic 350, formerly, Statement of Financial Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets, effective July 1, 2002. As a result, the Company discontinued amortization of goodwill, and instead annually evaluates the carrying value of goodwill for impairment, in accordance with the provisions of ACS Topic 350, formerly SFAS No. 142. Goodwill and indefinite-lived intangible represents the excess of the cost of investments in subsidiaries over the fair value of the net identifiable assets acquired. The Company holds licenses and expects both licenses and the cash flow generated by the use of the licenses in order to operate the platform to continue indefinitely due to the likelihood of continued renewal at little or no cost.

Impairment of Long-Lived Assets

The Company accounts for long-lived assets under the FASB Accounting Standards Codification No.’s 350 and 360 Intangibles — Goodwill and Other and Property, Plant and Equipment. In accordance with FASB ASC No.’s 350 and 360, long-lived assets, Goodwill and indefinite-lived intangible assets are reviewed for impairment by applying a fair-value based test on an annual basis or more frequently if circumstances indicate a potential impairment. If it is determined that the carrying amount of the asset exceeds its fair value, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value and classified as “Impairment” in the consolidated statement of operations.

Comprehensive Income (Loss)

The Company has adopted ACS Topic 220, formerly SFAS No. 130, “Reporting Comprehensive Income” (“SFAS 130”), which establishes standards for reporting and display of comprehensive income, its components and accumulated balances. The Company is disclosing this information on its Statement of Stockholders’ Deficit.

Comprehensive income (loss) comprises a gain or loss on foreign currency translation.

Foreign Currency Translation

The functional currency of the Company is the United States Dollar. The financial statements of the Company’s Canadians subsidiary translated to the United States dollar using the period exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transaction occurred. Net gains and losses resulting from foreign exchange translations are included in the statements of operations and stockholders’ equity as other comprehensive income (loss).

Loss per share

The Company has adopted FASB Accounting Standards Codification No. 260 Earnings Per Share, Loss per common share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding during the period. Stock warrants were not included in the computation of loss per share for the periods presented because their inclusion is anti-dilutive. The total potential dilutive warrants and stock options outstanding at September 30, 2010 was 11,242,944 shares. There were no dilutive securities outstanding for the period ended June 30, 2010.

Business Segments

The Company operates the following business segments:

	1)		Dolphin Digital Media (USA): The Company’s primary business model is monthly and annual membership fees in the US for subscription to Dolphinsecure.com.
	2)		Dolphin Digital Media (Canada): The Company’s primary business model is monthly and annual membership fees in Canada for subscription to Dolphinsecure.com.

Fair Value of Financial Instruments

Fair value of certain of the Company’s financial instruments including cash and cash equivalents, inventory, advances, account payable, deferred licensing fees, notes payables, and other accrued liabilities approximate cost because of their short maturities. The Company measures and reports fair value in accordance with ASC 820, “Fair Value Measurements and Disclosure” defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments.

Fair value, as defined in ASC 820, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, principal (or most advantageous) markets, and an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk.

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques may require significant judgment and are primarily dependent upon the characteristics of the asset or liability, and the quality and availability of inputs. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also provides fair value hierarchy for inputs and resulting measurement as follows:

Level 1

Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;

Level 2

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3

Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair values.

Fair value measurements are required to be disclosed by the Level within the fair value hierarchy in which the fair value measurements in their entirety fall. Fair value measurements using significant unobservable inputs (in Level 3 measurements) are subject to expanded disclosure requirements including a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings, and a description of where those gains or losses included in earning are reported in the statement of income.

Concentration of Credit Risk

The Company did not have cash in banks in excess of FDIC insurance limits at September 30, 2010 and December 31, 2009. During the three and nine months ended September 30, 2010 the Company did not have concentration of sales. During the three and nine months ended September 30, 2009, the Company did not have any sales.

Recent Accounting Pronouncements

Recent accounting pronouncements that the Company has adopted or will be required to adopt in the future are summarized below.

In January 2010, the FASB has published ASU 2010-01 “Equity (Topic 505) — Accounting for Distributions to Shareholders with Components of Stock and Cash—a consensus of the FASB Emerging Issues Task Force,” as codified in ASC 505. ASU No. 2010-01 clarifies the treatment of certain distributions to shareholders that have both stock and cash components. The stock portion of such distributions is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009 and should be applied on a retrospective basis. Early adoption is permitted. The adoption of this standard did not have an impact on the Company’s (consolidated) financial position and results of operations.

Ownership of a Subsidiary—a Scope Clarification,” as codified in ASC 810, “Consolidation.” ASU No. 2010-02 applies retrospectively to April 1, 2009, our adoption date for ASC 810-10-65-1 as previously discussed in this financial note. This ASU clarifies the applicable scope of ASC 810 for a decrease in ownership in a subsidiary or an exchange of a group of assets that is a business or nonprofit activity. The ASU also requires expanded disclosures. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this standard is not expected to have any impact on the Company’s consolidated financial position and results of operations.

In January 2010, the FASB has published ASU 2010-06 “Fair Value Measurements and Disclosures (Topic 820): — Improving Disclosures about Fair Value Measurements”. ASU No. 2010-06 clarifies improve disclosure requirement related to fair value measurements and disclosures — Overall Subtopic (Subtopic 820-10) of the FASB Accounting Standards Codification. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure about purchase, sales, issuances, and settlement in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In February 2010, the FASB issued ASU 2010-09 which requires that an SEC filer, as defined, evaluate subsequent events through the date that the financial statements are issued. The update also removed the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

In August 2010, the FASB issued Accounting Standard Updates No. 2010-21 (ASU No. 2010-21) “Accounting for Technical Amendments to Various SEC Rules and Schedules” and No. 2010-22 (ASU No. 2010-22) “Accounting for Various Topics — Technical Corrections to SEC Paragraphs”. ASU No 2010-21 amends various SEC paragraphs pursuant to the issuance of Release no. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies. ASU No. 2010-22 amends various SEC paragraphs based on external comments received and the issuance of SAB 112, which amends or rescinds portions of certain SAB topics. Both ASU No. 2010-21 and ASU No. 2010-22 are effective upon issuance. The amendments in ASU No. 2010-21 and No. 2010-22 will not have a material impact on the Company’s financial statements.

Other ASUs not effective until after September 30, 2010, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

NOTE 4 — ADVANCES

On June 28, 2010 — The Company signed a letter of intent to acquire 24eight, LLC a privately held company based in Manhattan. 24eight is a technology company that specializes in real-time motion and pressure analytics and the wireless transmission of collected data. The transaction was subject to customary due diligence and execution of a definitive agreement. Management has decided not to proceed with the acquisition and is expecting repayment of the advances. As of September 30, 2010 The Company has advanced 24eight, LLC a total of $170,500.

NOTE 5 — INTANGIBLE ASSETS

The Company has intangible assets as follows:

		September 30,				December 31,
		2010				2009
Other intangible assets		$	29,924			$	29,924
Dolphin Secure Websites			1,965,074				1,178,344
Total		$	1,994,998			$	1,208,268

The Company has determined that the aforesaid assets have an indefinite life and therefore has not been amortized. The Company is still in the process of evaluating these intangible assets for impairment as of September 30, 2010. For the nine months ending September 30, 2010, the Company has not generated significant revenues or other economic benefits that were directly derived from these assets.

NOTE 6 — Deferred Licensing Fees

On September 29, 2010 the Company entered into letter of intent for licensing right of its technology in Europe. The Company is in process of negotiating the final terms of the agreement. As of September 30, 2010 the Company has received licensing fees of $275,000, the amount has been recorded as deferred licensing fees in the accompanying consolidated financial statements.

NOTE 7 — NOTE PAYABLE

On September 29, 2010 the Company received a $100,000 loan from a third party licensee of its technology. The amount is due upon demand, unsecured, non-interest bearing, and does not follow any specific repayment terms.

NOTE 8 — NOTES PAYABLE — CONVERTIBLE

		September 30,				December 31,
		2010				2009
Note Amount		$	300,000			$	300,000
Discount			(21,000	)			(84,000	)
Net		$	279,000			$	216,000

In January 2009 the Company received proceeds of $200,000 from a note payable. The note bears interest at a rate of 10% per annum and is convertible at $.50 per share. The note is due two years from the date of issuance. Accrued interest at September 30, 2010 and December 31, 2009 amount to $34,575 and $19,616, respectively. The Company recorded a discount of $112,000. The Company is amortizing the beneficial conversion over the term of the note. Amortization expense for the three and nine months ended September 30, 2010 and December 31, 2009 amounted to $14,000, $42,000 and $56,000, respectively.

In March 2009 the Company received proceeds of $100,000 from a note payable. The note bears interest at a rate of 10% and is convertible at $.50 per share. The note is due two years from the date of issuance. Accrued interest at September 30, 2010 and December 31, 2009 amounted to $15,014 and $7,534, respectively. The Company recorded a discount of $56,000. The Company is amortizing the beneficial conversion over the term of the note. Amortization expense for the three and nine months ended September 30, 2010 and December 31, 2009 $7,000, $21,000 and $28,000, respectively.

NOTE 9 — NOTE PAYABLE RELATED PARTY

As of September 30, 2010 and December 31, 2009 The Company’s CEO had loaned the Company a total of $804,000 and $1,079,000, respectively. During the nine months ended September 30, 2010 The Company’s CEO loaned the Company an additional $45,000 and received repayments of $320,000. The note accrues interest at a rate of 10%. Accrued interest amounted to $167,868 and $111,278 at September 30, 2010 and December 31, 2009, respectively.

NOTE 10 — NOTE PAYABLE — CONVERTIBLE

In July 2009 the Company entered into a convertible promissory note in the amount of $300,000. The Company has agreed to issue 231,000 common stock warrants at an exercise price of $.0001 pursuant to the note agreement. The note is convertible into 769,231 shares of common ($.39 per share) and 384,616 common stock warrants with an exercise price of $.80. The Note is due July 29, 2015. The fair value of the warrants was estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield 0%, volatility 121%, risk-free interest rate of 1%, and expected warrant life of 6 months The fair value of the warrants on the date of issuance was $76,207. The Company will amortize the value of the warrants over the term of the note. For the Three and nine months ended September 30, 2010 the Company recorded amortization expense of $3,176 and $9,528, respectively related to the note.

		September 30,				December 31,
		2010				2009
Note Amount		$	300,000			$	300,000
Discount			(60,331	)			(69,857	)
Net		$	239,669			$	230,143

NOTE 11— LICENSING AGREEMENTS

The Company recognizes a ten year licensing agreement between Dolphin Entertainment Inc. and Dolphin Digital Media Inc. Under the license, the Company is authorized to use Dolphin Entertainment’s brand properties in connection with the creation, promotion and operation of subscription based Internet social networking websites for children and young adults. The license requires that the Company pays to Dolphin Entertainment royalties at the rate of fifteen percent of net sales from performance of the licensed activities. No significant sales were recorded during the year ended December 31, 2009 and the nine months ended September 30, 2010

NOTE 12 — STOCKHOLDERS’ EQUITY

A) Preferred Stock

The Company’s Articles of Incorporation authorize the issuance of 10,000,000 shares of $0.001 par value preferred stock. The Board of Directors has the power to designate the rights and preferences of the preferred stock and issue the preferred stock in one or more series.

a) On October 4, 2007 the Company issued 250,000 preferred shares for a cash consideration of $250,000. These preferred shares are convertible by the investor into 2.5 shares of common stock or $ .40 per share.

b) On November 7, 2007 the Company issued 250,000 preferred shares for a cash consideration of $250,000. These preferred shares are convertible by the investor into 2.0833 shares of common stock or $ .48 per share.

As of September 30, 2010, the Company had 500,000 preferred shares issued and outstanding.

On October 4th 2007, the company entered into a financing agreement whereby Warrants were issued to an investor to purchase the following amounts of common stock:

	a)		650,000 shares of common stock exercisable at $0.72 per share.
	b)		1,500,000 shares of common stock exercisable at $1.00 per share.
	c)		1,500,000 shares of common stock exercisable at $2.00 per share.

On March 10, 2010 the Company and T Squared Investments LLC agrees to cancel the following warrants:

	•		Warrant “A” for 650,000 shares;
	•		Warrant “B” for 1,500,000 shares;
	•		Warrant “C” for 1,500,000 shares; and,
	•		Warrant “4” for 384,615 shares.

Post such cancellation, the only warrants held by T Squared Investments LLC was their existing Warrant “D” for 231,000 shares with an exercise price of $0.0001 per share and the following warrant below. Pursuant to this agreement the expiration date of Warrant “D” was reduced from July 28, 2014 to December 31, 2012.

In consideration for the cancellation of such warrants above and for the payment to the Dolphin Digital Media, Inc. (DPDM) described below, T Squared Investments LLC was issued a new Warrant “E” for 7,000,000 shares of DPDM with an expiration date of December 31, 2012 and an exercise price of $0.25 per share.

T Squared Investments LLC wired Two Hundred Thousand Dollars ($200,000) to the Company, which resulted in the effective reduction of the exercise price of Warrant “E” from $0.25 per share to $0.2214 per share. T Squared Investments LLC can continually pay the Company an amount of money to reduce the exercise price of Warrant “E” until such time as the exercise price of Warrant “E” is effectively $0.0001 per share. Each time a payment by T Squared Investments LLC is made to DPDM, a side letter will be executed by both parties that states the new effective exercise price of Warrant “E” at that time. At such time when T Squared Investments LLC has paid down Warrant “E” to an exercise price of $0.0001 per share or less, T Squared Investments LLC shall have the right to exercise Warrant “E” via a cashless provision and hold for six months to remove the legend under Rule 144.

T Squared Investments LLC may not exercise such warrant if post the exercise, T Squared Investments LLC would be above the 9.99% ownership level of the Company.

The Company incurred an expense of $966,649 as a result of the repricing of these warrants. The fair value of the warrants was estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield 0%, volatility 136%, risk-free interest rate of 1%, and expected warrant life of 18 months

On April 6, 2010 T-Squared Investments, LLC paid down an additional $200,000 reducing the exercise price on the warrants to $.1928.

On May 17, 2010 T-Squared Investments, LLC paid down an additional $200,000 reducing the exercise price on the warrants to $.1643.

On June 18, 2010 T-Squared Investments, LLC paid down an additional $200,000 reducing the exercise price on the warrants to $.1357.

On July 16, 2010 T-Squared Investments, LLC paid down an additional $100,000 reducing the exercise price on the warrants to $.1214.

On August 12, 2010 T-Squared Investments, LLC paid down an additional $100,000 reducing the exercise price on the warrants to $.1072.

On September 14, 2010 T-Squared Investments, LLC paid down an additional $100,000 reducing the exercise price on the warrants to $.0929.

On September 30, 2010 T-Squared Investments, LLC paid down an additional $100,000 reducing the exercise price on the warrants to $.0786,

(B) Common Stock

The company’s Articles of Incorporation authorize the issuance of 100,000,000 shares at $0.015 par value.

The following transactions occurred during the nine months ended September 30, 2010:

During the nine months ended June 30, 2010 the Company sold to two individuals a total of 2,800,000 shares of common for $700,000 ($.25 per share).

During the nine months September 30, 2010 the Company sold to eleven individuals a total of 1,584,854 shares of common for $523,000 ($.33 per share). In addition the Company issued 792,427 common stock warrants with an exercise price of $1.00.

During the nine months ended September 30, 2010 the Company sold to an investor 64,103 shares of common for $25,000 ($.39 per share). In addition the Company issued 64,103 common stock warrants with an exercise price of $.80.

Common stock issued for services

In February, 2010 the Company issued a total of 250,000 shares of common stock for services valued at $72,500 ($.33 per share) the fair market value on the date of issuance.

In April, 2010 the Company issued a total of 175,000 shares of common stock for services valued at $56,000 ($.32 per share) the fair market value on the date of issuance.

NOTE 13 — STOCK OPTION PLAN

As of September 30, 2010, the Company had not implemented a stock option plan.

NOTE 14 — COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

The Company headquarters is in Miami, Florida, where it leases office space at $3,237 per month.

NOTE 15 — LITIGATION

On October 1, 2009, Dolphin Digital Media, Inc, Dolphin Entertainment, Inc. and Dolphin Entertainment Capital, Inc. brought suit in the U.S. District Court for the Southern District of Florida against Mark Peikin, Joshua M. Gold, Bespoke Growth Partners, Inc., Gsquared, Ltd., Carta De Dinero, LLC, Nevada Agency And Transfer Co. and Merrill Lynch Pierce Fenner & Smith Incorporated. The suit seeks recovery of corporate stock and damages occasioned by the misfeasance of Peikin, Gold and the corporate entities over which they presided. As alleged in the complaint, Peikin and Gold served as outside and inside counsel to and officers of Plaintiffs in 2008 and 2009. In the course of their affiliation with Plaintiffs, they were able to use their positions of trust to gain access to Plaintiffs’ assets and opportunities and divert same to Bespoke, Gsquared and Carta De Dinero. Among their actions, the Company alleged Peikin and Gold improperly directed Nevada Agency And Transfer Co. to issue one million shares of Dolphin Digital Media, Inc.’s stock to Carta De Dinero, who then transferred such shares to its account at Merrill Lynch and sold them on the open market. In this lawsuit, Plaintiffs seek recovery of the damages occasioned by the improper issuance and sale of the Dolphin Digital Media, Inc. stock, as well as the value of the actual funds and opportunities misappropriated by Peikin and Gold and also alleged civil racketeering counts. On or about April 19, 2010, the Court dismissed the civil racketeering counts on the basis that the alleged enterprise was primarily formed and existed for the commission of the theft of the above-mentioned stock. The Court made no determination on the merits of the underlying allegations. As a result of the dismissal, the Court was deprived of jurisdiction over the cause.

On April 20, 2010, Peikin and Gold filed an action in Miami-Dade County Circuit Court against Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc., respectively, relating to their employment with the companies. Peikin has sued Dolphin Entertainment, Inc. for: 1) breach of contract; 2) promissory estoppel; 3) fraud in the inducement; and 4) negligent misrepresentation and Gold has sued Dolphin Digital Media, Inc. for negligent misrepresentation. On or about May 10, 2010, Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc. filed their Answer, Affirmative Defenses, Counterclaim against Peikin and Gold and a Third Party Claim against Bespoke Growth Partners, Inc., Gsquared, Ltd. and Carta De Dinero, LLC, alleging virtually the same counts alleged in the action filed in the U. S. District Court action. The Counterclaim and the Third-Party Claim allege among other things, fraud, civil theft, unjust enrichment and conversion and seek an accounting. Discovery has been served and the ultimate results of these proceedings cannot be predicted with certainty.

On or about January 25, 2010, an action was filed by Tom David against Winterman Group Limited, Dolphin Digital Media (Canada) Ltd., Malcolm Stockdale and Sara Stockdale in the Superior Court of Justice in Ontario (Canada) alleging breach of a commercial lease and breach of a personal guaranty. On or about March 18, 2010, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale filed a Statement of Defense and Crossclaim. In the Statement of Defense, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale deny any liability under the lease and guaranty. In the Crossclaim filed against Dolphin Digital Media (Canada) Ltd., Winterman Group Limited, Malcolm Stockdale and Sara Stockdale seek contribution or indemnity against Dolphin Digital Media (Canada) Ltd. alleging that Dolphin Digital Media (Canada) agreed to relieve Winterman Group Limited, Malcolm Stockdale and Sara Stockdale from any and all liability with respect to the lease or the guaranty. On or about March 19, 2010, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale filed a Third Party Claim against the Company seeking contribution or indemnity against the Company, formerly known as Logica Holdings, Inc., alleging that the Company agreed to relieve Winterman Group Limited, Malcolm Stockdale and Sara Stockdale from any and all liability with respect to the lease or the guaranty. The Third Party Claim was served on the Company on April 6, 2010. On or about April 1, 2010, Dolphin Digital Media (Canada) filed a Statement of Defense and Crossclaim. In the Statement of Defense, Dolphin Digital Media (Canada) denied any liability under the lease and in the Crossclaim against Winterman Group Limited, Malcolm Stockdale and Sara Stockdale, Dolphin Digital Media (Canada) seeks contribution or indemnity against Winterman Group Limited, Malcolm Stockdale and Sara Stockdale alleging that the leased premises were used by Winterman Group Limited, Malcolm Stockdale and Sara Stockdale for their own use. On or about April 1, 2010, Dolphin Digital Media (Canada) also filed a Statement of Defense to the Crossclaim denying any liability to indemnify Winterman Group Limited, Malcolm Stockdale and Sara Stockdale. The Company has yet to respond to the Third Party Claim. The ultimate results of these proceedings against the Company cannot be predicted with certainty.

NOTE 16 — RELATED PARTY TRANSACTIONS

Related party transactions with Mr. William O’Dowd IV, CEO of the Company:

As of September 30, 2010 and December 31, 2009 The Company’s CEO had loaned the Company a total of $804,000 and $1,079,000, respectively. During the nine months ended September 30, 2010 The Company’s CEO loaned the Company an additional $45,000 and received repayments of $320,000. The note accrues interest at a rate of 10%. Accrued interest amounted to $167,868 and $111,278 at September 30, 2010 and December 31, 2009, respectively.

NOTE 17 — SUBSEQUENT EVENTS

On October 26, 2010 T-Squared Investments, LLC paid down an additional $100,000 reducing the exercise price on the warrants to $.0643,

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Summary

Dolphin Digital Media, Inc. is dedicated to the cause of online safety for children. By creating and managing child-friendly social networking websites utilizing state-of the-art fingerprint identification technology, Dolphin Digital Media has taken an industry-leading position with respect to internet safety, as well as digital entertainment.

Our Signature Product

Dolphin Secure is easy-to-use software that downloads onto any computer in a child’s life, and gives parents the ability to guide where their children can go, and who they can talk to, while online.

How “Dolphin Secure” Works: Fingerprint Log-In

In a truly revolutionary offering, and one of the major aspects that makes Dolphin Secure a unique service, a child may fully utilize the “Dolphin Surf” social network and communicate with their friends only following Dolphin Secure fingerprint identification. Upon registration, a new user scans their finger using the Dolphin Secure UPEK fingerprint reader. The scanned fingerprint is then converted into a number and stored in a protected, remote database.

The child’s account details (e.g. parental settings and personal preferences) are associated with this number, which is created by an irreversible algorithm. A copy (or a “print”) of any user’s actual fingerprint is never taken, let alone stored anywhere within the Dolphin Secure system. Only the unique number created by any user’s unique fingerprint is kept.

After registration, each time an internet browser or an IM application is attempted to be used on the computer that is Dolphin Secure, a log-in page is triggered. Children simply enter their user name and scan their fingerprint. Dolphin Secure then verifies the child’s identity by matching the unique number created by this fingerprint scan with the number associated with the child’s user name in the Dolphin Secure database.

Once a match has been created, the Dolphin Secure system promptly loads each child’s personal, customizable home page within Dolphin Surf. That child is now free to surf to websites, and free to seek other children to be friends with, that are within the controls established by the parent. When parents or other adults in the household want to use the same computer, a master username and password can be entered, which unlocks the computer and allows them to freely access the Internet. Once the parent logs out, Dolphin Secure is automatically back in place for the next session.

“Dolphin Surf”

“Dolphin Surf” is a social network featuring the advanced functionality associated with the leading online communities and virtual worlds. Kids have the opportunity to create a profile, IM with approved friends, search for new friends, upload photos, send e-mails and customize a homepage that includes a widget library of content, friend updates and much more, all under the protection of the Dolphin Secure system. Children can set their own site themes, backgrounds and add or delete widgets on their homepage, making their Dolphin Surf experience totally unique to them.

“Dolphin Groups”

The launch of Dolphin Groups in February 2010 allows all children’s organizations (e.g. schools, little leagues, after-school programs, charitable organizations, etc.) to create their own mini-sites within Dolphin Surf.

Any group will have the ability to upload content such as videos and photos to the group page, send out messages to the whole group, write on an individual member’s “wall,” create a calendar, schedule events, and much more. Of course, the group sites have the full instant messaging capability that is a revolutionary aspect of Dolphin Secure, thereby allowing the children to chat live with each other while viewing the group’s site. For the first time, a children’s organization can safely create their own environment with full online interactivity occurring by their children.

Dolphin Surf offers different levels of privacy for any group, including: (1) Open: where any child within Dolphin Surf can join (e.g. a “fan club” started by a child in support of a favorite television show), or (2) Semi-Private: where a group administrator can set parameters for who can join their group, such as age range or gender (e.g. a particular Little League Division only open to boys and girls twelve and under), or (3) Private: where a group administrator will have to review and approve each individual who requests to join the group (e.g.: a specific Little League team).

In May, 2010, the functionality of Dolphin Groups was expanded to include the option for group administrators to charge membership fees, on either a monthly or annual basis. Furthermore, the option for individual groups within Dolphin Surf to link to one another was also released.

Links between groups can be either single-direction or dual-direction. Single-direction groups simply means that only the members from one group are automatically invited to join the other group, but not the other way around (i.e. members of a particular local Girl Scout Troop are invited to join the group site for the Girl Scouts in that particular state, but not every Girl Scout in the state is invited to join the group site for that particular local Girl Scout Troop). Dual-direction groups simply means that the members from each group are automatically invited to join the other group (e.g. upon entering into the fan club for the leading actress of a popular television show, a member is automatically invited to the fan club for the leading actor of the same television show, and vice versa).

Management believes that these dual features of affiliation and monetization create a unique and compelling opportunity for any children’s organization or content owner to have their online experience benefit from Dolphin Secure.

Pricing & Availability

An annual child membership to Dolphin Secure costs $59.95 per year (approx. $5 per month) plus an additional one-time fee of $15.00 for a fingerprint reader. Each additional child membership is $29.95 per year; a parent account is free. As of September 30, 2010, a monthly subscription can be purchased for $5.95 per month for the first child, and $2.95 per month for each additional child in the household. Parents pay per child on their family account, not per software download. This way, a family can download Dolphin Secure onto every computer in the home for no additional charge. Extra fingerprint readers can be purchased for $24.95 each.

Dolphin Secure currently works for PCs using Windows 7, Windows XP or Vista operating systems, as well as Mac computers using the Safari operating system.

Approach to Market

In February 2010, we announced a strategic partnership with the United Way of Miami-Dade to promote Dolphin Secure. The United Way of Miami-Dade is committed to helping Dolphin Digital Media in raising awareness around the importance of internet safety for children and the benefits of Dolphin Secure. Through this strategic partnership, the United Way of Miami-Dade will work with Dolphin Digital Media to expand its reach into key markets and audiences.

The first results of this strategic partnership were recognized later in February with the announcement that Dolphin Digital Media and the United Way of Miami-Dade had entered into an alliance with the Miami-Dade County Public Schools to promote Dolphin Secure. Miami-Dade County Public Schools is the fourth-largest public school system in the country, with a diverse enrollment of more than 342,000 students from over 100 countries at its 392 schools. Miami-Dade County Public Schools also has 50,271 employees, including 22,006 teachers. In addition to the safety benefits of Dolphin Secure, all parties are excited about utilizing Dolphin’s biometric authentication to help deliver on the promise of “virtual schooling,” including online classes available to all students, as well as live chat for homework help and tutoring.

In March 2010, we entered into a partnership with the Girl Scout Council of Tropical Florida to promote Dolphin Secure and to utilize Dolphin Secure’s group functionality. The campaign, “SOS: Speak Online Safely,” began March 25, 2010. The Girl Scout Council of Tropical Florida has over 700 troops and over 16,000 members between Miami-Dade County and Monroe County. Each troop will have their own group within Dolphin Surf, open only to their members, while the Council as a whole will have a group open to all 16,000 Girl Scouts in Miami-Dade and Monroe counties. Also, the Girl Scout Council of Tropical Florida will start other groups for additional programs they offer, all open only to the girls that participate in those programs, as well as groups open to all girls, whether they are current Girl Scouts or not. This partnership is a wonderful example of the clear benefits that the group functionality within Dolphin Secure offers to all children’s organizations, large or small.

Management is currently exploring additional sales channels, including electronic retail and traditional brick and mortar.

“Dolphin Digital Studios”

On September 09, 2010 the Company announced the launch of Dolphin Digital Studios. As a new division of the company, Dolphin Digital Studios will create original programming that premieres online, with an initial focus on content geared toward tweens and teens.

Dolphin Digital Studios will begin production on its first project in the fourth quarter of 2010 for a scheduled release in early 2011. Dolphin Digital Studios plans to produce between 8 and 10 web series per year. Some projects may be self-financed, while some projects currently under development will be funded through project-specific strategic and financial partnerships. This will allow Dolphin Digital Studios to have attractive financing alternatives while developing its slate of programming.

The Company expects each web series created by Dolphin Digital Studios to generate $1 million in revenue, with net margins of 20% to 30% per project. Dolphin Digital Studios already has several projects under development. Web series, in general, have a fairly short development and production cycle, thus allowing for quick distribution in comparison with traditional television and film models.

Results for the three months ended September 30, 2010 compared to the three months ended September 30, 2009

Revenues increased by $498 from $0 for the three months ended September 30, 2009 to $498 for the three months ended September 30, 2010 the Company has begun to generate limited revenues during the nine months ended September 30, 2010. The Company expects to begin generating revenues from DolphinSecure and Dolphin Surf websites in the first quarter of 2011.

The Company’s general and administration costs decreased by $1,478,954 from $1,701,461 for the three months ended September 30, 2009 to $222,507 for the three months ended September 30, 2010 as a result of decreased marketing and administrative costs.

The total expenditure for the three months ended September 30, 2010 was 377,947 as opposed to $1,859,373 for the quarter ended September 30, 2009. The decrease was a result of decreased marketing, administrative costs and professional fees.

The total other expenses for the three months ended September 30, 2010 was $54,184 as opposed to $113,327 for the quarter ended September 30, 2009. The decrease was a result of a decrease in interest expense of $59,143.

The net loss was $431,633 or $(.01) per share based on 62,107,736 weighted average shares outstanding for the three months ended September 30, 2010 compared to a loss of $1,977,937 or $(.04) per share based on 53,855,596 weighted average shares outstanding for the three months ended September 30, 2009.

Results for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009

Revenues increased by $976 from $0 for the nine months ended September 30, 2009 to $976 for the nine months ended September 30, 2010. The Company has begun to generate limited revenues during the nine months ended September 30, 2010. The Company expects to begin generating revenues from DolphinSecure and Dolphin Surf websites in the first quarter of 2011.

The cost of sales for the nine months ended September 30, 2010 was $320 as opposed to $0 for the nine months ended September 30, 2009. The $320 increase was due to Company’s limited sales during the nine months ended September 30, 2010.

The Company’s general and administration costs decreased by $2,621,229 from $3,415,503 for the nine months ended September 30, 2009 to $794,274 for the nine months ended September 30, 2010 as a result of decreased marketing and administrative costs.

The total expenditure for the nine months ended September 30, 2010 was $3,791,733 opposed to $1,510,447 for the nine months ended September 30, 2009. The decrease was a result of decreased marketing, administrative costs and increased professional fees.

The total other expenses for the nine months ended September 30, 2010 was $1,117,574 as opposed to $158,515 for the nine months ended September 30, 2009. The increase was a result of $945,614 for the restructuring or warrants, $63,000 amortization of warrants and in increase in interest expense of $28,593.

The net loss was $2,627,365 or $(.05) per share based on 60,786,041 weighted average shares outstanding for the nine months ended September 30, 2010 compared to a loss of $3,950,248 or $(.08) per share based on 52,322,109 weighted average shares outstanding for the nine months ended September 30, 2009.

Liquidity and Capital Resources

Through the nine months ended September 30, 2010 we have relied on advances of $45,000 from our President and CEO. We received $1,200,000 from the pay down of warrants. We sold a total of 4,448,957 shares of common stock for proceeds of $1,123,000. As of September 30, 2010, we had cash of $81,006 and a working capital deficit of $3,025,057.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive and financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost- benefit relationship of possible controls and procedures.

As of September 30, 2010, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Controls

There have been no changes in the Company’s internal controls over financial reporting that occurred during the Company’s last fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, except that the Company increased its internal controls around the issuance and recording of common stock sales.

Limitations on the Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives. The Company’s chief executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective at that reasonable assurance level.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On October 1, 2009, Dolphin Digital Media, Inc, Dolphin Entertainment, Inc. and Dolphin Entertainment Capital, Inc. brought suit in the U.S. District Court for the Southern District of Florida against Mark Peikin, Joshua M. Gold, Bespoke Growth Partners, Inc., Gsquared, Ltd., Carta De Dinero, LLC, Nevada Agency And Transfer Co. and Merrill Lynch Pierce Fenner & Smith Incorporated. The suit seeks recovery of corporate stock and damages occasioned by the misfeasance of Peikin, Gold and the corporate entities over which they presided. As alleged in the complaint, Peikin and Gold served as outside and inside counsel to and officers of Plaintiffs in 2008 and 2009. In the course of their affiliation with Plaintiffs, they were able to use their positions of trust to gain access to Plaintiffs’ assets and opportunities and divert same to Bespoke, Gsquared and Carta De Dinero. Among their actions, the Company alleged Peikin and Gold improperly directed Nevada Agency And Transfer Co. to issue one million shares of Dolphin Digital Media, Inc.’s stock to Carta De Dinero, who then transferred such shares to its account at Merrill Lynch and sold them on the open market. In this lawsuit, Plaintiffs seek recovery of the damages occasioned by the improper issuance and sale of the Dolphin Digital Media, Inc. stock, as well as the value of the actual funds and opportunities misappropriated by Peikin and Gold and also alleged civil racketeering counts. On or about April 19, 2010, the Court dismissed the civil racketeering counts on the basis that the alleged enterprise was primarily formed and existed for the commission of the theft of the above-mentioned stock. The Court made no determination on the merits of the underlying allegations. As a result of the dismissal, the Court was deprived of jurisdiction over the cause.

On April 20, 2010, Peikin and Gold filed an action in Miami-Dade County Circuit Court against Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc., respectively, relating to their employment with the companies. Peikin has sued Dolphin Entertainment, Inc. for: 1) breach of contract; 2) promissory estoppel; 3) fraud in the inducement; and 4) negligent misrepresentation and Gold has sued Dolphin Digital Media, Inc. for negligent misrepresentation. On or about May 10, 2010, Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc. filed their Answer, Affirmative Defenses, Counterclaim against Peikin and Gold and a Third Party Claim against Bespoke Growth Partners, Inc., Gsquared, Ltd. and Carta De Dinero, LLC, alleging virtually the same counts alleged in the action filed in the U. S. District Court action. The Counterclaim and the Third-Party Claim allege among other things, fraud, civil theft, unjust enrichment and conversion and seek an accounting. Discovery has been served and the ultimate results of these proceedings cannot be predicted with certainty.

On or about January 25, 2010, an action was filed by Tom David against Winterman Group Limited, Dolphin Digital Media (Canada) Ltd., Malcolm Stockdale and Sara Stockdale in the Superior Court of Justice in Ontario (Canada) alleging breach of a commercial lease and breach of a personal guaranty. On or about March 18, 2010, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale filed a Statement of Defense and Crossclaim. In the Statement of Defense, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale deny any liability under the lease and guaranty. In the Crossclaim filed against Dolphin Digital Media (Canada) Ltd., Winterman Group Limited, Malcolm Stockdale and Sara Stockdale seek contribution or indemnity against Dolphin Digital Media (Canada) Ltd. alleging that Dolphin Digital Media (Canada) agreed to relieve Winterman Group Limited, Malcolm Stockdale and Sara Stockdale from any and all liability with respect to the lease or the guaranty. On or about March 19, 2010, Winterman Group Limited, Malcolm Stockdale and Sara Stockdale filed a Third Party Claim against the Company seeking contribution or indemnity against the Company, formerly known as Logica Holdings, Inc., alleging that the Company agreed to relieve Winterman Group Limited, Malcolm Stockdale and Sara Stockdale from any and all liability with respect to the lease or the guaranty. The Third Party Claim was served on the Company on April 6, 2010. On or about April 1, 2010, Dolphin Digital Media (Canada) filed a Statement of Defense and Crossclaim. In the Statement of Defense, Dolphin Digital Media (Canada) denied any liability under the lease and in the Crossclaim against Winterman Group Limited, Malcolm Stockdale and Sara Stockdale, Dolphin Digital Media (Canada) seeks contribution or indemnity against Winterman Group Limited, Malcolm Stockdale and Sara Stockdale alleging that the leased premises were used by Winterman Group Limited, Malcolm Stockdale and Sara Stockdale for their own use. On or about April 1, 2010, Dolphin Digital Media (Canada) also filed a Statement of Defense to the Crossclaim denying any liability to indemnify Winterman Group Limited, Malcolm Stockdale and Sara Stockdale. The Company has yet to respond to the Third Party Claim. The ultimate results of these proceedings against the Company cannot be predicted with certainty.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended September 30, 2010, the Company sold to two individuals a total of 2,200,000 shares of common stock for $550,000 ($0.25 per share).

The shares above were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. Purchasers received current information relating to the Company and had the ability to ask questions about the Company. Certificates representing the securities contain appropriate restrictive legends.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. REMOVED AND RESERVED

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

No.
	31.1			Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1			Certification of the Chief Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized November 22, 2010.