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DIGITAL DEVELOPMENT GROUP CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) 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 3,100 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 The Six Months Ended June 30, 2014 and 2013 Net revenue for the six months ended June 30, 2014 and June 30, 2013 was $58,165 and $27,353 respectively. Selling, general and operating expenses (S,G&A) S,G&A for the six months ended June 30, 2014 was $1,343,089, compared to $3,409,817 for the six months ended June 30, 2013. S,G&A for the six months ended June 30, 2014 mainly consisted of approximately $726,040 for share based compensation, $106,836 in professional and legal fees, $93,852 in salaries and wages, $93,886 in product development, $41,335 for rent expense and the remainder for daily operating expense for the Company. Interest expense Interest expense totaled $1,347,788 during the six months ended June 30, 2014, compared to $556,789 during the six months ended June 30, 2013. Interest expense was primarily the result of amortization and accretion of debt issuance discounts totaling $1,002,101 under convertible notes payable, some of which were accelerated due to conversions and defaults. Change in derivative liabilities The derivative liability gain totaled $2.1 million during the six months ended June 30, 2014. The change was mainly related to the decrease in fair value of the derivative liability which was the result of the reduction in our stock prices since December 31, 2013. 20 --------------------------------------------------------------------------------LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2014, we had cash of $100 and working capital deficit of $6.3 million. For the six months ended June 30, 2014, net cash used in operations was $760,488 versus $1,050,526 in the prior period. 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. 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, including substantial doubt about the Company's ability to continue as a going concern 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. |