**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-KSB**





(Mark
      One)





**T**  ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




FOR
      THE
      FISCAL YEAR ENDED **DECEMBER 31, 2006**





 ̈ TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




FOR
      THE
      TRANSITION PERIOD FROM __________ TO __________





COMMISSION
      FILE NUMBER **000-33067**





**DIGICORP,
      INC.**


(Name
      of
      small business issuer in its charter)





**DELAWARE**
              (State
                or other jurisdiction of incorporation or
              organization)
            **87-0398271**
              (I.R.S.
                Employer Identification No.)




**4143
      Glencoe Avenue, Marina Del Rey, CA 90292**


(Address
      of principal executive offices) (Zip Code)





Issuer’s
      telephone Number: **(310)
      728-1450**





Securities
      registered under Section 12(b) of the Exchange Act: None.





Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, $.001 par
      value





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  ̈





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act 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 **T** No  ̈





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB.  ̈





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





State
      issuer’s revenues for its most recent fiscal year. $841,145





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates, computed by reference to the average bid and asked price of
      such
      common equity as of April 4, 2007, was $1,348,373





As
      of
      April 4, 2007, the issuer had 37,239,002 outstanding shares of Common
      Stock.





**DOCUMENTS
      INCORPORATED BY REFERENCE: NONE**





Transitional
      Small Business Disclosure Format (check one): Yes  ̈ No **T**










**TABLE
      OF CONTENTS**





**Page****PART
                I**Item 1.
            Description
                of Business
            
            1Item 2.
            Description
                of Property
            
            10Item 3.
            Legal
                Proceedings
            
            10Item 4.
            Submission
                of Matters to a Vote of Security Holders
            
            10**PART
                II**Item 5.
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities
            
            10Item 6.
            Management’s
                Discussion and Analysis or Plan of Operation
            
            12Item 7.
            Financial
                Statements
            
            18Item 8.
            Changes
                In and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            38Item 8A.
            Controls
                and Procedures
            
            38Item 8B.
            Other
                Information
            
            38**PART
                III**Item 9.
            Directors,
                Executive Officers, Promoters, Control Persons and Corporate
                Governance;Compliance
                With Section 16(a) of the Exchange Act
            
            38Item 10.
            Executive
                Compensation
            
            40Item 11.
            Security
                Ownership of Certain Beneficial Owners and Managementand
                Related Stockholder Matters
            
            43Item 12.
            Certain
                Relationship and Related Transactions, and Director
                Independence
            
            45Item 13.
            Exhibits
            
            46Item 14.
            Principal
                Accountant Fees and Services
            
            49**SIGNATURES**
            
            50










**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS.**





**ORGANIZATIONAL
      HISTORY**





Digicorp,
      Inc. (referred to herein as the ***“Company,”
      “we,” “us,”*** and ***“our”*** )
      was
      incorporated on July 19, 1983 under the laws of the State of Utah under the
      name
      of Digicorp for the purpose of developing and marketing computer software
      programs. From 1983 to 1995, our sales and investments were attributable to
      the
      sale of computer software and investments related to oil, gas and mining.





On
      June
      30, 1995, we became a development stage enterprise when we sold our assets.
      Since June 30, 1995, we have been in the developmental stage and until September
      19, 2005 have had no operations other than issuing shares of common stock for
      financing the preparation of financial statements and for preparing filings
      for
      the SEC. In August 2001, we elected to file a Form 10-SB registration statement
      with the SEC on a voluntary basis in order to become a reporting company under
      the Exchange Act.





On
      December 29, 2005, we acquired all of the issued and outstanding capital stock
      of Rebel Crew Films, Inc., a California corporation ( ***“Rebel
      Crew Films”*** ),
      in
      consideration for the issuance of 21,207,080 shares of common stock (the ***“Purchase
      Price”*** )
      to the
      shareholders of Rebel Crew Films. From the Purchase Price, 4,000,000 shares
      are
      held in escrow pending satisfaction of certain performance milestones. In
      addition, from the Purchase Price, 16,666,667 shares are subject to lock up
      agreements as follows: (a) 3,333,333 shares are subject to lockup agreements
      for
      one year; (b) 6,666,667 shares are subject to lockup agreements for two years;
      and (c) 6,666,667 shares, of which the 4,000,000 escrowed shares are a
      component, are subject to lockup agreements for three years.





Rebel
      Crew Films was organized under the laws of the State of California on August
      7,
      2002 to distribute Latino home entertainment products. Rebel Crew Films
      currently maintains approximately 300 Spanish language films and plans to serve
      the nation's largest wholesale, retail, catalog, and e-commerce accounts.





On
      February 22, 2007, we changed the Company’s domicile from the State of Utah to
      the State of Delaware effected by the merger of the Company, a Utah corporation,
      with and into, Digicorp, Inc., a newly formed wholly owned subsidiary of the
      Company that was incorporated under the Delaware General Corporation Law for
      the
      purpose of effecting the change of domicile.





The
      below
      description of our business includes the operations of our wholly owned
      subsidiary Rebel Crew Films.





**OVERVIEW**





We
      are an
      aggregator and distributor of programming content and a developer of multi-media technologies
      with operations concentrated primarily in the internet and home video business
      segments.




Together
      with our subsidiary, we are primarily engaged in the business of developing
      and
      distributing programming content, multi-media technologies, and advertising
      via
      the internet. We expect that within the next 12 months we will expand our
      advertising areas further into online as well as other alternative music and
      video programming formats, including video-on-demand (“VOD”) in the United
      States and internationally. We will focus a significant amount of our available
      resources to o btain
      the
      exclusive distribution rights for additional content through development,
      acquisition or licensing arrangements.





We
      currently generate revenue through either sub-licensing agreements with third
      parties that distribute our licensed content or through direct sales. Our
      typical licensing agreement consists of a three to five-year contract that
      carries a 15% - 50% royalty on gross sales of licensed product. We are currently
      focusing on the manufacture and distribution of our own licensed content and
      have seen a significant shift in revenues from sub-licensing agreements to
      direct sales.





We
      believe that opportunities exist in the VOD space to reach a larger customer
      base for the distribution of our content and to generate advertising revenue.
      We
      will actively pursue this potential source of revenue during the year ending
      December 31, 2007.




1




Our
      primary operations are conducted through our wholly owned subsidiary: Rebel
      Crew
      Films, Inc. In addition, we have focused and will continue to focus development
      efforts in our internally created ViraCast software. We are organized in a
      single operating segment with no long-lived assets outside of the United States
      of America. All of our revenues to date have been generated in the United
      States, but with the development of ViraCast and PerreoRadio.com (described
      below), we expect that a portion of our future revenues will be from other
      countries. Revenue sources could be from distribution of content, advertising
      and licensing.





***REBEL
      CREW FILMS, INC*** *.*





Rebel
      Crew Films, Inc. was founded in 2001 and our goal is to become a leading
      distributor of Latino home entertainment products.  Developed to target
      Spanish speaking consumers who increasingly demand new Latino content and
      classic Spanish language movies, we offer producers and content-providers a
      flexible option to the larger Hollywood studio distributors and have emerged
      as
      a company that attracts premiere home entertainment products.





Our
      specialty orientation provides our content partners with focused attention
      not
      accessible from major Hollywood studios or rental product distributors. We
      currently maintain and distribute approximately 200 Spanish language films,
      of
      which we control the exclusive distribution rights to approximately 52. The
      films in which we control the exclusive distribution rights are expected to
      provide us with greater profit margins as we expand our direct sales. Our
      content library currently consists of approximately 130 titles for which we
      exclusively control the distribution rights. As we expand our direct sales
      and
      increase the number of customers that purchase exclusive content directly from
      us, we believe that sales of our exclusive content will begin to represent
      a
      larger percentage of the total numbers of films that we distribute.





Our
      titles can be found at Wal-Mart, Best Buy, Blockbuster, K-Mart, and hundreds
      of
      independent video outlets across the United States of America and Canada. Our
      diverse Spanish language programming includes: new releases, classic Mexican
      cinema, animation, cult, sports, martial arts, family entertainment, and more.





***PERREORADIO.COM***





On
      February 7, 2006, we entered into an asset purchase agreement with Matthew
      B.
      Stuart pursuant to which we purchased the following Internet domain names and
      all materials, intellectual property, goodwill and records in connection
      therewith (the ***“Assets”*** ):
      PerreoRadio.com, Radioperreo.com, Perreomobile.com, Perreotv.com,
      Puroperreo.com, Puroreggaeton.com, Purosandungueo.com, Sandungueoradio.com,
      Machetemusic.net, Machetemusic.org, Machetemusica.com and Musicamachete.com.




In
      accordance with the purchase of the Assets, we entered a three-year employment
      agreement with Mr. Stuart. As consideration for the Assets, we issued Mr. Stuart
      and his nominees an aggregate of 100,000 shares of common stock. All such shares
      of common stock are subject to lock up agreements as follows: 25,000 shares
      are
      subject to a lock up agreement for one year; 25,000 shares are subject to a
      lock
      up agreement for two years; and 50,000 shares are subject to a lock up agreement
      for three years.





PerreoRadio.com
      is a Latino based community website that offers online radio shows from some
      of
      the top DJ’s in the Reggaeton genre. Our intent is to become a recognized leader
      in the Spanish-language and Hispanic-targeted markets by capturing the top
      DJ’s
      in this area and expanding into 12 - 15 markets to syndicate the shows.
      Currently, we operate in five markets: San Francisco, Los Angeles, Chicago,
      Boston and New York City.





***ICODEMEDIA***





On
      September 19, 2005, upon entering into an asset purchase agreement with Philip
      Gatch, we completed the initial transaction to transform the company from that
      of a development stage enterprise to a digital media and content delivery
      company. The assets purchased consisted of the iCodemedia url’s and all related
      intellectual property (the ***“iCodemedia
      Assets”*** ).
      The
      iCodemedia url’s consist of: www.icodemedia.com, www.iplaylist.com,
      www.tunecast.com, www.tunebucks.com, www.podpresskit.com and www.tunespromo.com.




2




Ultimately,
      we intend to develop our iCodemedia Assets as a software publishing solution
      for
      iTunes and the Apple iPod. , Sony Playstation and multimedia enabled mobile
      phones.





***VIRACAST***





We
      are
      developing a suite of patent pending applications and services that allow for
      the enterprise workflow management, processing, distribution and control of
      content for next generation devices and emerging content delivery platforms.
      Our
      proprietary ViraCast technology provides content producers, advertisers, and
      marketers new revenue models built around these emerging platforms with enhanced
      user data, reporting, and accountability.





Our
      strategy for ViraCast is to pinpoint unexploited and unrealized market
      opportunities that emerge from the evolving media and advertising landscapes
      and
      build solutions around them. In particular, the company is focusing on new
      markets that arise from the following sources:





**·****
            ***Podcasting***(the distribution of audio or video files over the Internet for listening
                or viewing on mobile devices and personal computers);





**· ****
            ***Online
                Advertising***;
                and





**· ****
            ***Viral
                Marketing***(marketing and advertising techniques that use pre-existing social
                networks to produce increases in brand awareness through self-replicating
                viral processes).





We
      will
      work with content developers, entertainment companies, advertising agencies,
      music talent, labels, representatives, distributors, as well as software and
      engineering companies to address the needs and requirements of the next
      generation of ad supported and paid content delivery technologies.





The
      company has successfully utilized its ViraCast technology to enhance and
      distribute online radio shows from PerreoRadio.com. We intend to employ this
      technology to distribute assets from our library of Spanish language films,
      while also marketing and offering the technology to a variety of third-party
      content owners and distributors seeking a digital delivery solution.





**INTELLECTUAL
      PROPERTY AND TECHNOLOGY DEVELOPMENT**





We
      have
      numerous United States and international patents pending that are directed
      to
      important and innovative aspects of our technology. As the technology evolves
      we
      intend to continue seeking patent protection where appropriate. We will seek
      to
      enhance our ViraCast product suite and content library through internal
      development and acquisition opportunities.





Our
      development and production teams are located in Marina Del Rey, CA.  We
      intend that our facilities in Marina Del Rey will house our content library,
      programming, sales and administrative personnel.





**CUSTOMERS**





For
      direct home video DVD sales, our sales associates focus on the largest retail
      chains in the country, including Wal-Mart and Blockbuster, via Anderson
      Merchandisers and other such sub-distributors. Currently, the sales force
      manages more than 100 active retail store customers. Besides our direct selling
      effort through telemarketing, we market our products by placing print ads in
      a
      variety of Latino trade magazines as well as through our website. We have a
      dedicated 1-800 toll free number for sales inquiries. For licensing activities,
      there are two companies: BCI Eclipse LLC, which has licensed approximately
      20
      titles: and VAS Entertainment/Rise Above Entertainment ( ***"VAS/RA"*** ),
      which
      has licensed approximately 20 titles from us. They function as manufacturers
      for
      our DVD inventory for those titles, as well as distributors. The agreements
      with
      these companies consist of a term of three to five years granting the companies
      the right to manufacture, promote, and distribute the licensed movies for a
      15%
      - 50% royalty on gross sales, depending on title. The company intends to expand
      its licensing activities into the broadcast, satellite and cable
      markets.




3




The
      target customers for our media software are:





·
            ***Premium
                Advertisers and Content Owners***,
                including advertising agencies like WPP, Omnicom and Interpublic;
                content
                owners with their own advertising, such as NBC, CBS, ABC and The
                New York
                Times; and infomercial creators, like QVC and Williams
                Group;





·
            ***Independent***producers, artists, designers and filmmakers who own untapped content;
                and





·
            ***Advertising
                Networks***,
                including Advertising.com, ValueClick, ClickBooth, CJ.com and
                Zedo.





**SUPPLIERS**





We
      have
      three categories of suppliers - movie licensors, DVD manufacturers, and finished
      goods suppliers. Movie licensors consist of Spanish-language movie license
      holders primarily from Mexico who enter licensing agreements with us to
      manufacture and distribute their movies. We are currently in contract with
      eight
      different licensors of content. From these agreements, we have manufactured
      approximately 52 titles. Agreements with these companies consist of either
      a
      fixed license fee or a 40-60% royalty on net revenues for the right to
      manufacture, promote and distribute the films for four to five years, depending
      on title.





For
      the
      manufacture of DVDs, we use various suppliers depending price and delivery.
      We
      do not have a written agreement with these suppliers. There is no dependency
      on
      these suppliers as the supply of DVD manufacturing companies is broad and there
      are many potential firms that can be employed to supply our products.





**MARKETING**





We
      market
      our products and services through a broad array of programs and media formats,
      including video, internet, advertising campaigns, telemarketing, print
      advertisements, retail distribution, and web advertising. Other marketing
      strategies include online and offline cross-promotion and co-branding.





**COMPETITION**





We
      operate in the market for media products, services and content development
      and
      delivery, which is a highly competitive market characterized by rapid change,
      converging technologies, and increasing competition from companies offering
      communication, video, music, on-demand information and entertainment services
      integrated into other products and media properties. Globally, our most
      significant competition in the Spanish language sector is from Univision
      Communications, Inc. and Navarre Corp.





The
      principal competitive factors relating to attracting and retaining users include
      the quality and relevance of our advertising; the effectiveness and efficiency
      of our marketing services; the accessibility, integration and personalization
      of
      the online services that we offer on our website; and the creativity of the
      marketing solutions that we offer.





We
      also
      face competition from companies focused on markets where expertise in a
      particular segment of the market (e.g., radio, internet, television) may provide
      them a competitive advantage.





Although
      accurate numbers are difficult to obtain due to the hesitation of privately
      owned distribution companies to divulge sales figures, an independent study
      by
      Estrenos magazine (a Latin Entertainment Trade Journal) estimates that the
      Latino home video distribution market for the first six months of 2005 sold
      more
      than three million units in the United States. According to Estrenos magazine,
      of that number three distributors accounted for approximately 80% of those
      sales
      - Laguna Films (43%), Ventura/Studio Latino (26%), and Xenon/Televisa (13%)
      (data provided by each distributor or source). Other participants in the Latino
      home video distribution market include Image Entertainment (7%), Latin Vision
      (5%), Brentwood Home Video (3%), Pro-Active Entertainment (2%), and Vanguard
      Latino (1%) (Source: Estros magazine, September/October 2005). Based on these
      sales performance figures, our monthly sales average currently represents
      approximately 1.25% of the monthly average of DVD sales volume in the Latino
      video entertainment industry





Additionally,
      major U.S. movie studios have ventured into servicing the Latino home video
      market as well, selling approximately 1.5 million units in the first half of
      2005. Of that amount, approximately 60% of sales were dominated by three studios
      - MGM Home Entertainment (26%), Columbia Tri-Star (18%) and Lions Gate Films
      (16%). Other such competitors include UMVD/Visual Entertainment (12%),
      BVHE/Disney (8%), Warner Home Video (8%), and Fox Home Entertainment (3%)
      (Source: Estros magazine, September/October 2005).




4




We
      also
      compete with retail music and video stores, including online stores, dominated
      by large companies such as Netflix, Blockbuster, Trans World Entertainment,
      and
      Movie Gallery Inc.





We
      may
      also face competition from businesses that have announced plans to deliver
      entertainment and media content through cell phones and other wireless devices.
      Sprint Nextel, Comcast, Time Warner Cable, Cox Communications and
      Advance/Newhouse Communications recently announced they are forming a joint
      venture to work toward accelerating the convergence of video entertainment,
      wireline and wireless data and communications products and services to provide
      customers throughout the United States access to advanced integrated
      entertainment, including streaming television programming, music, video clips,
      games and pre-recorded DVR programs, communications and wireless products.





We
      believe that we can effectively compete in the Latino home video markets
      primarily by offering competitive prices on a wide variety of quality titles
      through direct selling efforts targeted at retail stores across the entire
      United States.





**SEASONALITY**





Our
      performance may be affected by seasonal revenue fluctuations and variation
      in
      demand between local and national advertisers. The Company's revenues may vary
      throughout the year. As is typical in the distribution of content, the first
      calendar quarter generally produces the lowest revenues.





**GOVERNMENT
      REGULATION**





We
      are
      not aware of any existing or probable governmental regulations that may have
      a
      material effect on the normal operations of our business. There also are no
      relevant environmental laws that require compliance by us that may have a
      material effect on the normal operations of the business.





**EMPLOYEES**





We
      currently employ 8 full time employees and 3 part time employees. None of our
      employees are covered by a collective bargaining agreement. We believe that
      relations with our employees are good.





**AVAILABLE
      INFORMATION**





We
      file
      with or submit to the SEC annual, quarterly and current periodic reports, proxy
      statements and other information meeting the informational requirements of
      the
      Exchange Act. You may inspect and copy these reports, proxy statements and
      other
      information, as well as the registration statement and related exhibits and
      schedules, at the Public Reference Room of the SEC at 100 F Street,
      N.E., Washington, D.C. 20549. You may obtain information on the operation
      of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
      maintains an Internet website that contains reports, proxy and information
      statements and other information filed electronically by us with the SEC which
      are available on the SEC’s website at http://www.sec.gov. Copies of these
      reports, proxy and information statements and other information may be obtained,
      after paying a duplicating fee, by electronic request at the following e-mail
      address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section,
      100 F Street, N.E., Washington, D.C. 20549.





**RISK
      FACTORS**





Our
      business involves a high degree of risk. Potential investors should carefully
      consider the risks and uncertainties described below and the other information
      in this report before deciding whether to invest in shares of our common stock.
      Each of the following risks may materially and adversely affect our business,
      results of operations and financial condition. These risks may cause the market
      price of our common stock to decline, which may cause you to lose all or a
      part
      of the money you paid to buy our common stock.




5




**RISKS
      RELATED TO OUR BUSINESS**





**WE
      HAVE A HISTORY OF LOSSES WHICH MAY CONTINUE AND WHICH MAY NEGATIVELY IMPACT
      OUR
      ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES AND OUR FINANCIAL
      RESULTS.**





For
      the
      years ended December 31, 2006 and 2005, we generated revenues of $841,145 and
      $334,110, respectively, and incurred net losses of $5,080,794 and $357,561,
      respectively. At December 31, 2006, we had a working capital deficit of $1.1
      million and an accumulated deficit of $5.5 million. Our failure to increase
      our
      revenues significantly or improve our gross margins will harm our business.
      Even
      if we do achieve profitability, we may not be able to sustain or increase
      profitability on a quarterly or annual basis in the future. If our revenues
      grow
      more slowly than we anticipate, our gross margins fail to improve, or our
      operating expenses exceed our expectations, our operating results will suffer.
      If we are unable to sell or license our products at acceptable prices relative
      to our costs, or if we fail to develop and introduce on a timely basis new
      products from which we can derive additional revenues, our financial results
      will suffer.





**OUR
      LICENSE REVENUES ARE DEPENDENT UPON THE REVENUES OF OUR CUSTOMERS. IF THE
      CONTENT WHICH WE LICENSE TO CUSTOMERS IS NOT USED IN VIDEOS WHICH BECOME POPULAR
      AMONG THE VIEWING PUBLIC, OUR REVENUES MAY DECLINE.**





We
      generate revenue through either licensing agreements with third parties that
      distribute our licensed content or through direct sales. Our typical licensing
      agreement consists of a three to five-year contract that carries a 15% - 50%
      royalty on gross sales of licensed product. If the content which we license
      to
      customers is not used in videos which become popular among the viewing public,
      our revenues may decline.





**VARIOUS
      CONDITIONS RAISE SUBSTANTIAL ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.**





At
      December 31, 2006, we had an accumulated deficit of $5.5 million and a working
      capital deficit of $1.1 million, which includes a deferred revenue balance
      of
      $70,000. During the year ended December 31, 2006, we incurred a loss of
      approximately $5.1 million. During the year ended December 31, 2006, we
      primarily relied upon revenues generated from the direct sales of our Latino
      home entertainment content and on debt and equity investments to fund our
      operations. As a result, the report of our independent registered public
      accounting firm, dated April 16, 2007, for the year ended December 31, 2006,
      states that these conditions raise substantial doubt about our ability to
      continue as a going concern. Management is currently seeking additional
      financing and believes, however no assurances can be made, that these avenues
      will continue to be available to us to fund our operations.





**OUR
      OPERATING SUBSIDIARY REBEL CREW FILMS HAS A LIMITED OPERATING HISTORY AND
      THEREFORE WE CANNOT ENSURE THE LONG-TERM SUCCESSFUL OPERATION OF OUR BUSINESS
      OR
      THE EXECUTION OF OUR BUSINESS PLAN.**





Our
      operating subsidiary Rebel Crew Films was organized under the laws of the State
      of California on August 7, 2002. Because Rebel Crew Films has a limited
      operating history, our prospects must be considered in light of the risks,
      expenses and difficulties frequently encountered by growing companies in
      evolving markets, such as the Latino home video distribution market in which
      we
      operate. While to date we have not experienced these problems, we must meet
      many
      challenges including:





·
            Establishing
                and maintaining broad market acceptance of our products and converting
                that acceptance into direct and indirect sources of revenue;





·
            Establishing
                and maintaining our brand name;





·
            Timely
                and successfully developing new content and films;





·
            Developing
                content that results in high popularity among the viewing public;




6




·
            Developing
                and maintaining strategic relationships to enhance the distribution
                and
                features of our video content.





Our
      business strategy may be unsuccessful and we may be unable to address the risks
      we face in a cost-effective manner, if at all. If we are unable to successfully
      address these risks our business will be harmed and we may experience a decrease
      in revenues.





**IF
      WE ARE UNABLE TO LICENSE OR ACQUIRE COMPELLING CONTENT AT REASONABLE COSTS
      OR IF
      WE DO NOT DEVELOP COMPELLING CONTENT, THE NUMBER OF USERS OF OUR SERVICES MAY
      NOT GROW AS ANTICIPATED, OR MAY DECLINE, WHICH COULD HARM OUR OPERATING
      RESULTS.**





Our
      future success depends in part upon our ability to aggregate compelling content
      and deliver that content through our online and other multi-media properties
      and
      programming and delivery technologies.  We distribute some of the content
      that we license on our online properties, such as audio and video content from
      third parties.  We have been providing increasing amounts of audio and
      video content to our users as reflected in the increase in direct sales of
      our
      content and we believe that users will increasingly demand high-quality audio
      and video content, such as music, film, and other special events.  Such
      content may require us to make substantial payments to third parties from whom
      we license or acquire such content.  For example, our entertainment
      properties rely on film producers and distributors, and other organizations
      for
      a large portion of the content available on our properties.  Our ability to
      maintain and build relationships with third-party content providers will be
      critical to our success.  In addition, as new methods for accessing and
      delivering content through media formats becomes
      available, including through alternative devices, we may need to enter into
      amended content agreements with existing third-party content providers to cover
      the new devices.   We may be unable to enter into new, or preserve
      existing, relationships with the third parties whose content we seek to
      obtain.  In addition, as competition for compelling content increases both
      domestically and internationally, our content providers may increase the prices
      at which they offer their content to us, and potential content providers may
      not
      offer their content on terms agreeable to us.  An increase in the prices
      charged to us by third-party content providers could harm our operating results
      and financial condition.  Further, some of our content licenses with third
      parties may be non-exclusive.  Accordingly, content providers and other
      media sources such as radio or television may be able to offer similar or
      identical content and technologies.  This increases the importance of our
      ability to deliver compelling content and media technologies in order to
      differentiate from other businesses.  If we are unable to license or
      acquire compelling content at reasonable prices, if other companies acquire,
      develop and/or distribute content that is similar to or the same as that
      provided by us, or if we do not develop compelling content or media
      technologies, the number of users of our services may not grow as anticipated,
      or may decline, which could harm our operating results.




7




**WE
      MAY INCUR SUBSTANTIAL COSTS ENFORCING OUR INTELLECTUAL PROPERTY RIGHTS AND
      ANY
      DIFFICULTY WITH ENFORCING SUCH RIGHTS MAY CAUSE OUR RESULTS OF OPERATIONS AND
      FINANCIAL CONDITION TO SUFFER.**





The
      decreasing cost of electronic and computer equipment and related technology
      has
      made it easier to create unauthorized versions of audio and audiovisual products
      such as compact discs, videotapes and DVDs. Similarly, advances in Internet
      technology have increasingly made it possible for computer users to share audio
      and audiovisual information without the permission of the copyright owners
      and
      without paying royalties to holders of applicable intellectual property or
      other
      rights. Unauthorized copies and piracy of these products compete against
      legitimate sales of these products. Our revenues are derived from our licensed
      video content that is potentially subject to unauthorized copying and
      widespread, uncompensated dissemination on the Internet. If our proprietary
      video content is copied and distributed without authorization we may incur
      substantial costs enforcing our intellectual property rights. If we fail to
      obtain appropriate relief or enforcement through the judicial process, or if
      we
      fail to develop effective means of protecting our intellectual property, our
      results of operations and financial condition may suffer.





**OUR
      CONTENT ASSETS MAY NOT BE COMMERCIALLY SUCCESSFUL WHICH WOULD CAUSE OUR REVENUES
      TO DECLINE.**





Our
      revenue comes from the production and distribution of video content for use
      in Latino
      home video. The
      success of content offerings depends primarily upon their acceptance by the
      public, which is difficult to predict. The market for these products is highly
      competitive and competing products are often released into the marketplace
      at
      the same time. The commercial success of a video production depends on several
      variable factors, including the quality and acceptance of competing offerings
      released into the marketplace at or near the same time and the availability
      of
      alternative forms of entertainment and leisure time activities. Our business
      is
      particularly dependent on the success of a limited number of releases, and
      the
      commercial failure of just a few of these releases can have a significant
      adverse impact on results. Our failure to obtain broad consumer appeal in the
      Latino community could materially harm our business, financial condition and
      prospects for growth.





**FAILURE
      TO PROPERLY MANAGE OUR POTENTIAL GROWTH POTENTIAL WOULD BE DETRIMENTAL TO
      HOLDERS OF OUR SECURITIES.**





Since
      we
      have limited operating history and our total assets at December 31, 2006
      consisted only of $3,350 in cash and total current assets of $141,753, any
      significant growth will place considerable strain on our financial resources
      and
      increase demands on our management and on our operational and administrative
      systems, controls and other resources. There can be no assurance that our
      existing personnel, systems, procedures or controls will be adequate to support
      our operations in the future or that we will be able to successfully implement
      appropriate measures consistent with our growth strategy. As part of this
      growth, we may have to implement new operational and financial systems,
      procedures and controls to expand, train and manage our employees and maintain
      close coordination among our technical, accounting, finance, marketing, sales
      and editorial staff. We cannot guarantee that we will be able to do so, or
      that
      if we are able to do so, we will be able to effectively integrate them into
      our
      existing staff and systems. We may fail to adequately manage our anticipated
      future growth. We will also need to continue to attract, retain and integrate
      personnel in all aspects of our operations. Failure to manage our growth
      effectively could hurt our business.





**IF
      WE DO NOT MAINTAIN THE CONTINUED SERVICE OF OUR EXECUTIVE OFFICERS, WE MAY
      NEVER
      DEVELOP BUSINESS OPERATIONS.**





Our
      success is dependent upon the continued service of our current chief executive
      officer. To date, we have entered into a written employment agreement with
      Jay
      Rifkin, our Chief Executive Officer. We do not have key man life insurance
      on
      any of our executive officers. While none of our executive officers currently
      has any definitive plans to retire or leave our company in the near future,
      any
      of such persons could decide to leave us at any time to pursue other
      opportunities. The loss of services of Mr. Rifkin or any of our other executive
      management team could cause us to lose revenue.




8




**RISKS
      RELATED TO OUR COMMON STOCK**





**OUR
      HISTORIC STOCK PRICE HAS BEEN VOLATILE AND THE FUTURE MARKET PRICE FOR OUR
      COMMON STOCK IS LIKELY TO CONTINUE TO BE VOLATILE. FURTHER, THE LIMITED MARKET
      FOR OUR SHARES WILL MAKE OUR PRICE MORE VOLATILE. THIS MAY MAKE IT DIFFICULT
      FOR
      YOU TO SELL OUR COMMON STOCK FOR A POSITIVE RETURN ON YOUR INVESTMENT.**





The
      public market for our common stock has historically been very volatile. Over
      the
      past two fiscal years, the market price for our common stock as quoted on the
      OTC Bulletin Board has ranged from $0.08 to $2.05. The closing sale price for
      our common stock on April 4, 2007 was $0.10 per share. Any future market price
      for our shares is likely to continue to be very volatile. This price volatility
      may make it more difficult for you to sell shares when you want at prices you
      find attractive. We do not know of any one particular factor that has caused
      volatility in our stock price. However, the stock market in general has
      experienced extreme price and volume fluctuations that have often been unrelated
      or disproportionate to the operating performance of companies. Broad market
      factors and the investing public's negative perception of our business may
      reduce our stock price, regardless of our operating performance. Further, the
      market for our common stock is limited and we cannot assure you that a larger
      market will ever be developed or maintained. The average daily trading volume
      of
      our common stock has historically been insignificant. Market fluctuations and
      volatility, as well as general economic, market and political conditions, could
      reduce our market price. As a result, this may make it difficult or impossible
      for you to sell our common stock or to sell our common stock for a positive
      return on your investment.





**OUR
      COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING
      MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK
      CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.**





The
      SEC
      has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for
      the purposes relevant to us, as any equity security that has a market price
      of
      less than $5.00 per share or with an exercise price of less than $5.00 per
      share, subject to certain exceptions. For any transaction involving a penny
      stock, unless exempt, Rule 15g-9 requires:





·
            that
                a broker or dealer approve a person's account for transactions in
                penny
                stocks; and





·
            the
                broker or dealer receive from the investor a written agreement to
                the
                transaction, setting forth the identity and quantity of the penny
                stock to
                be purchased.





In
      order
      to approve a person's account for transactions in penny stocks, the broker
      or
      dealer must:





·
            obtain
                financial information and investment experience objectives of the
                person;
                and





·
            make
                a reasonable determination that the transactions in penny stocks
                are
                suitable for that person and the person has sufficient knowledge
                and
                experience in financial matters to be capable of evaluating the risks
                of
                transactions in penny stocks.





The
      broker or dealer must also deliver, prior to any transaction in a penny stock,
      a
      disclosure schedule prescribed by the SEC relating to the penny stock market,
      which, in highlight form:





·
            sets
                forth the basis on which the broker or dealer made the suitability
                determination; and





·
            that
                the broker or dealer received a signed, written agreement from the
                investor prior to the transaction.





Disclosure
      also has to be made about the risks of investing in penny stocks in both public
      offerings and in secondary trading and about the commissions payable to both
      the
      broker-dealer and the registered representative, current quotations for the
      securities and the rights and remedies available to an investor in cases of
      fraud in penny stock transactions. Finally, monthly statements have to be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks.




9




Generally,
      brokers may be less willing to execute transactions in securities subject to
      the
“penny stock” rules. This may make it more difficult for investors to dispose of
      our common stock and cause a decline in the market value of our stock.





**ITEM
      2. DESCRIPTION OF PROPERTY.**





We
      lease
      our principal executive office located at 4143 Glencoe Avenue, Marina Del Rey,
      California, 90292. The leased executive office space is approximately 3,800
      rentable square feet. The lease contract term commenced August 1, 2005 and
      ends
      September 30, 2012. Base rent under the lease is $5,890 per month payable on
      the
      first day of each month. Additionally,
      a security deposit of $5,890 was required upon signing .
      In
      addition to our principal executive office lease, we lease additional office
      space at 4120 Del Rey Avenue, Marina Del Rey, California, 90292. The additional
      office space is approximately 10,000 rentable square feet. Base rent under
      the
      additional office lease is $12,475 per month payable on the first day of each
      month commencing September 1, 2006 and ending December 15, 2010. Additionally,
      a
      security deposit of $12,475 was required upon signing





**ITEM
      3. LEGAL PROCEEDINGS.**





We
      are
      not a party to any pending legal proceeding, nor are our properties the subject
      of a pending legal proceeding, that is not in the ordinary course of business
      or
      otherwise material to the financial condition of our business. None of our
      directors, officers or affiliates is involved in a proceeding adverse to our
      business or has a material interest adverse to our business.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





No
      matter
      was submitted to a vote of security holders during the fourth quarter of the
      fiscal year covered by this report.





**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS.**





**MARKET
      INFORMATION**





Our
      common stock is currently quoted on the OTC Bulletin Board under the symbol
      “DGCO.” For the periods indicated, the following table sets forth the high and
      low sales prices per share of common stock. These prices represent inter-dealer
      quotations without retail markup, markdown, or commission and may not
      necessarily represent actual transactions.





Fiscal
                2007
            
            Fiscal
                2006
            
            Fiscal
                2005Fiscal
                Quarter
            
            High
            
            Low
            
            High
            
            Low
            
            High
            
            LowFirst
                Quarter Ended March 31
            
            $
            0.19
            
            $
            0.08
            
            $
            2.05
            
            $
            1.10
            
            $
            0.35
            
            $
            0.13Second
                Quarter Ended June 30
            
            
            —
            
            
            —
            
            $
            1.25
            
            $
            0.61
            
            $
            0.45
            
            $
            0.18Third
                Quarter Ended September 30
            
            
            —
            
            
            —
            
            $
            0.85
            
            $
            0.25
            
            $
            1.37
            
            $
            0.20Fourth
                Quarter Ended December 31
            
            
            —
            
            
            —
            
            $
            0.30
            
            $
            0.08
            
            $
            1.90
            
            $
            0.65





**HOLDERS**





As
      of
      April 4, 2007, our shares of common stock were held by approximately 282
      stockholders of record.




10




**DIVIDENDS**





We
      have
      not declared any dividends to date. We have no present intention of paying
      any
      cash dividends on our common stock in the foreseeable future, as we intend
      to
      use earnings, if any, to generate growth. The payment by us of dividends, if
      any, in the future, rests within the discretion of our Board of Directors and
      will depend, among other things, upon our earnings, our capital requirements
      and
      our financial condition, as well as other relevant factors. There are no
      restrictions in our articles of incorporation or bylaws that restrict us from
      declaring dividends.





**RECENT
      SALES OF UNREGISTERED SECURITIES**





We
      sold
      the following equity securities during the fiscal year ended December 31, 2006
      that were not registered under the Securities Act of 1933, as amended (the ***“Securities
      Act”*** ).





All
      options described below expire ten years from the date of grant.





On
      February 7, 2006, we purchased the following Internet domain names and all
      materials, intellectual property, goodwill and records in connection therewith
      (the “Assets”) from Matthew D. Stuart: Perreoradio.com, Radioperreo.com,
      Perreomobile.com, Perreotv.com, Puroperreo.com, Puroreggaeton.com,
      Purosandungueo.com, Sandungueoradio.com, Machetemusic.net, Machetemusic.org,
      Machetemusica.com and Musicamachete.com. As consideration for the Assets, we
      issued Mr. Stuart and his nominees an aggregate of 100,000 shares of common
      stock. All such shares of common stock are subject to lock up agreements as
      follows; 25,000 shares are subject to a lock up agreement for one year; 25,000
      shares are subject to a lock up agreement for two years; and 50,000 shares
      are
      subject to a lock up agreement for three years. These securities were issued
      pursuant to the exemption from registration requirements provided by the
      Securities Ac t .





On
      February 7, 2006, the Company entered a three year employment agreement with
      Matthew D. Stuart and granted Mr. Stuart options to acquire 400,000 shares
      of
      common stock at an exercise price of $1.60 per share. Such options expire on
      February 7, 2016. The exercise of such options are subject to certain vesting
      provisions. These securities were issued pursuant to the exemption from
      registration requirements provided by Section 4(2) of the Securities
      Act.





During
      February 2006, the Company sold 213,636 shares of common stock to several
      unaffiliated accredited investors at a price of $1.10 per share, resulting
      in
      gross proceeds of $235,000. These securities were sold in reliance upon the
      exemption provided by Section 4(2) of the Securities Act and the safe harbor
      of
      Rule 506 under Regulation D promulgated under the Securities Act. No advertising
      or general solicitation was employed in offering the securities, the sales
      were
      made to a limited number of persons, all of whom represented to the Company
      that
      they are accredited investors, and transfer of the securities is restricted
      in
      accordance with the requirements of the Securities Act.





On
      April
      3, 2006, the Company sold 50,000 shares of common stock to William B. Horne,
      the
      Company’s Chief Financial Officer
      and current director, at a price of $1.10 per share, resulting in gross proceeds
      of $55,000. These securities were sold pursuant to Rule 506 promulgated under
      the Securities Act of 1933, as amended. These securities were sold in reliance
      upon the exemption provided by Section 4(2) of the Securities Act and the safe
      harbor of Rule 506 under Regulation D promulgated under the Securities Act.
      No
      advertising or general solicitation was employed in offering the securities,
      the
      sales were made to a limited number of persons, all of whom represented to
      the
      Company that they are accredited investors, and transfer of the securities
      is
      restricted in accordance with the requirements of the Securities
      Act.





On
      April
      24, 2006, we purchased a software application known as ITunesBucks and its
      associated assets therewith (the “Assets”) from EAI Technologies, LLC, a
      Virginia corporation. As consideration for the Assets, we issued EAI
      Technologies an aggregate of 138,182 shares of common stock. These securities
      were issued pursuant to the exemption from registration requirements provided
      by
      Section 4(2) of the Securities Act.





On
      November 8, 2006, as consideration for their service as employees of the
      Company, we granted Matthew Stuart and Edwin Guardado options to purchase
      175,000 shares and 125,000 shares of common stock, respectively, with an
      exercise price of $0.20 per share. These stock options vest annually over four
      years beginning November 8, 2007. The issuance of these stock options was exempt
      from registration requirements pursuant to Section 4(2) of the Securities Act.




11




On
      November 8, 2006, as consideration for service on our Board of Directors, we
      granted David M. Kaye options to purchase 250,000 shares of common stock with
      an
      exercise price of $0.20 per share, and each of Jay Rifkin, Alice Campbell and
      William Horne, options to purchase 150,000 shares of common stock with an
      exercise price of $0.20 per share. These stock options vest annually over four
      years beginning November 8, 2007. The issuance of these stock options was exempt
      from registration requirements pursuant to Section 4(2) of the Securities Act.





**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION.**





*The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our financial statements and
      the
      related notes thereto contained elsewhere in this Form 10-KSB. This
      discussion contains forward-looking statements that involve risks and
      uncertainties. All statements regarding future events, our future financial
      performance and operating results, our business strategy and our financing
      plans
      are forward-looking statements. In many cases, you can identify forward-looking
      statements by terminology, such as “may,” “should,” “expects,” “intends,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or
“continue” or the negative of such terms and other comparable terminology. These
      statements are only predictions. Known and unknown risks, uncertainties and
      other factors could cause our actual results to differ materially from those
      projected in any forward-looking statements. In evaluating these statements,
      you
      should specifically consider various factors, including, but not limited to,
      those set forth under ”Risk Factors” appearing under “Item 1. Description of
      Business.” and elsewhere in this report on Form 10-KSB.*





*The
      following “Overview” section is a brief summary of the significant issues
      addressed in this Management’s Discussion and Analysis (* ***“MD&A”*** *).
      Investors should read the relevant sections of the MD&A for a complete
      discussion of the issues summarized below. The entire MD&A should be read in
      conjunction with Item 7. Financial Statements and supplementary information
      appearing elsewhere in this Form 10-KSB.*





**OVERVIEW**





On
      June
      30, 1995, Digicorp, Inc., then a Utah corporation, (referred to herein as the ***“Company,”
      “we,” “us,”*** and ***“our”*** )
      became
      a development stage enterprise when we sold our assets. Until September 19,
      2005
      we had no operations other than issuing shares of common stock for financing
      the
      preparation of financial statements and for preparing filings for the
      SEC.





On
      September 19, 2005, the Company entered into an asset purchase agreement with
      Philip Gatch, the Company's former Chief Technology Officer, and thereby
      completed the purchase of certain assets from Mr. Gatch consisting of the
      iCodemedia suite of websites and internet properties and all related
      intellectual property (the ***"iCodemedia
      Assets"*** ).
      The
      iCodemedia suite of websites consists of the websites www.icodemedia.com, www.iplaylist.com ,
      www.tunecast.com, www.tunebucks.com, www.podpresskit.com and www.tunespromo.com .





On
      December 29, 2005, we acquired all of the issued and outstanding capital stock
      of Rebel Crew Films in consideration for the issuance of 21,207,080 shares
      of
      common stock to the shareholders of Rebel Crew Films. Rebel Crew Films was
      organized under the laws of the State of California on August 7, 2002 to
      distribute Latino home entertainment products. Rebel Crew Films currently
      maintains approximately 300 Spanish language films and plans to serve the
      nation's largest wholesale, retail, catalog, and e-commerce
      accounts.





On
      February 22, 2007, we changed the Company’s domicile from the State of Utah to
      the State of Delaware effected by the merger of the Company, a Utah corporation,
      with and into, Digicorp, Inc., a newly formed wholly owned subsidiary of the
      Company that was incorporated under the Delaware General Corporation Law for
      the
      purpose of effecting the change of domicile.





We
      are an
      aggregator and distributor of programming content and a developer of multi-media technologies
      with operations concentrated primarily in the internet and home video business
      segments.




12




We
      are
      primarily engaged in the business of developing, marketing and distributing
      programming content, multi-media technologies, and advertising via the internet.
      We expect that within the next 12 months we will expand our advertising areas
      further into online as well as other alternative music and video programming
      formats, including video-on-demand ( ***“VOD”*** )
      in the
      United States and internationally. We will focus a significant amount of our
      available resources to o btain
      the
      exclusive distribution rights for additional content through development,
      acquisition or licensing arrangements.





We
      currently generate the majority our revenue through direct sales of our film
      content. In the past we generated the majority of our revenue from licensing
      agreements which consisted of a three to five-year contract that carried a
      15% -
      50% royalty on gross sales of licensed product. We are currently focusing on
      the
      manufacture and distribution of our own licensed content and have seen a
      significant shift in revenues from sub-licensing agreements to direct sales..





Our
      primary operations are conducted through our wholly-owned subsidiary: Rebel
      Crew
      Films, Inc. In addition, we have focused and will continue to focus development
      efforts in our internally created ViraCast software.




Rebel
      Crew Films was founded in 2001 and our goal is to become a leading distributor
      of Latino home entertainment products.  Developed to target Spanish
      speaking consumers who increasingly demand new Latino content and classic
      Spanish language movies, we offer producers and content-providers a flexible
      option to the larger Hollywood studio distributors and have emerged as a company
      that attracts premiere home entertainment products. ****





We
      currently maintain and distribute approximately 300 Spanish language films.
      Our
      titles can be found at Wal-Mart, Best Buy, Blockbuster, K-Mart, and hundreds
      of
      independent video outlets across the United States of America and Canada. Our
      diverse programming includes: new releases, classic Mexican cinema, animation,
      cult, sports, martial arts, family entertainment, and more.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





The
      below
      discussion and analysis of our financial condition and results of operations
      is
      based upon the accompanying financial statements. 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 amounts reported in the financial statements. Critical
      accounting policies are those that are both important to the presentation of
      our
      financial condition and results of operations and require management's most
      difficult, complex, or subjective judgments, often as a result of the need
      to
      make estimates of matters that are inherently uncertain. Our most critical
      accounting policy relates to the valuation of our intangible assets and stock
      based compensation.





**Valuation
      of Intangible Assets**





We
      assess
      the impairment of intangible assets when events or changes in circumstances
      indicate that the carrying value of the assets or the asset grouping may not
      be
      recoverable. Factors that we consider in deciding when to perform an impairment
      review include significant under-performance of a product line in relation
      to
      expectations, significant negative industry or economic trends, and significant
      changes or planned changes in our use of the assets. Recoverability of
      intangible assets that will continue to be used in our operations is measured
      by
      comparing the carrying amount of the asset grouping to our estimate of the
      related total future net cash flows. If an asset grouping’s carrying value is
      not recoverable through the related cash flows, the asset grouping is considered
      to be impaired. The impairment is measured by the difference between the asset
      grouping’s carrying amount and its fair value, based on the best information
      available, including market prices or discounted cash flow analysis. Impairments
      of intangible assets are determined for groups of assets related to the lowest
      level of identifiable independent cash flows. Due to our limited operating
      history and the early stage of development of some of our intangible assets,
      we
      must make subjective judgments in determining the independent cash flows that
      can be related to specific asset groupings. To date we have not recognized
      impairments on any of our intangible assets.




13


**Stock-Based
      Compensation**





We
      have
      adopted the provisions of SFAS No. 123(R), *Share-Based
      Payment* ,
      effective January 1, 2005. Since
      we
      had no outstanding options as of December 31, 2004, SFAS 123(R) would have
      had
      no impact on our financial statements had we elected to adopt the provisions
      of
      SFAS 123(R) in an earlier period .
      The
      fair value of each option grant, nonvested stock award and shares issued under
      the employee stock purchase plan were estimated on the date of grant using
      the
      Black-Scholes option pricing model and various inputs to the model. Expected
      volatilities were based on historical volatility of our stock. The expected
      term
      represents the period of time that grants and awards are expected to be
      outstanding. The risk-free interest rate approximates the U.S. treasury
      rate corresponding to the expected term of the option, and dividends were
      assumed to be zero. These inputs are based on our assumptions, which include
      complex and subjective variables. Other reasonable assumptions could result
      in
      different fair values for our stock-based awards.





Stock-based
      compensation expense, as determined using the Black-Scholes option pricing
      model, is recognized on a straight line basis over the service period, net
      of
      estimated forfeitures. Forfeiture estimates are based
      on
      historical data. To the extent actual results or revised estimates differ from
      the estimates used, such amounts will be recorded as a cumulative adjustment
      in
      the period that estimates are revised.





**NEW
      ACCOUNTING PRONOUNCEMENTS**





In
      June
      2006, the FASB issued FASB Interpretation No. (FIN) 48, *Accounting
      for Uncertainty in Income Taxes — An Interpretation of FASB Statement
      No. 109* ,
      which
      prescribes a recognition threshold and measurement attribute for the financial
      statement recognition and measurement of a tax position taken or expected to
      be
      taken in an income tax return. FIN 48 will be effective beginning
      January 1, 2007. We are currently evaluating the impact of implementation
      on our consolidated financial statements but we do not believe the adoption
      of
      this statement will have a material impact on our financial condition or results
      of operations.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* ,
      which
      establishes a framework for measuring fair value and requires expanded
      disclosure about the information used to measure fair value. This statement
      is
      effective for us in the first
      quarter of fiscal 2008 .
      The
      statement applies whenever other statements require, or permit, assets or
      liabilities to be measured at fair value, but does not expand the use of fair
      value in any new circumstances. We do not expect the adoption of this statement
      to have a material impact on our financial condition or results of operations.




**LIQUIDITY
      AND CAPITAL RESOURCES**





Our
      total
      assets were $923,000 at December 31, 2006 versus $1,431,000 at December 31,
      2005. The change in total assets is attributable to decreases in other current
      assets of $361,000, other long term assets of $49,000 and intangible assets
      of
      $268,000 which is partially offset by an increase in property and equipment
      of
      $171,000.





The aggregate
      decrease in other current assets and other long term assets, of $410,000, is
      primarily due to the write-off of prepaid legal fees. At December 31, 2005,
      pursuant to the terms of the May 5, 2005 legal retainer agreement, as amended,
      with Sichenzia Ross Friedman Ference LLP ( ***"Sichenzia"*** ),
      prepaid legal fees of $245,000 were reflected in our financial statements.
      During the year ended December 31, 2006, we recorded $98,000 related to the
      amortization of prepaid legal fees. The term of the legal retainer agreement
      was
      through March 31, 2007, however, on September 15, 2006, Sichenzia terminated
      the
      agreement. As a result of Sichenzia’s termination of the agreement, the Company
      recognized an expense of $147,000 due to the write-off of the unamortized
      balance of the prepaid expense. The remaining decrease of $165,000 is attributed
      to a decrease in inventories, cash and an amount due the Company from a related
      party.




14




Inventories
      decreased by $79,000 reflecting a shift in focus to the manufacture and
      distribution of our own licensed content, which has a lower carrying value
      as
      well as significantly greater gross margins, from the distribution of third
      party content. The decrease in cash, of $51,000, is a result of our current
      financial constraints. As discussed in greater detail below, we have primarily
      relied upon loans from related parties to fund our operations. In an effort
      to
      limit the amount of borrowing under these loans we have maintained low levels
      of
      cash throughout the majority of 2006. The decrease in an amount due to the
      Company for reimbursable expenses from a related party, of $25,000, reflects
      cumulative payments received during 2006.





The
      increase in property and equipment is primarily attributed to our April 24,
      2006, purchase of a software application known as ITunesBucks and its associated
      assets therewith (the ***“Assets”*** )
      from
      EAI Technologies, LLC, ( ***“EAI”*** )
      a
      Virginia corporation. As consideration for the Assets, we issued EAI an
      aggregate of 138,182 shares of our common stock valued at $152,000. Such amount
      represented value attributed to the common stock at the April 24, 2006 closing
      price of  $1.10 per share, as reported on OTC Bulletin Board.





The
      decrease in intangible assets is primarily due to the write-off in goodwill
      of
      $300,000, the amortization of our licensed content in the amount of $108,000
      and
      the disposal of certain licenses for an additional $140,000. These decreases
      were partially offset by the acquisition of additional licensed content as
      well
      as our acquisition of the Perreoradio suite of websites. During the year ended
      Decemer 31, 2006, we acquired additional licensed content for $105,000 and
      produced our first music video for $18,000. As consideration for assets acquired
      in the acquisition of the Perreoradio suite of websites, we issued an aggregate
      of 100,000 shares of our common stock valued at $160,000. The Perreoradio assets
      were determined to have an indefinite useful life based primarily on the
      renewability of the proprietary domain names. Intangible assets with an
      indefinite life are not subject to amortization, but will be subject to periodic
      evaluation for impairment





We
      had a
      working capital deficit of $1.1 million at December 31, 2006 and we continue
      to
      have recurring losses. In the past we have primarily relied upon loans from
      related parties to fund our operations and, to a lesser extent, revenues
      generated from licensing our film content, on a non-exclusive basis, to other
      distributors of Latino home entertainment content. We believe that expected
      future revenues combined with either loans or direct equity investments into
      the
      Company will be sufficient to fund our operations during 2007. We expect to
      undertake additional debt and equity financings to better enable us to grow
      and
      meet our future operating and capital requirements, however, there is no
      assurance that we will be successful in obtaining the necessary level of
      funding. The last equity financing that we received was in April 2006 from
      our
      Chief Financial Officer. From July 13, 2006 through April 10, 2007, as a result
      of any new funding being received through debt or equity financings, a series
      of
      loans totaling $659,000 were made to us primarily from Jay Rifkin, our Chairman
      and Chief Executive Officer. As consideration for the loans, we have issued
      demand promissory notes at rates that range from the prime rate, as published
      in *The
      Wall Street Journal* ,
      to the
      prime rate plus one percent to the date of payment in full. We cannot guarantee
      that Mr. Rifkin would be willing to further invest in the Company and if we
      are
      unable to secure additional sources of financing our operations would be
      negatively materially impacted.





During
      the three months ended March 31, 2006 we entered into subscription agreements
      with unrelated accredited investors, pursuant to which we sold a total of
      213,636 shares of our common stock at a price of $1.10 per share. We received
      gross proceeds of $235,000 from the sale of the stock. During the three months
      ended June 30, 2006, we entered into a Subscription Agreement with our Chief
      Financial Officer relating to the issuance and sale of our common stock.
      Pursuant to the Subscription Agreement, we received gross proceeds of $55,000
      from the issuance of 50,000 shares at a price of $1.10 per share. Additionally,
      from March 23, 2006 through September 28, 2006, the Company was a party to
      a
      Revolving Line of Credit Agreement (the ***“Revolving
      Line of Credit”*** )
      with
      Ault Glazer Bodnar Acquisition Fund, LLC ( ***“AGB
      Acquisition Fund”*** ).
      The
      Revolving Line of Credit allowed us to request advances totaling an aggregate
      of
      up to $150,000 from AGB Acquisition Fund. At December 31, 2006, we had borrowed
      $50,000 against the Revolving Line of Credit, all of which was due January
      31,
      2007 This note was not repaid by the scheduled maturity and to date has not
      been
      extended. Accordingly, the note is currently in default. The Company is in
      discussion with AGB Acquisition Fund to extend the due date. Amounts borrowed
      against the Revolving Line of Credit are evidenced by Convertible Secured
      Promissory Notes (the ***“Convertible
      Notes”*** )
      which
      allow for the conversion of all or any part of the outstanding principal balance
      of the Convertible Notes, including any accrued interest thereon, into shares
      of
      our common stock at a price equal to the lesser of the closing price of our
      common stock on March 23, 2006 or the share price of our common stock offered
      in
      our next round of financing in a private placement offering completed while
      the
      principal balance of the Convertible Notes are outstanding.




15




Operating
      activities used $748,000 of cash for the year ended December 31, 2006, compared
      to using $306,000 for the year ended December 31, 2005.





Cash
      used
      in investing activities for the year ended December 31, 2006 and 2005 of
      $27,000, and $408,000, respectively, resulted primarily from the purchases
      of
      licensed Spanish language film content that was capitalized. During the year
      ended December 31, 2006, purchases of licensed Spanish language film content
      was
      offset by proceeds of $140,000 from the disposal of certain licenses.





**RESULTS
      OF OPERATIONS**





**REVENUES**





We
      generated revenues of $841,000 and $334,000 for the years ended December 31,
      2006 and 2005, respectively. During the years ended December 31, 2006 and 2005
      we generated approximately $11,000 and $83,000, respectively, of our total
      revenues through licensing agreements. The licensing agreements provide for
      us
      to receive advance payments as consideration for rights granted to third parties
      that distribute our licensed content. The advance payments are initially
      recorded as deferred revenue and subsequently recognized in income as royalties
      are earned upon shipment of licensed content to customers by the sub-licensor.
      Deferred revenue balances of $70,000 and $80,000 at December 31, 2006 and 2005,
      respectively, represent advance royalty payments that are expected to be earned
      over the subsequent twelve month periods.





During
      the years ended December 31, 2006 and 2005, the remaining $831,000 and $251,000,
      respectively, in revenues primarily represents revenues generated through the
      direct sales of our licensed content. We expect that our continued efforts
      in
      the development of our intellectual property will ultimately result in a large
      component of our revenue being derived from advertising and that direct sales,
      as a percentage of total revenue, may become insignificant to our
      business.





**EXPENSES**





Operating
      expenses, which were $5,840,000 during the year ended December 31, 2006 as
      compared with $691,000 during the year ended December 31, 2005, reflected an
      increase of $5,149,000. A significant component of the overall increase that
      occurred in operating expenses during the year ended December 31, 2006, related
      to cost of sales of $339,000, an increase in salaries and employee benefits
      of
      $651,000 and stock based compensation expense from grants of nonqualified stock
      options to our employees and non-employee directors of $3,163,000. All
      outstanding stock-based compensation awards were granted by us at the per share
      fair market value on the grant date. The fair value of each option grant is
      estimated on the date of grant using the Black-Scholes option-pricing model.
      For
      options granted during the year ended December 31, 2006, the following
      assumptions were used: volatility 138% to 155%; expected life 5 years; risk-free
      interest rate 3.75% to 4.50%; dividend yield 0%. The costs associated with
      cost
      of sales, increases in salaries and employee benefits, and stock based
      compensation, which were insignificant or non-existent during the year ended
      December 31, 2005, reflect a shift in our revenue mix from revenue generated
      primarily through licensing agreements which do not have any costs of sales
      to
      that of direct sales which not only have cost of sales but also the need of
      a
      sales force. The remaining operating expenses consisted of professional fees,
      rent expense, amortization expense, goodwill impairment and general and
      administrative expenses.





Professional
      fees were $411,000 higher during the year ended December 31, 2006 compared
      to
      the year ended December 31, 2005 due to significant increases in amounts paid
      for legal, consulting and accounting fees. Legal fees comprised the majority
      of
      this increase, representing an increase of $383,000. Of this increase, $98,000
      related to the amortization of prepaid legal fees to Sichenzia pursuant to
      the
      terms of the May 5, 2005 legal retainer agreement, as amended, and $147,000
      was
      caused by the write-off of the unamortized balance of the prepaid expense
      related to stock issued to Sichenzia. The remaining increase in legal fees
      of
      $138,000 is attributed to work performed on content licensing agreements, an
      ongoing royalty audit, and acquisition related work.




16




Rent
      expense increased by $104,000 during the year ended December 31, 2006 compared
      to the year ended December 31, 2005 due to our relocation into commercial office
      space in August 2005, with base rent of $6,000 per month, our new industrial
      facility that we leased beginning in September 2006, with base rent of $12,000
      per month, combined with periods of low rates of rent during the nine months
      ended September 30, 2005.





Amortization
      expense increased by $11,000 during the year ended December 31, 2006 compared
      to
      the year ended December 31, 2006 due to an adjustment recorded by us in
      September 2006 related to the disposal of certain licenses with a December
      31,
      2005 carrying value of $140,000.





As
      discussed above, in Liquidity and Capital Resources, we have a
      working
      capital deficit of $1.1 million and have primarily relied upon loans from
      related parties to fund our operations. These financial constraints have
      prevented us from continuing
      the planned build-out of the iCodemedia Assets. We
      had
      intended to use the ICodemedia Assets to provide a suite of applications and
      services to enable content creators to publish and deliver content to existing
      and next generation devices. As consideration for the iCodemedia Assets, we
      had
      issued 1,000,000 shares of our common stock valued at $300,000. Recognizing
      that revenues and cash flows would be lower than expected from the iCodemedia
      Assets, we determined that a triggering event had occurred and conducted an
      impairment analysis in the quarter ended December 31, 2006 which resulted in
      the
      recording of an impairmentcharge
      of $300,000.





General
      and administrative expense increased by $198,000 during the year ended December
      31, 2006 compared to the year ended December 31, 2005 and is attributed to
      the
      overall expansion of the business throughout 2006 combined with the financial
      constraints placed on us as a result of limited amounts of available working
      capital during the year ended December 31, 2005.





**TAXES**





At
      December 31, 2006, we had a net operating loss carryforward of approximately
      $3,809,000 to offset future taxable income for federal income tax purposes.
      The
      utilization of the loss carryforward to reduce any future income taxes will
      depend on our ability to generate sufficient taxable income prior to the
      expiration of the net operating loss carryforwards. The carryforward expires
      beginning in 2021.





A
      change
      in the ownership of a majority of the fair market value of our common stock
      can
      delay or limit the utilization of existing net operating loss carryforwards
      pursuant to Internal Revenue Code Section 382. We believe that such a change
      occurred during the year ended December 31, 2005 and are evaluating the amount
      that our net operating loss carryforward utilization will be limited
      to.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





We
      do not
      have any off balance sheet arrangements that are reasonably likely to have
      a
      current or future effect on our financial condition, revenues, results of
      operations, liquidity or capital expenditures.




17




**ITEM
      7. FINANCIAL STATEMENTS.**


**DIGICORP,
        INC.**
 
 INDEX
        TO
        FINANCIAL STATEMENTS





PageReport
                  of Independent Registered Public Accounting Firm
              
              19Consolidated
                  Balance Sheets as of December 31, 2006 and 2005
              
              20Consolidated
                  Statements of Operations for the years ended December 31, 2006
                  and
                  2005
              
              21Consolidated
                  Statements of Stockholders’ Equity (Deficit) for the years ended December
                  31, 2006 and 2005
              
              22Consolidated
                  Statements of Cash Flows for the years ended December 31, 2006
                  and
                  2005
              
              23Notes
                  to Financial Statements
              
              24
                  - 37


18
 Report
        of
        Independent Registered Public Accounting Firm


To
          the
          Board of Directors and Stockholders of
 Digicorp,
          Inc.
 
 We
          have
          audited the accompanying balance sheets of Digicorp, Inc. (the “Company”) as of
          December 31, 2006 and 2005, and the related statements of operations,
          stockholders' equity (deficit), and cash flows for the years then ended.
          These
          financial statements are the responsibility of the Company's management.
          Our
          responsibility is to express an opinion on these financial statements based
          on
          our audit.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States).  Those standards require that
          we plan and perform the audit to obtain reasonable assurance about whether
          the
          financial statements are free of material misstatement *.*  The
          Company is not required to have, nor were we engaged to perform, an audit
          of its
          internal control over financial reporting. Our audits included consideration
          of
          internal control over financial reporting as a basis for designing audit
          procedures that are appropriate in the circumstances, but not for the purpose
          of
          expressing an opinion on the effectiveness of the Company’s internal control
          over financial reporting. Accordingly, we express no such opinion. An
          audit also includes examining, on a test basis, evidence supporting the
          amounts
          and disclosures in the financial statements, assessing the accounting principles
          used and significant estimates made by management, as well as evaluating
          the
          overall financial statement presentation.  We believe that our audits
          provide a reasonable basis for our opinion.
 
 In
          our
          opinion, the financial statements referred to above present fairly, in
          all
          material respects, the financial position of Digicorp, Inc. as of December
          31,
          2006 and 2005, and the results of its operations and its cash flows for
          the
          years then ended, in conformity with accounting principles generally accepted
          in
          the United States of America.
 
 As
          discussed in Note 1 to the financial statements, the Company changed its
          method
          of accounting for stock-based compensation, effective January 1, 2006,
          as a
          result of the adoption of Statement of Financial Accounting Standards No.
          123R, *Share-Based
          Payments* .
 
 The
          accompanying financial statements have been prepared assuming that the
          Company
          will continue as a going concern. As discussed in Note 2 to the financial
          statements, the Company has reported recurring losses from operations through
          December 31, 2006 and had a working capital deficit at December 31, 2006.
          These
          factors raise substantial doubt about the Company’s ability to continue as a
          going concern. Management’s plans as to these matters are described in Note 2.
          The accompanying financial statements do not include any adjustments that
          might
          result from the outcome of this uncertainty.
 
 Squar,
          Milner, Peterson, Miranda &
Williamson, LLP
 Squar,
          Milner, Peterson, Miranda & Williamson, LLP
 
 San
          Diego, California
 April
          16,
          2007
  **19**
  **DIGICORP,
        INC.**
  **Consolidated
          Balance Sheets**
 **December
                    31,**
                
                **December
                    31,****2006**
                
                **2005****ASSETS****CURRENT
                    ASSETS**Cash
                    and cash equivalents
                
                $
                3,350
                
                $
                54,518Accounts
                    receivable, net
                
                
                58,539
                
                
                64,408Inventories
                
                
                50,705
                
                
                130,168Other
                    current assets - related party
                
                
                10,794
                
                
                35,794Other
                    current assets
                
                
                18,365
                
                
                217,839**TOTAL
                    CURRENT ASSETS**
                
                
                141,753
                
                
                502,727Other
                    long term assets
                
                
                —
                
                
                48,922Property
                    and equipment, net
                
                
                253,855
                
                
                83,016Intangible
                    assets, net
                
                
                527,780
                
                
                796,256**TOTAL
                    ASSETS**
                
                $
                923,388
                
                $
                1,430,921**LIABILITIES
                    AND STOCKHOLDERS' EQUITY (DEFICIT)****CURRENT
                    LIABILITIES**Accounts
                    payable
                
                $
                360,481
                
                $
                189,095Accrued
                    liabilities
                
                
                295,400
                
                
                128,145Revolving
                    credit line - related party
                
                
                50,000
                
                
                —Notes
                    payable - related party
                
                
                473,000
                
                
                73,000Deferred
                    revenue
                
                
                69,672
                
                
                80,211**TOTAL
                    CURRENT LIABILITIES**
                
                
                1,248,553
                
                
                470,451Convertible
                    note payable - related party
                
                
                556,307
                
                
                556,307Debt
                    discount - beneficial conversion feature
                
                
                (154,955
                )
                
                (193,694
                )**COMMITMENTS
                    AND CONTINGENCIES (Note 12)****STOCKHOLDERS'
                    EQUITY (DEFICIT)**Common
                    stock, $0.001 par value: 50,000,000 shares authorized;37,239,002
                    shares issued and outstanding as of December 31, 2006;36,737,184
                    shares issued and outstanding at December 31, 2005
                
                
                37,239
                
                
                36,737Additional
                    paid-in capital
                
                
                4,714,900
                
                
                958,982Accumulated
                    deficit
                
                
                (5,478,656
                )
                
                (397,862
                )**TOTAL
                    STOCKHOLDERS' EQUITY (DEFICIT)**
                
                
                (726,517
                )
                
                597,857**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**
                
                $
                923,388
                
                $
                1,430,921
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  20
 **DIGICORP,
          INC.**
 **Consolidated
          Statements of Operations**
 **Years
                    Ended****December
                    31,**
                
                **December
                    31,****2006**
                
                **2005****REVENUE**Sales
                
                $
                830,606
                
                $
                251,349Licensing
                    fees
                
                
                10,539
                
                
                82,761**Total
                    revenue**
                
                
                841,145
                
                
                334,110**OPERATING
                    EXPENSES**Cost
                    of sales
                
                
                551,125
                
                
                212,188Selling,
                    general and administrative expenses
                
                
                5,289,361
                
                
                478,683**Total
                    operating expenses**
                
                
                5,840,486
                
                
                690,871**Operating
                    loss**
                
                
                (4,999,341
                )
                
                (356,761
                )**Interest
                    expense**
                
                
                80,653
                
                
                —**LOSS
                    BEFORE INCOME TAXES**
                
                
                (5,079,994
                )
                
                (356,761
                )**PROVISION
                    FOR INCOME TAXES**
                
                
                800
                
                
                800**NET
                    LOSS**
                
                $
                (5,080,794
                )
                $
                (357,561
                )**BASIC
                    AND DILUTED NET LOSS PER COMMON SHARE**
                
                $
                (0.14
                )
                $
                (0.02
                )**WEIGHTED
                    AVERAGE COMMON SHARES OUTSTANDING**
                
                
                37,148,738
                
                
                15,704,409
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  21
 **DIGICORP,
          INC.**
 **Consolidated
          Statements of Stockholders' Equity (Deficit)**
 **Years
          Ended December 31, 2006 and 2005**
 **Additonal**
                  
                  
                  
                  **Total****Common
                      Stock**
                  
                  **Paid-In**
                  
                  **Accumulated**
                  
                  **Shareholders’****Shares**
                  
                  **Amount**
                  
                  **Capital**
                  
                  **Deficit**
                  
                  **Equity
                      (Deficit)**BALANCES,
                      December 31, 2004
                  
                  
                  15,530,104
                  
                  $
                  15,530
                  
                  $
                  (905
                  )
                  $
                  (40,301
                  )
                  $
                  (25,676
                  )Effects
                      of recapitalization
                  
                  
                  21,207,080
                  
                  
                  21,207
                  
                  
                  766,194
                  
                  
                  
                  
                  
                  787,401Beneficial
                      conversion feature in connection with convertible debt
                  
                  
                  —
                  
                  
                  —
                  
                  
                  193,693
                  
                  
                  —
                  
                  
                  193,693Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (357,561
                  )
                  
                  (357,561
                  )BALANCES,
                      December 31, 2005
                  
                  
                  36,737,184
                  
                  $
                  36,737
                  
                  $
                  958,982
                  
                  $
                  (397,862
                  )
                  $
                  597,857Issuance
                      of common stock
                  
                  
                  263,636
                  
                  
                  264
                  
                  
                  273,136
                  
                  
                  —
                  
                  
                  273,400Compensation
                      expense due to stock option issuances
                  
                  
                  —
                  
                  
                  —
                  
                  
                  3,162,778
                  
                  
                  —
                  
                  
                  3,162,778Acquisition
                      of intellectual property and fixed assets
                  
                  
                  238,182
                  
                  
                  238
                  
                  
                  311,762
                  
                  
                  —
                  
                  
                  312,000Compensation
                      expense due to warrant issuances
                  
                  
                  —
                  
                  
                  —
                  
                  
                  8,242
                  
                  
                  —
                  
                  
                  8,242Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (5,080,794
                  )
                  
                  (5,080,794
                  )BALANCES,
                      December 31, 2006
                  
                  
                  37,239,002
                  
                  $
                  37,239
                  
                  $
                  4,714,900
                  
                  $
                  (5,478,656
                  )
                  $
                  (726,517
                  )
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
  22
  **DIGICORP,
            INC.**
 **Consolidated
              Statements of Cash Flows**
 **Years
                      Ended****December
                      31,**
                  
                  **December
                      31,****2006**
                  
                  **2005**Cash
                      flows from operating activities:Net
                      loss
                  
                  $
                  (5,080,794
                  )
                  $
                  (357,561
                  )Adjustments
                      to reconcile net loss to net cash used in operating
                      activities:Depreciation
                  
                  
                  13,312
                  
                  
                  1,577Amortization
                      of licenses
                  
                  
                  134,555
                  
                  
                  123,869Amortization
                      of debt discount
                  
                  
                  38,739
                  
                  
                  —Impairment
                      of intangible assets
                  
                  
                  300,000Stock-based
                      compensation to employees and directors
                  
                  
                  3,162,778
                  
                  
                  —Stock-based
                      compensation to consultants
                  
                  
                  8,242
                  
                  
                  —Gain
                      on disposal of intangible assets
                  
                  
                  (11,480
                  )
                  
                  —Changes
                      in operating assets and liabilities:Accounts
                      receivable
                  
                  
                  5,869
                  
                  
                  (64,408
                  )Inventories
                  
                  
                  79,463
                  
                  
                  (130,168
                  )Other
                      current assets - related party
                  
                  
                  25,000
                  
                  
                  (35,794
                  )Other
                      current assets
                  
                  
                  199,474
                  
                  
                  21,647Other
                      long term assets
                  
                  
                  48,922
                  
                  
                  —Accounts
                      payable
                  
                  
                  171,386
                  
                  
                  189,059Accrued
                      liabilities
                  
                  
                  167,255
                  
                  
                  28,862Deferred
                      revenue
                  
                  
                  (10,539
                  )
                  
                  (82,760
                  )Net
                      cash used in operating activities
                  
                  
                  (747,818
                  )
                  
                  (305,677
                  )Cash
                      flows from investing activities:Cash
                      acquired in acquisition
                  
                  
                  —
                  
                  
                  43,408Purchases
                      of licenses and developed content
                  
                  
                  (134,599
                  )
                  
                  (432,000
                  )Proceeds
                      from disposal of licenses
                  
                  
                  140,000
                  
                  
                  —Purchases
                      of property and equipment
                  
                  
                  (32,151
                  )
                  
                  (19,390
                  )Net
                      cash used in investing activities
                  
                  
                  (26,750
                  )
                  
                  (407,982
                  )Cash
                      flows from financing activities:Proceeds
                      from issuance of common stock
                  
                  
                  273,400
                  
                  
                  —Proceeds
                      from revolving credit line - related party
                  
                  
                  50,000
                  
                  
                  —Proceeds
                      from pre-acquisition advances
                  
                  
                  —
                  
                  
                  180,000Proceeds
                      from related party notes
                  
                  
                  400,000
                  
                  
                  580,321Net
                      cash provided by financing activities
                  
                  
                  723,400
                  
                  
                  760,321Net
                      (decrease)/increase in cash and cash equivalents
                  
                  
                  (51,168
                  )
                  
                  46,662Cash
                      and cash equivalents at beginning of period
                  
                  
                  54,518
                  
                  
                  7,856Cash
                      and cash equivalents at end of period
                  
                  $
                  3,350
                  
                  $
                  54,518Supplemental
                      disclosures of cash flow information:Income
                      taxes
                  
                  $
                  1,200
                  
                  $
                  1,600Interest
                      paid
                  
                  $
                  —
                  
                  $
                  —Non-cash
                      investing and financing activity:Acquisition
                      of intangible assets
                  
                  $
                  160,000
                  
                  $
                  300,000Acquisition
                      of fixed assets
                  
                  $
                  152,000
                  
                  $
                  —Assets
                      acquired and liabilities assumed for stockin
                      connection with recapitalization:Acquisition
                      of other current assets
                  
                  $
                  —
                  
                  $
                  239,486Acquisition
                      of property and equipment
                  
                  $
                  —
                  
                  $
                  65,203Acquisition
                      of other long term assets
                  
                  $
                  —
                  
                  $
                  48,922Assumption
                      of accrued liabilities
                  
                  $
                  —
                  
                  $
                  89,619Reclassification
                      of amount due to related partyto
                      convertible note payable - related party
                  
                  $
                  —
                  
                  $
                  48,986
  The
            accompanying notes are an integral part of these consolidated financial
            statements.
  23
  **DIGICORP,
            INC.**
 **Notes
            to Consolidated Financial Statements**
 **December
            31, 2006**
 **1.
        DESCRIPTION OF BUSINESS**
 
 Digicorp
        (“the Company”) was organized under the laws of the State of Utah on July 19,
        1983. On July 1, 1995, the Company became a development stage enterprise
        as
        defined in Statements of Financial Accounting Standards ( ***“SFAS”*** )
        No. 7
        when it sold its assets and changed its business plan. On December 29, 2005,
        the
        Company ceased being a development stage enterprise when it acquired all
        of the
        issued and outstanding capital stock of Rebel Crew Films, Inc., a California
        corporation (“Rebel Crew Films”), pursuant to a reverse merger transaction (see
        note 3).
 
 Pursuant
        to shareholder approval, which was obtained at our annual meeting of
        stockholders held July 14, 2006, on October 6, 2006, the Board of Directors
        of
        the Company approved and authorized the Company to enter into an Agreement
        and
        Plan of Merger by and between the Company and Digicorp, Inc., a Delaware
        corporation and newly formed wholly-owned subsidiary of the Company that
        was
        incorporated under the Delaware General Corporation Law for the purpose of
        effecting a change of domicile. Effective February 22, 2007, the Company
        changed
        its domicile from Utah to Delaware and the name of the surviving corporation
        is
        Digicorp, Inc.
 
 Rebel
        Crew Films operates as a wholly-owned operating subsidiary of the Company.
        Rebel
        Crew Films was organized under the laws of the State of California on August
        7,
        2002 to distribute Latino home entertainment products.  Rebel Crew Films
        distributes Spanish language films and serves wholesale, retail, catalog,
        and
        e-commerce accounts.  Rebel Crew Film’s titles can be found at major retail
        outlets and independent video outlets across the United States of America
        and
        Canada.
 
 The
        Company, including its operating subsidiary, generated revenue through the
        direct sales of licensed content and licensing agreements with third parties
        that distributed the Company’s licensed content. The Company is expanding its
        sales force to focus on direct sales of its licensed content and intends
        to
        significantly reduce or eliminate future licensing agreements with third
        parties.
  The
        Company is organized in a single operating segment. All of the Company’s
        revenues are generated in the United States, and the Company has no long-lived
        assets outside the United States.
 
 **2.
        BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES**
 
 **Principles
        of Consolidation**
 
 The
        accompanying consolidated financial statements include the accounts of the
        Company and its wholly-owned subsidiary, Rebel Crew Films. All significant
        intercompany accounts and transactions have been eliminated in
        consolidation.
 
 **Going
        Concern**
 
 The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern which contemplates the realization of assets
        and satisfaction of liabilities in the normal course of business. At December
        31, 2006, the Company has an accumulated deficit of $5.5 million and a working
        capital deficit of $1.1 million. During the year ended December 31, 2006,
        the
        Company incurred a loss of approximately $5.1 million. During the year ended
        December 31, 2006, the Company primarily relied upon revenues generated from
        the
        direct sales of its Latino home entertainment content, loans from its Chief
        Executive Officer, and on debt and equity investments to fund its operations.
        These conditions raise substantial doubt about the Company’s ability to continue
        as a going concern. Management is currently seeking additional financing
        and
        believes, however no assurances can be made, that these avenues will continue
        to
        be available to the Company to fund its operations. The accompanying financial
        statements do not include any adjustments that might result from the outcome
        of
        this uncertainty.
  24
  **DIGICORP,
          INC.**
 **Notes
          to Consolidated Financial Statements (continued)**
  **Use
        of Estimates**
 
 The
        financial statements have been prepared in accordance with accounting principles
        generally accepted in the United States (“GAAP”). The preparation of financial
        statements in conformity with GAAP requires management to make estimates
        and
        assumptions that affect the amounts reported in the financial statements
        and
        accompanying notes. These estimates are based on knowledge of current events
        and
        anticipated future events and accordingly, actual results may differ from
        those
        estimates.
 
 **Cash
        and Cash equivalents**
 
 The
        Company considers only highly liquid investments such as money market funds
        and
        commercial paper with maturities of 90 days or less at the date of their
        acquisition as cash and cash equivalents.
 
 The
        Company maintains cash in bank and deposit accounts which, at times, may
        exceed
        federally insured limits. The Company has not experienced any losses in such
        accounts. The Company believes it is not exposed to any significant credit
        risk
        on cash and cash equivalents.
 
 **Goodwill
        and Intangible Assets**
 
 In
        accordance with Statement of Financial Accounting Standards ( ***“SFAS”*** )
        No. 142, *Goodwill
        and Intangible Assets* ,
        goodwill is tested for impairment at the reporting unit level (operating
        segment
        or one level below an operating segment) on an annual basis in the Company’s
        fourth fiscal quarter or more frequently if indicators of impairment
        exist.  The performance of the test involves a two-step process.  The
        first step of the impairment test involves comparing the fair value of the
        Company’s reporting units with each respective reporting unit’s carrying amount,
        including goodwill.  The fair value of reporting units is generally
        determined using the income approach.  If the carrying amount of a
        reporting unit exceeds the reporting unit’s fair value, the second step of the goodwill impairmenttest is
        performed to determine the amount of any impairment loss.  The second step
        of the goodwill impairmenttest
        involves comparing the implied fair value of the reporting unit’s goodwill with
        the carrying amount of that goodwill. As discussed in Note 6, the Company
        believed there were indicators of impairment present for its iCodeMedia assets
        and after performing the tests described above, recorded impairment charges
        during the quarter ended December 31, 2006.
  **Stock-Based
        Compensation**
 
 The
        Company accounts for stock-based compensation awards in accordance with the
        provisions of SFAS No. 123(R), *Share-Based
        Payment* ,
        which
        addresses the accounting for employee stock options. SFAS 123(R) revises
        the
        disclosure provisions of SFAS 123 and supercedes APB Opinion No. 25. SFAS
        123(R)
        requires that the cost of all employee stock options, as well as other
        equity-based compensation arrangements, be reflected in the financial statements
        over the vesting period based on the estimated fair value of the awards.
        During
        the year ended December 31, 2006, the Company had stock-based compensation
        expense, related to issuances of stock options and warrants to the Company’s
        employees, directors and consultants of $3.17 million. During the year ended
        December 31, 2005, stock-based compensation totaling approximately $2.90
        million
        was recorded by the Company prior to the reverse merger with Rebel Crew Films,
        and as such is included in the pre-merger net loss. Outstanding stock-based
        compensation awards were
        granted by the Company during 2005, prior to the reverse merger, at the per
        share fair market value on the grant date. Vesting of outstanding options
        and
        warrants differ based on the terms of each award.
  25
 **DIGICORP,
          INC.**
 **Notes
          to Consolidated Financial Statements (continued)**
 **Revenue
        Recognition**
  The
        Company generates revenue through either the direct sales of licensed content
        or
        through licensing agreements whereby the Company receives advance payments
        as
        consideration for rights granted to third parties that distribute the Company’s
        licensed content. The Company may be entitled to receive additional royalty
        payments under the licensing agreements, but only to the extent that royalties
        calculated under the terms of the licensing agreements exceed the amount
        of the
        advance payments. Advance payments are initially recorded as deferred revenue.
        The Company recognizes revenue under its licensing agreements as royalties
        are
        earned upon shipment of licensed content to customers by the sub-licensor.
        Deferred revenue balances of $70,000 and $80,000 at December 31, 2006 and
        2005,
        respectively, represent advance royalty payments that are expected to be
        earned
        over the subsequent twelve month periods. Revenues from direct sales are
        recorded upon shipment.
 
 **Accounts
        Receivable**
 
 Accounts
        receivable are recorded at the invoice amount and do not bear interest. Accounts
        receivable at December 31, 2006 and 2005 are presented net of an allowance
        for
        doubtful accounts of $5,000 and $15,000, respectfully. The allowance for
        doubtful accounts is the Company's estimate of the amount of probable credit
        losses in the Company's existing accounts receivable. The Company determines
        the
        allowance based on historical write-off experience. The Company reviews its
        allowance for doubtful accounts monthly. Past due balances are reviewed
        individually for collectibility. Account balances are charged off against
        the
        allowance after all means of collection have been exhausted and potential
        for
        recovery is considered remote. The Company does not have any off-balance-sheet
        exposure related to its customers.
 
 **Inventory**
 
 Inventories,
        consisting primarily of Spanish language DVD titles, are stated at the lower
        of
        cost (average) or market.
 
 **Property
        and Equipment**
 
 Property
        and equipment are recorded at cost and depreciated using the straight-line
        method over the useful lives of the assets, generally from three to seven
        years.
        Property and equipment at December 31, 2006 and 2005 are presented net of
        accumulated depreciation of $15,623 and $2,311, respectfully. Depreciation
        expense for the years ended December 31, 2006 and 2005 was $13,312 and $2,311,
        respectively.
 
 **Beneficial
        Conversion Feature of Convertible Notes Payable**
 
 The
        convertible feature of certain notes payable provides for a rate of conversion
        that is below market value. Such feature is normally characterized as a
“Beneficial Conversion Feature” ( ***“BCF”*** ).
        Pursuant to EITF Issue No. 98-5, *Accounting
        for Convertible Securities with Beneficial Conversion Features or Contingently
        Adjustable Conversion Ratio,* EITF No.
        00-27, *Application
        of EITF Issue No. 98-5 To Certain Convertible Instruments* and APB
        14, *Accounting
        for Convertible Debt and Debt Issued with Stock Purchase
        Warrants* ,
        the
        estimated fair value of the BCF is recorded in the consolidated financial
        statements as a discount from the face amount of the notes. Such discounts
        are
        amortized to accretion of convertible debt discount over the term of the
        notes
        (or conversion of the notes, if sooner).
 
 **Income
        Taxes**
 
 Deferred
        income taxes are provided in amounts sufficient to give effect to temporary
        differences between financial and tax reporting, principally related to net
        operating loss carryforwards. Valuation allowances are provided to the extent
        realization of recorded tax assets is not considered likely.
  26
 **DIGICORP,
          INC.**
 **Notes
          to Consolidated Financial Statements (continued)**
 **Advertising
        Costs**
 
 The
        Company expenses advertising costs when incurred. Advertising expense for
        the
        years ended December 31, 2006 and 2005 was $17,000 and $1,000, respectively. ****
 
 **Shipping
        and Handlings Costs**
 
 Shipping
        and handling costs are classified as cost of sales .
 
 **Recent
        Accounting Pronouncements**
 
 In
        June 2006, the Financial Accounting Standards Board ( ***“FASB”*** ) issued
        FASB Interpretation Number 48 ( ***“FIN
        48”*** ), *Accounting
        for Uncertainty in Income Taxes—an interpretation of FASB Statement
        No. 109* .
        The
        interpretation contains a two step approach to recognizing and measuring
        uncertain tax positions accounted for in accordance with SFAS No. 109. The
        first step is to evaluate the tax position for recognition by determining
        if the
        weight of available evidence indicates it is more likely than not that the
        position will be sustained on audit, including resolution of related appeals
        or
        litigation processes, if any. The second step is to measure the tax benefit
        as
        the largest amount which is more than 50% likely of being realized upon ultimate
        settlement. Effective
        for the Company beginning January 1, 2007, FIN 48 is not expected to have
        any impact on the Company's financial position, results of operations or
        cash
        flows.
 
 In
        September 2006, the FASB issued
        Statement of Financial Accounting Standards ( ***“SFAS”*** ) No. 157, *Fair
        Value Measurements*  ( ***“SFAS
        No. 157”*** ) .
        The
        purpose of SFAS No. 157 is to define fair value, establish a framework for
        measuring fair value and enhance disclosures about fair value measurements.
        The
        measurement and disclosure requirements are effective for the Company beginning
        in the first quarter of fiscal 2008. The Company is currently evaluating
        the
        impact of adopting SFAS No. 157 on its financial statements.
 
 In
        September 2006, the FASB issued SFAS No. 158, *Employers’
        Accounting for Defined Benefit Pension and Other Postretirement Plans—An
        Amendment of FASB Statements No. 87, 88, 106, and 132R*  ( ***“SFAS
        No. 158”*** ) .
        SFAS
        No. 158 requires that the funded status of defined benefit postretirement
        plans be recognized on the company’s balance sheet, and changes in the funded
        status be reflected in comprehensive income. SFAS No. 158 also requires the
        measurement date of the plan’s funded status to be the same as the company’s
        fiscal year-end. Effective
        for the Company beginning January 1, 2007, SFAS No. 158 is not expected to
        have any impact on the Company's financial position, results of operations
        or
        cash flows.
 
 In
        September 2006, the SEC Staff issued Staff Accounting Bulletin No. 108
        ( ***“SAB
        108”*** )
        to
        require registrants to quantify financial statement misstatements that have
        been
        accumulating in their financial statements for years and to correct them,
        if
        material, without restating. Under the provisions of SAB 108, financial
        statement misstatements are to be quantified and evaluated for materiality
        using
        both balance sheet and income statement approaches. SAB 108 is effective
        for
        fiscal years ending after November 15, 2006. The adoption of SAB 108 did
        not
        have a material impact on the Company’s financial statements.
 
 In
        November 2006, the EITF reached a final consensus in EITF Issue 06-6, *Debtor’s
        Accounting for a Modification (or Exchange) of Convertible Debt
        Instruments* ( ***“EITF
        No. 06-6”*** ).
         EITF No. 06-6 addresses the modification of a convertible debt instrument
        that changes the fair value of an embedded conversion option and the subsequent
        recognition of interest expense for the associated debt instrument when the
        modification does not result in a debt extinguishment pursuant to EITF No.
        96-19 *,
        Debtor’s Accounting for a Modification or Exchange of Debt
        Instruments* .
        The
        consensus should be applied to modifications or exchanges of debt instruments
        occurring in interim or annual periods beginning after November 29, 2006.
        The
        Company is currently evaluating the impact of this guidance on the Company’s
        consolidated financial position, results of operations or cash
        flows.
  27
 **DIGICORP,
          INC.**
 **Notes
          to Consolidated Financial Statements (continued)**
 In
        November 2006, the FASB ratified EITF Issue No. 06-7, *Issuer’s
        Accounting for a Previously Bifurcated Conversion Option in a Convertible
        Debt
        Instrument When the Conversion Option No Longer Meets the Bifurcation Criteria
        in FASB Statement No. 133, Accounting for Derivative Instruments and
        Hedging Activities* ( ***“EITF
        No. 06-7”*** ).
        At the
        time of issuance, an embedded conversion option in a convertible debt instrument
        may be required to be bifurcated from the debt instrument and accounted for
        separately by the issuer as a derivative under SFAS No. 133, based on the
        application of EITF No. 00-19. Subsequent to the issuance of the convertible
        debt, facts may change and cause the embedded conversion option to no longer
        meet the conditions for separate accounting as a derivative instrument, such
        as
        when the bifurcated instrument meets the conditions of Issue 00-19 to be
        classified in stockholders’ equity. Under EITF No. 06-7, when an embedded
        conversion option previously accounted for as a derivative under SFAS No.
        133 no
        longer meets the bifurcation criteria under that standard, an issuer shall
        disclose a description of the principal changes causing the embedded conversion
        option to no longer require bifurcation under SFAS No. 133 and the amount
        of the
        liability for the conversion option reclassified to stockholders’ equity. EITF
        No. 06-7 should be applied to all previously bifurcated conversion options
        in
        convertible debt instruments that no longer meet the bifurcation criteria
        in
        SFAS No. 133 in interim or annual periods beginning after December 15,
        2006, regardless of whether the debt instrument was entered into prior or
        subsequent to the effective date of EITF No. 06-7. Earlier application of
        EITF
        No. 06-7 is permitted in periods for which financial statements have not
        yet
        been issued. The Company is currently evaluating the impact of this guidance
        on
        the Company’s consolidated financial position, results of operations or cash
        flows.
  In
        December 2006, the FASB issued FASB Staff Position ( ***“FSP”*** )
        EITF
        00-19-2, *Accounting
        for Registration Payment Arrangements* ( ***“FSP
        EITF 00-19-2”*** )
        which
        specifies that the contingent obligation to make future payments or otherwise
        transfer consideration under a registration payment arrangement should be
        separately recognized and measured in accordance with SFAS No. 5,
“Accounting for Contingencies.”    Adoption of FSP EITF 00-19-02
        is required for fiscal years beginning after December 15, 2006. The Company
        is currently evaluating the expected effect of FSP EITF 00-19-02 on its
        consolidated financial statements and is currently not yet in a position
        to
        determine such effects.
 
 In
        February 2007, the FASB issued SFAS No. 159, *The
        Fair Value Option for Financial Assets and Financial Liabilities—Including an
        amendment of FASB Statement No. 115* ( ***“SFAS
        No. 159”*** ),
        which
        permits entities to choose to measure many financial instruments and certain
        other items at fair value. The fair value option established by this Statement
        permits all entities to choose to measure eligible items at fair value at
        specified election dates. A business entity shall report unrealized gains
        and
        losses on items for which the fair value option has been elected in earnings
        at
        each subsequent reporting date. Adoption is required for fiscal years beginning
        after November 15, 2007. Early adoption is permitted as of the beginning of
        a fiscal year that begins on or before November 15, 2007, provided the
        entity also elects to apply the provisions of SFAS Statement No. 159.
 The Company is currently evaluating the expected effect of SFAS
        No. 159 on its consolidated financial statements and is currently not yet
        in a position to determine such effects.
 
 **3.
        RECAPITALIZATION**
 
 On
        December 29, 2005, the Company completed the acquisition of Rebel Crew Films. Pursuant
        to the stock purchase agreement, the Company acquired all of the outstanding
        equity stock of Rebel Crew Films from the Rebel Crew Films Shareholders.
        As
        consideration for the acquisition the Company agreed to issue 21,207,080
        shares of the Company’s common stock (the “Purchase Price”) to the shareholders
        of Rebel Crew Films .
  28
 **DIGICORP,
          INC.**
 **Notes
          to Consolidated Financial Statements (continued)**
  Immediately
        f ollowing
        the completion of the acquisition, the Company’s previous shareholders owned
        15,530,104 common shares and Rebel Crew Films shareholders owned 21,207,080,
        or
        approximately 57.7% of the outstanding shares of the Company’s common stock. For
        accounting purposes the transaction is considered to be a recapitalization
        where
        Digicorp is the surviving legal entity, and Rebel Crew Films is considered
        to be
        the accounting acquirer. Accordingly,
        the historical financial statements prior to December 29, 2005 are those
        of
        Rebel Crew Films. Following the acquisition, Digicorp changed its fiscal
        year
        end from June 30 to December 31.
 
 **4.
        PROPERTY AND EQUIPMENT**
 
 Property
        and equipment at December 31, 2006 and 2005 consist of the
        following:
 
 **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**Computer
                  Software and Equipment
              
              $
              262,849
              
              $
              78,698Office
                  Furniture and Equipment
              
              
              6,629
              
              
              6,629Total
                  Property and Equipment
              
              
              269,478
              
              
              85,327Less:
                  accumulated depreciation
              
              
              (15,623
              )
              
              (2,311
              )Property
                  and equipment, net
              
              $
              253,855
              
              $
              83,016
 
 Depreciation
        expense for the year ended December 31, 2006 and 2005 was $13,312 and $1,577,
        respectively.
  **5.
        OTHER CURRENT ASSETS**
 
 The
        Company had an agreement with Sichenzia Ross Friedman Ference LLP ( ***“Sichenzia”*** )
        for
        legal representation that extended through March 31, 2007. In consideration
        for
        Sichenzia's services, the Company agreed to a fixed fee of $50,000 and to
        issue
        Sichenzia 500,000 shares of the Company's common stock. The common stock
        issued
        to Sichenzia was valued at $325,000 and was being amortized over the term
        of the
        agreement. On September 15, 2006, Sichenzia terminated the agreement. As
        a
        result of Sichenzia’s termination of the agreement, the Company recognized an
        expense of $147,000, during the three months ended September 30, 2006, in
        connection with the write-off of the unamortized prepaid expense balance.
        The
        remaining balance recorded in other current assets at December 31, 2006 relates
        to security deposits of $18,365.
 
 **6.
        INTANGIBLE ASSETS**
  Intangible
        assets consist of capitalized license fees for licensed content the Company
        acquired from owners including producers, studios and distributors as well
        as
        the Company’s iCodemedia and Perreoradio suite of websites and internet
        properties and all related intellectual property (the “iCodemedia Assets”).
 
 The
        Perreoradio suite of websites consists of the following Internet domain names
        and all materials, intellectual property, goodwill and records in connection
        therewith: Perreoradio.com, Radioperreo.com, Perreomobile.com, Perreotv.com,
        Puroperreo.com, Puroreggaeton.com, Purosandungueo.com, Sandungueoradio.com,
        Machetemusic.net, Machetemusic.org, Machetemusica.com and Musicamachete.com.
        As
        consideration for the Perreoradio Assets, the Company issued an aggregate
        of
        100,000 shares of its common stock valued at $160,000.
 
 The
        iCodemedia suite of websites consists of the websites www.icodemedia.com,
        www.iplaylist.com, www.tunecast.com, www.tunebucks.com, www.podpresskit.com
        and
        www.tunespromo.com. The Company intended to use these websites to provide
        a
        suite of applications and services to enable content creators to publish
        and
        deliver content to existing and next generation devices. As consideration
        for
        the iCodemedia Assets, the Company issued 1,000,000 shares of its common
        stock
        valued at $300,000. During the quarter ended December 31, 2006, the Company
        recognized a goodwill impairment charge of $300,000. As
        discussed in Note 1, the Company has an
        accumulated deficit of $5.5 million and a working capital deficit of $1.1
        million. These financial constraints have prevented the Company from continuing
        the planned build-out of the iCodemedia Assets. Recognizing that revenues
        and
        cash flows would be lower than expected from the iCodemedia Assets, the Company
        determined that a triggering event had occurred and conducted an impairment
        analysis in the quarter ended December 31, 2006 which resulted in the recording
        of an impairmentcharge
        of $300,000.
  29
 **DIGICORP,
          INC.**
 **Notes
          to Consolidated Financial Statements (continued)**
  The
        Perreoradio and iCodemedia Assets were determined to have an indefinite useful
        life based primarily on the renewability of the proprietary domain names. Intangible
        assets with an indefinite life are not subject to amortization, but will
        be
        subject to periodic evaluation for impairment
 
 Licensed
        content acquired is capitalized at the time of purchase. The term of the
        licensed content agreements usually vary between one to five years (the ***“Title
        Term”*** ).
        At the
        end of the Title Term, the Company generally has the option of discontinuing
        distribution of the title or extending the Title Term.
  The
        Company amortizes the capitalized license fees, on a straight line basis
        over
        the Title Term. During the years ended December 31, 2006 and 2005, amortization
        expense related to the licensed content was $134,556 and $123,869,
        respectively.
 
 Intangible
        assets and accumulated amortization at December 31, 2006 and 2005 are comprised
        of the following:
 
 **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**iCodemedia
                  Assets
              
              $
              —
              
              $
              300,000Perreoradio
                  Assets
              
              
              160,000
              
              
              —Licensed
                  and developed content
              
              
              665,599
              
              
              686,000Less:
                  accumulated amortization
              
              
              (297,819
              )
              
              (189,744
              )Intangible
                  assets, net
              
              $
              527,780
              
              $
              796,256
  In
        connection with these agreements, the Company expects to record the following
        amortization expense over the next five years:
 
 **Fiscal
                  year ended**
              
              **Amortization**December
                  31, 2007
              
              $
              142,445December
                  31, 2008
              
              $
              96,570December
                  31, 2009
              
              $
              76,497December
                  31, 2010
              
              $
              44,378December
                  31, 2011
              
              $
              7,890
  30
 **DIGICORP,
          INC.**
 **Notes
          to Consolidated Financial Statements (continued)**
 
 **7.
        INCOME TAXES**
 
 Deferred
        income taxes reflect the net tax effects of temporary differences between
        carrying amounts of assets and liabilities for financial reporting purposes
        and
        the amounts used for tax purposes. Significant components of the Company’s
        deferred tax assets as of December 31, 2006 and 2005 are as
        follows:
 
 **2006**
              
              **2005**Deferred
                  tax assetsFederal
                  net operating loss carryforward
              
              $
              1,294,909
              
              $
              660,302State
                  net operating loss carryforward
              
              
              336,243
              
              
              171,386Stock
                  based compensation
              
              
              2,062,602
              
              
              704,137Deferred
                  revenue
              
              
              29,847
              
              
              34,362Beneficial
                  conversion feature
              
              
              (66,383
              )
              
              —Total
                  gross deferred tax asset
              
              
              3,657,218
              
              
              1,570,187Less
                  valuation allowance
              
              
              (3,657,218
              )
              
              (1,570,187
              **)**Net
                  deferred tax asset
              
              $
              —
              
              $
              —
 
 The
        ultimate realization of deferred tax assets depends upon the generation of
        future taxable income during the periods in which those temporary differences
        become deductible. Based upon the Company’s loss for the year ended December 31,
        2006 the Company has provided a valuation allowance in the amount of $3,660,000,
        an increase of $2,090,000. The amount of deferred tax assets considered
        realizable could change if future taxable income is realized. A component
        of the
        Company’s deferred tax assets are federal and state net operating loss
        carryforwards of approximately $3,809,000 and $3,804,000 respectively. Included
        in the federal and state net operating loss carryforwards are federal and
        state
        net operating losses of Digicorp prior to the recapitalization (see note
        3) of
        approximately $554,000 and $144,000, respectively. A greater than 50% change
        in
        the ownership of the Company’s common stock can delay or limit the utilization
        of existing net operating loss carryforwards pursuant to the Internal Revenue
        Code Section 382. The Company believes that such a change occurred on December
        29, 2005. The Company is evaluating the net operating loss carryforward
        limitation imposed by Internal Revenue Code Section 382 for net operating
        losses
        incurred before the change date. The net operating losses will begin to expire
        in 2021 and 2011, respectively.
 
 Due
        to
        the Company being in a net loss position, the implementation during 2006
        of EITF
        05-8, *Income
        Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion
        Feature* ,
        resulted in a difference of $66,000 between the expected income taxes at
        statutory rates and the amounts presented herein related to the change in
        valuation allowance.
 
 At
        December 31, 2006 and 2005, the Company’s tax provision consists
        of:
  **2006**
              
              **2005**CurrentFederal
              
              $
              —
              
              $
              —State
              
              
              800
              
              
              800DeferredFederal
              
              
              —
              
              
              —State
              
              
              —
              
              
              —Total
              
              $
              800
              
              $
              800
  31
 **DIGICORP,
          INC.**
 **Notes
          to Consolidated Financial Statements (continued)**
  For
        the
        years ended December 31, 2006 and 2005, a reconciliation of the federal
        statutory tax rate to the Company's effective tax rate is as follows:
  **2006**
              
              **2005**Federal
                  statutory tax rate
              
              
              (34.00)
              %
              
              (34.00)
              %State
                  and local income taxes, net of federal tax benefit
              
              
              0.01
              
              
              0.15Non
                  deductible items
              
              
              0.02
              
              
              0.39Valuation
                  allowance
              
              
              33.98
              
              
              33.70Total
                  effective tax rate
              
              
              0.01
              %
              
              0.24
              %
 
 **8.
        INCOME (LOSS) PER COMMON SHARE**
 
 Income
        (loss) per common share is based on the weighted average number of common
        shares
        outstanding. The Company complies with SFAS No. 128, *“Earnings
        Per Share,”* which
        requires dual presentation of basic and diluted earnings per share on the
        face
        of the statements of operations. Basic per share earnings or loss excludes
        dilution and is computed by dividing income (loss) available to common
        stockholders by the weighted-average common shares outstanding for the period.
        Diluted per share earnings or loss reflects the potential dilution that could
        occur if convertible preferred stock or debentures, options and warrants
        were to
        be exercised or converted or otherwise resulted in the issuance of common
        stock
        that then shared in the earnings of the entity
 
 Options
        and warrants issued pursuant to the Company’s Stock Option Plan and warrants
        that were issued outside the Company’s Stock Option Plan which were outstanding
        as of December 31, 2006 to purchase 9,970,833 and 550,000 shares of common
        stock, respectively, and 500,000 shares issuable upon conversion of an
        outstanding convertible note were not included in the computation of diluted
        net
        loss per common share for the year ended December 31, 2006, as their inclusion
        would have been antidilutive.
 
 Options
        and warrants issued pursuant to the Company’s Stock Option Plan and warrants
        that were issued outside the Company’s Stock Option Plan which were outstanding
        as of December 31, 2005 to purchase 8,312,500 and 550,000 shares of common
        stock, respectively, and 500,000 shares issuable upon conversion of an
        outstanding convertible note were not included in the computation of diluted
        net
        loss per common share for the year ended December 31, 2005, as their inclusion
        would have been antidilutive
 
 **9.
        ACCRUED LIABILITIES**
 
 Accrued
        liabilities at December 31, 2006 and 2005 are comprised of the
        following:
 
 **December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**Obligations
                  on license agreements
              
              $
              55,095
              
              $
              58,500Accrued
                  salaries
              
              
              189,736
              
              
              37,500Accrued
                  professional fees
              
              
              —
              
              
              29,000Interest
                  payable
              
              
              41,913
              
              
              —Other
              
              
              8,656
              
              
              3,145$
              295,400
              
              $
              128,145
  32
 **DIGICORP,
          INC.**
 **Notes
          to Consolidated Financial Statements (continued)**
 **10.
        CONVERTIBLE NOTE PAYABLE - RELATED PARTY**
 
 In connection
        with the acquisition of Rebel Crew Films, on December 29, 2005 the Company
        entered into a Securities Purchase Agreement with one of the shareholders
        of
        Rebel Crew Films, Rebel Holdings, LLC, a California limited liability company
        ( ***"Rebel
        Holdings"*** ),
        pursuant to which the Company purchased a $556,307 principal amount loan
        receivable owed by Rebel Crew Films to Rebel Holdings, LLC in exchange for
        the
        issuance of a $556,307 principal amount secured convertible note to Rebel
        Holdings, LLC. The secured convertible note accrues simple interest at the
        rate
        of 4.5%, matures on December 29, 2010 and is secured by all of the Company’s
        assets now owned or hereafter acquired. The secured convertible note is
        convertible into 500,000 shares of the Company’s common stock at the rate of
        $1.112614 per share. Jay Rifkin, the Company’s Chief Executive Officer and a
        director, is the sole managing member of Rebel Holdings, LLC.
 
 As
        the
        effective conversion price of the note on the date of issuance was below
        the
        fair market value of the underlying common stock, the Company recorded debt
        discount in the amount of $193,694 based on the intrinsic value of the
        beneficial conversion feature of the note. The debt discount recorded as
        a
        result of the beneficial conversion feature will be amortized as non-cash
        interest expense over the term of the debt. Through December 31, 2006, interest
        expense of $38,739 had been recorded from the debt discount amortization,
        and as
        of December 31, 2006, the remaining debt discount balance attributable to
        the
        beneficial conversion feature was $154,955.
 
 **11.
        REVOLVING LINE OF CREDIT AGREEMENT - RELATED PARTY**
 
 During
        the period March 23, 2006 through September 28, 2006, the Company was a party
        to
        a Revolving Line of Credit Agreement (the ***“Revolving
        Line of Credit”*** )
        with
        Ault Glazer Bodnar Acquisition Fund, LLC ( ***“AGB
        Acquisition Fund”*** ).
        The
        Revolving Line of Credit allowed the Company to request advances totaling
        an
        aggregate of up to $150,000 from AGB Acquisition Fund at a rate equal to
        the
        prime rate published in *The
        Wall Street Journal* from
        time to time, and currently 8.25%. At December 31, 2006, the Company had
        borrowed $50,000 against the Revolving Line of Credit and incurred interest
        expense of $2,519. Amounts borrowed against the Revolving Line of Credit
        are
        evidenced by Convertible Secured Promissory Notes (the ***“Convertible
        Notes”*** )
        which
        allow for the conversion of all or any part of the outstanding principal
        balance
        of the Convertible Notes including any accrued interest thereon, to shares
        of
        the Company’s common stock at a price equal to the lesser of the closing price
        of the Company’s common stock on March 23, 2006 or the share price of the
        Company’s common stock offered in the Company’s next round of financing in a
        private placement offering completed while the principal balance of the
        Convertible Notes are outstanding. The Convertible Notes issued pursuant
        to the
        Revolving Line of Credit are due on January 31, 2007. The Company’s Chief
        Financial Officer was the Chief Financial Officer of AGB Acquisition
        Fund.
 
 **12.
        NOTE PAYABLE - RELATED PARTY**
 
 At
        December 31, 2006 and 2005 the Company has a liability of $73,000 due to
        the
        sole member of Rebel Holdings, LLC, a California limited liability company
        ( ***"Rebel
        Holdings"*** ),
        an
        entity whose sole managing member is the Company’s Chief Executive Officer that
        owned approximately 52% of the outstanding shares of the Company’s common stock
        at December 31, 2006. In connection with the borrowings, the Company issued
        a
        promissory note in the amount of $73,000 to the member (the ***"Note"*** )
        on
        December 29, 2005. The monies loaned by the member to the Company were utilized
        to pay for certain capitalized license agreements and operating expenses
        of the
        Company. The Note was due on June 30, 2006 with 5.0% simple interest.
 
 On
        July
        13, 2006, William Horne, the Company’s Chief Financial Officer, loaned the
        Company $5,000. As consideration for the loan, the Company issued Mr. Horne
        a
        demand promissory note at a rate equal to the prime rate published in *The
        Wall Street Journal* from
        time to time ,
        and
        currently 8.25%, to
        the
        date of payment in full.
  33
 **DIGICORP,
          INC.**
 **Notes
          to Consolidated Financial Statements (continued)**
 From
        July
        14, 2006 through December 31, 2006, Jay Rifkin, the Company’s Chairman and Chief
        Executive Officer, loaned the Company a total of $395,000. As consideration
        for
        the loans, the Company issued Mr. Rifkin demand promissory notes at interest
        rates that ranged from the prime rate to the prime rate plus one percent.
 
 **13.
        CUSTOMER CONCENTRATIONS**
 
 During
        the year ended December 31, 2006, the Company had sales to two customers
        that
        accounted for 12% and 10% of total sales. During the year ended December
        31,
        2005, there were no significant customers that accounted for over 10% of
        total
        sales.  These customers owed the Company $28,000 and nil at December 31,
        2006.




**14.
      COMMITMENT AND CONTINGENCIES**





Rent
      expense during the years ended December 31, 2006 and 2005 was $140,000 and
      $36,000, respectively. In August 2005 the Company entered into a commercial
      lease agreement for office space.  The lease requires monthly payments of
      base rent in the amount of $5,890 from August 21, 2005 through September 30,
      2012. Further, on each anniversary date the base rent is subject to a 3%
      increase over the previous year. In March 2006 the Company entered into a
      commercial lease agreement for additional office space.  The additional
      lease requires monthly payments of base rent which increase from $12,475 in
      September 2006 to $14,041 in December 2010. Approximate future minimum rent
      payments under these leases are as follows:





**Years
                ended December 31,****2007**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **Thereafter**
            
            **Total**$
            225,500
            
            $
            232,200
            
            $
            239,200
            
            $
            239,600
            
            $
            82,800
            
            $
            63,500
            
            $
            1,082,800





**15.
      STOCK BASED COMPENSATION**





Effective
      July 20, 2005, the Board of Directors of the Company approved the 2005 Stock
      Option and Restricted Stock Plan (the ***“2005
      Plan”*** ).
      The
      Plan reserves 15,000,000 shares of common stock for grants of incentive stock
      options, nonqualified stock options, warrants and restricted stock awards to
      employees, non-employee directors and consultants performing services for the
      Company. Options and warrants granted under the Plan have an exercise price
      equal to or greater than the fair market value of the underlying common stock
      at
      the date of grant and become exercisable based on a vesting
      schedule determined at the date of grant. The options expire 10 years
      from the date of grant whereas warrants generally expire 5 years from the date
      of grant. Restricted stock awards granted under the Plan are subject to a
      vesting period determined at the date of grant.





The
      Company accounts for stock-based compensation awards in accordance with the
      provisions of SFAS No. 123(R), *Share-Based
      Payment* ,
      which
      addresses the accounting for employee stock options. SFAS 123(R) requires that
      the cost of all employee stock options, as well as other equity-based
      compensation arrangements, be reflected in the financial statements over the
      vesting period based on the estimated fair value of the awards. The Company
      adopted SFAS 123(R) as of January 1, 2005. Prior to the adoption date, there
      were no stock options or other equity-based compensation awards
      outstanding.





34





**DIGICORP,
      INC.**


**Notes
      to Consolidated Financial Statements (continued)**





A
      summary
      of stock option activity for the year ended December 31, 2006 is presented
      below:





**Outstanding
                Options****Shares
                Available for Grant**
            
            **Number
                of Shares**
            
            **Weighted
                Average Exercise Price**
            
            **Weighted
                Average Remaining Contractual Life (years)**
            
            **Aggregate
                Intrinsic Value****December
                31, 2005**
            
            
            **6,687,500**
            
            
            **8,312,500**
            
            **$**
            **0.75**
            
            
            **8.64**Grants
            
            
            (1,450,000
            )
            
            1,450,000
            
            $
            0.62
            
            
            9.46Cancellations
            
            
            41,667
            
            
            (41,667
            )
            $
            1.1
            
            
            4.67**December
                31, 2006**
            
            
            **5,279,167**
            
            
            **9,720,833**
            
            **$**
            **0.73**
            
            
            **7.92**
            
            **$**
            **—**Options
                exercisable at:December
                31, 2005
            
            
            
            
            
            2,137,500
            
            $
            0.25
            
            
            5.34
            
            **$**
            **—**December
                31, 2006
            
            
            
            
            
            4,204,167
            
            $
            0.58
            
            
            6.51
            
            **$**
            **—**





The
      aggregate intrinsic value in the table above represents the total pretax
      intrinsic value (i.e., the difference between our closing stock price on
      December 31, 2006 and the exercise price, times the number of shares) that
      would have been received by the option holders had all option holders exercised
      their options on December 31, 2006. There have not been any options
      exercised during the years ended December 31, 2006 or 2005.





A
      summary
      of the changes in the Company’s nonvested options during the year ended December
      31, 2006 is as follows:





**Nonvested
                Shares**
            
            **Shares**
            
            **Weighted
                Average Grant Date Fair Value**Nonvested
                at December 31, 2005
            
            
            6,175,000
            
            $
            0.85Granted
            
            
            1,450,000
            
            $
            0.56Vested
            
            
            (2,066,667
            )
            $
            0.86Forfeited
            
            
            (41,667
            )
            $
            0.99Nonvested
                at December 31, 2006
            
            
            5,516,667
            
            $
            0.78





35


**DIGICORP,
        INC.**
 **Notes
        to Consolidated Financial Statements (continued)**




All outstanding
      stock-based compensation awards that the
      Company granted in 2006 and 2005 were granted at the per share fair market
      value
      on the grant date. Vesting of options differs based on the terms of each option.
      The Company utilized the Black-Scholes option pricing model and the assumptions
      used for each period are as follows:





**Year
                ended December 31,****2006**
            
            **2005**Weighted
                average risk free interest rate
            
            
            4.27
            %
            
            3.75
            %Weighted
                average life (in years)
            
            
            5.0
            
            
            3.55Volatility
            
            
            138
              - 155
            %
            
            155
            %Expected
                dividend yield
            
            
            0
            %
            
            0
            %Weighted
                average grant-date fair value per share of options granted
            
            $
            0.56
            
            $
            0.56





During
      the year ended December 31, 2006 stock-based compensation totaling $3.17 million
      was recorded by the Company. As of December 31, 2006, total unrecognized
      compensation cost related to unvested stock options was $2.26 million. The
      cost
      is expected to be recognized over a weighted average period of 1.32 years.
      During the year ended December 31, 2005, stock-based compensation totaling
      approximately $2.90 million was recorded by the Company prior to the reverse
      merger with Rebel Crew Films, and as such is included in the pre-merger net
      loss.





**16.
      EQUITY TRANSACTIONS**





During
      the period February 2006 through April 2006, the Company entered into a
      Subscription Agreement with several accredited investors, relating to the
      issuance and sale by the Company of shares of its common stock (the ***"Shares"*** ).
      The
      Company received gross proceeds of $290,000 from the issuance of 263,636 Shares
      at a price of $1.10 per share.





On
      February 7, 2006, the Company entered into an asset purchase agreement pursuant
      to which the Company purchased the Perreoradio suite of websites and all
      materials, intellectual property, goodwill and records in connection therewith
      (the "Assets"). As consideration for the Assets, the Company issued an aggregate
      of 100,000 shares of its common stock valued at $160,000.





**17.
      WARRANTS**





During
      2005, the Company issued a total of 550,000 warrants, outside of its 2005 Plan,
      to purchase shares of common stock at prices ranging from $0.145 to $0.65 per
      share to consultants. No warrants, other than warrants that were issued pursuant
      to the 2005 Plan, were issued by the Company during the year ended December
      31,
      2006.




36


**DIGICORP,
        INC.**
 **Notes
        to Consolidated Financial Statements (continued)**





The
      following table summarizes information about common stock warrants outstanding
      at December 31, 2006:





Outstanding
            
            ExercisableExercise
              Price
            
            Number
              Outstanding
            
            Weighted
              Average
              Remaining
              Contractual
              Life
              (Years)
            
            Weighted
              Average
              Exercise
              Price
            
            Number
              Exercisable
            
            Weighted
                Average Exercise
              Price$
                0.10 - 0.25
            
            
            250,000
            
            
            4.00
            
            $
            0.145
            
            
            250,000
            
            $
            0.145$
                0.50 - 0.75
            
            
            300,000
            
            
            3.75
            
            
            0.65
            
            
            300,000
            
            
            0.65$
                0.10 - 0.75
            
            
            550,000
            
            
            3.86
            
            $
            0.42
            
            
            550,000
            
            $
            0.42





**18.
      RELATED PARTY TRANSACTIONS**





The
      Company was a party to a Production Services Agreement (the ***“Services
      Agreement”*** )
      between
      RC3 Cine, Arte & Entretenimiento S.A. de C.V. ( ***“Producer”*** )
      and
      Rebel Crew Films, with an effective date of May 18, 2006. Pursuant to the terms
      of the Agreement, the Company was obligated to pay the Producer a series of
      payments totaling $120,000 of which the Company had made payments of $12,000.
      On
      November 1, 2006, due to the Company’s current financial condition and its
      inability to fund the additional $108,000 financial obligation the Company’s
      Board of Directors approved and authorized the Company to assign to Jay Rifkin
      its rights in the Services Agreement and write-off the previously capitalized
      payments of $12,000.





Other
      current assets at December 31, 2006 includes $11,000 owed to the Company by
      Ault
      Glazer Bodnar & Company, Inc. ( ***“AGB
      & Company”*** )
      based
      on an agreement to reimburse the Company for salaries paid in connection with
      the recapitalization of the Company. The Company’s Chief Financial Officer is
      also the Chief Financial Officer of AGB & Company.





**19.
      SUBSEQUENT EVENTS**





From
      January 1, 2007 through April 10, 2007, Mr. Rifkin loaned the Company an
      additional $259,000. As consideration for the loans, the Company issued Mr.
      Rifkin demand promissory notes at a rate equal to the prime rate plus one
      percent.





37




**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**





None.





**ITEM
      8A.**  **CONTROLS
      AND PROCEDURES.**





As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our chief executive officer and chief
      financial officer of our disclosure controls and procedures (as defined in
      Rule
      13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
      our chief executive officer and chief financial officer concluded that our
      disclosure controls and procedures are effective to ensure that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is: (1) accumulated and communicated to our management, including
      our chief executive officer and chief financial officer, as appropriate to
      allow
      timely decisions regarding required disclosure; and (2) recorded, processed,
      summarized and reported, within the time periods specified in the Commission's
      rules and forms. There was no change to our internal controls or in other
      factors that could affect these controls during our last fiscal quarter that
      has
      materially affected, or is reasonably likely to materially affect, our internal
      control over financial reporting.





**ITEM
      8B.**  **OTHER
      INFORMATION.**





Between
      July 2006 and April 10, 2007, Jay Rifkin  loaned
      an
      aggregate total principal amount of $654,000 to Rebel Crew Films. We have agreed
      to repay these loans to Mr. Rifkin pursuant to the terms of various promissory
      notes issued in connection with such loans, which promissory notes are due
      on
      demand and accrue interest at rates ranging from the
      prime
      rate to the prime rate plus one percent per
      annum.





**PART
      III**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
      ACT.**





The
      following table sets forth the names and ages of the members of our Board of
      Directors and our executive officers and the positions held by each.





**Name**
            
            **Age**
            
            **Position**Jay
                Rifkin
            
            51
            
            Chief
                Executive Officer, DirectorWilliam
                B. Horne
            
            38
            
            Chief
                Financial Officer and DirectorAlice
                M. Campbell
            
            56
            
            DirectorAlan
                Morelli
            
            45
            
            DirectorDavid
                M. Kaye
            
            52
            
            Director





Officers
      are elected annually by the Board of Directors (subject to the terms of any
      employment agreement), to hold such office until an officer’s successor has been
      duly appointed and qualified, unless an officer sooner dies, resigns or is
      removed by the Board. Some of our directors, director nominees and executive
      officers also serve in various capacities with our subsidiary Rebel Crew Films.
      There are no family relationships among any of our directors and executive
      officers.





Below
      is
      a brief description of the above persons’ business experience during the past
      five years based on information supplied by each of them.





**Jay
      Rifkin, Chief Executive Officer and Director.** Effective September 30, 2005, our Board of Directors appointed Mr. Rifkin
      interim President pending closing of the acquisition of Rebel Crew Films. Mr.
      Rifkin has been one of our directors since March 26, 2006. On December 29,
      2005,
      Mr. Rifkin's title was changed to Chief Executive Officer effective as of
      September 30, 2005. From 2004 to Present, Mr. Rifkin has been the sole Managing
      Member of Rebel Holdings, LLC, through which he is also the majority shareholder
      of Rebel Crew Films, Inc. In 1995, Mr. Rifkin founded Mojo Music, Inc., a music
      publishing company, and he has been President of Mojo Music, Inc. since it
      was
      founded. Mr. Rifkin is Chairman and a founder of Media Revolution, a marketing
      agency founded in 1977 that has executed marketing campaigns for major Hollywood
      studios. Mr. Rifkin has served as Producer and Executive Producer on various
      motion pictures with his most recent production "Waiting" (Lion's Gate) released
      on October 7, 2005. Mr. Rifkin is also a music producer, engineer and
      songwriter. Mr. Rifkin received a Grammy Award for Best Children's Album and
      an
      American Music Award for Favorite Pop/Rock Album for his work on Disney's "The
      Lion King," and received a Tony nomination for "The Lion King" on Broadway.
      From
      1988 to 2004, Mr. Rifkin, through Mojo Music, Inc., served as a Managing Member
      of Media Ventures, LLC, an entertainment cooperative founded by Mr. Rifkin
      and
      composer Hans Zimmer. In 1995, Mr. Rifkin founded Mojo Records, LLC, which
      in
      1996 became a joint venture with Universal Records, and was subsequently sold
      to
      Zomba/BMG Records in 2001. Mr. Rifkin also serves as President of Cyberia
      Holdings, Inc. which is the majority owner of Media Revolution. In 2004, Cyberia
      Holdings, Inc. filed for bankruptcy under Chapter 7 which cased was dismissed
      in
      May 2005.




38




**William
      B. Horne, Chief Financial Officer and Director.** Mr.
      Horne has been our Chief Financial Officer and a director since July 20, 2005.
      From September 30, 2005 until December 29, 2005, Mr. Horne also served as our
      Chief Executive Officer and Chairman of our Board of Directors. From July 5,
      2005 until June 8, 2006, Mr. Horne was also the Chief Financial Officer and
      a
      director of Ault Glazer Bodnar & Company, Inc. Since July 5, 2005, Mr. Horne
      has also been Chief Financial Officer of Patient Safety Technologies, Inc.
      and
      its subsidiaries. On January 1, 2007, Mr. Horne’s title was changed to Chief
      Executive Officer and Chief Financial Officer of Patient Safety Technologies,
      Inc. From May 2002 to April 2005, Mr. Horne held the position of Chief Financial
      Officer of Alaska Wireless Communications, a privately held advanced cellular
      communications company. Since January 2002, Mr. Horne has also provided
      strategic financial consulting services to both private and public companies.
      From November 1996 to December 2001, Mr. Horne held the position of Chief
      Financial Officer of The Phoenix Partners, a venture capital limited partnership
      located in Seattle, Washington.





**Alice
      M. Campbell, Director.** Ms.
      Campbell has been a member of our Board of Directors since July 16, 2005. Ms.
      Campbell served as a director of IPEX, Inc., a public company quoted on the
      OTC
      Bulletin Board from June 23, 2005 until January 30, 2006. Ms. Campbell served
      as
      a director of Patient Safety Technologies, Inc., a public company quoted on
      the
      OTC Bulletin Board from October 22, 2004 until January 26, 2007. Since 2001,
      Ms.
      Campbell has been, and is currently, an investigator and consultant,
      specializing in research and litigation services, financial investigations
      and
      computer forensics, for major companies and law firms throughout the United
      States. Ms. Campbell is a certified fraud specialist, as well as a certified
      instructor for the Regional Training Center of the United States Internal
      Revenue Service and for the National Business Institute. From 1979 to 2001,
      Ms.
      Campbell served as a special agent for the United States Treasury Department
      where she conducted criminal investigations and worked closely with the United
      States Attorney's Office and with several federal agencies, including the
      Internal Revenue Service, Federal Bureau of Investigation, Secret Service,
      Customs Service, State Department, Drug Enforcement Agency, Bureau of Alcohol,
      Tobacco and Firearms and U.S. Postal Service.





**Alan
      Morelli, Director.** Mr.
      Morelli has been one of our directors since March 26, 2006. Mr. Morelli is
      a
      consultant who has served as Managing Director of Analog Ventures, LLC, a
      consulting firm located in Pacific Palisades, California, since 1997. Mr.
      Morelli is also currently serving as a director of Physical
      Therapy Holdings, Inc. and Precise Exercise Equipment. Physical
      Therapy Holdings, Inc. is a development-stage company. Precise develops innovative
      commercial fitness or rehabilitation technology used in health clubs and
      consumer equipment since 1994. Mr. Morelli received a B.S. from Rutgers
      University (1983) and a J.D. from Georgetown University Law Center
      (1986).





**David
      M. Kaye, Director.** Mr.
      Kaye
      has been one of our directors since March 26, 2006. Mr. Kaye is an attorney
      and
      has been a partner in the law firm of Danzig Kaye Cooper Fiore & Kay, LLP
      located in Florham Park, New Jersey, since the firm's inception in February
      1996. Since 1980, Mr. Kaye has been a practicing attorney in the New York City
      metropolitan area specializing in corporate and securities matters. He is
      currently a director of Dionics, Inc., a company which designs, manufactures
      and
      sells semiconductor electronic products. Mr. Kaye received his B.A. from George
      Washington University (1976) and his J.D. from the Benjamin N. Cardozo School
      of
      Law, Yeshiva University (1979).




39




**AUDIT
      COMMITTEE**





The
      Audit
      Committee is appointed by the Board of Directors in fulfilling its
      responsibilities to oversee: (1) the integrity of our financial statements
      and
      disclosure controls; (2) the qualifications and independence of our independent
      accountants; (3) the performance of our independent accountants; and (4)
      compliance with legal and regulatory requirements. Alice M. Campbell is
      presently the only member of our Audit Committee and she is Chairman of the
      Audit Committee. The Board has determined that Ms. Campbell is an "audit
      committee financial expert" as defined under Item 401 of Regulation S-B
      promulgated pursuant to the Securities Exchange Act of 1934, as amended.





**COMPENSATION
      COMMITTEE**





The
      Compensation Committee is appointed by the Board of Directors to discharge
      the
      responsibilities of the Board relating to compensation of our executive
      officers. Alice M. Campbell is currently the only member of the Compensation
      Committee and she is Chairman of the Compensation Committee.





**CODE
      OF ETHICS**





We
      have
      adopted a Code of Ethics and Business Conduct that applies to our Chief
      Executive Officer and Chief Financial Officer, which is filed as Exhibit 14.1
      to
      our annual report on Form 10-KSB for the fiscal year ended June 30, 2005. Upon
      request, we will provide to any person without charge a copy of our Code of
      Ethics. Any such request should be made to Attn: Secretary, Digicorp, Inc.,
      4143
      Glencoe Avenue, Marina Del Rey, CA 90292. We are in the process of building
      a
      website where our Code of Ethics will be available to investors.





**SECTION
      16(A) BENEFICIAL OWNERSHIP COMPLIANCE**





Section
      16(a) of the Securities Exchange Act of 1934 requires our directors and
      executive officers and persons who beneficially own more than ten percent of
      a
      registered class of our equity securities to file with the SEC initial reports
      of ownership and reports of change in ownership of common stock and other of
      our
      equity securities. Officers, directors and greater than ten percent stockholders
      are required by SEC regulations to furnish us with copies of all Section 16(a)
      forms they file. To our knowledge, the following persons have failed to file,
      on
      a timely basis, the identified reports required by Section 16(a) of the Exchange
      Act with respect to the fiscal year ended December 31, 2006: Jay Rifkin filed
      six reports late relating to a total of six transactions; William B. Horne
      filed
      two reports late relating to a total of two transaction; and each of Alice
      M.
      Campbell, and David M. Kaye filed one report late relating to a total of one
      transaction.





**ITEM
      10.**  **EXECUTIVE
      COMPENSATION.**





The
      following summary compensation tables set forth information concerning the
      annual and long-term compensation for services in all capacities to the Company
      for the years ended December 31, 2006 and December 31, 2005, of those persons
      who were, at December 31, 2006 (i) the chief executive officer and (ii) the
      other most highly compensated executive officers of the Company, whose total
      compensation was in excess of $100,000 (the named executive officers):




**Summary
      Compensation Table**





**Name
                and Principal Position**
            
            Year
            
            **Salary**
              **($)****(2)**
            
            **Bonus**
              **($)**
            
            **Stock
                Awards**
              **($)**
            
            **Option
                Awards**
              **($)****(3)**
            
            **Non-Equity
                Incentive Plan Compensation**
              **($)**
            
            **Nonqualified**
              **Deferred
                Compensation**
              **Earnings
                ($)**
            
            **All
                Other Compensation**
              **($)**
            
            **Total**Jay
                Rifkin, CEO
            
            
            2006
            
            $
            150,000
            
            $
            0
            
            $
            0
            
            $
            26,725
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            176,725and
                President(1)
            
            
            2005
            
            $
            37,500
            
            
            0
            
            
            0
            
            $
            3,459,827
            
            
            0
            
            
            0
            
            
            0
            
            $
            3,497,327




40




(1)
            Mr.
                Rifkin was appointed President on September 30, 2005, and Chief Executive
                Officer and director nominee on December 29,
                2005.





(2)
            Consists
                of accrued salary for 2006 and 2005, none of which has been paid
                to
                date.





(3)
            Represents
                the dollar amount recognized for financial reporting purposes of
                stock
                options awarded in 2005 and 2006 computed in accordance with SFAS
                123(R).




**Equity
      Awards**





The
      following table provides certain information concerning equity awards held
      by
      the named executive officers as of December 31, 2006.





**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END**




**OPTION
                AWARDS**
            
            **STOCK
                AWARDS****Name**
            
            **No.
                of**
              **Securities**
              **Underlying**
              **Unexercised**
              **Options
                (#)**
              **Exercisable**
            
            **Number
                of**
              **Securities**
              **Underlying**
              **Unexercised**
              **Options
                (#)**
              **Unexercisable**
            
            **Option**
              **Exercise**
              **Price
                ($)**
            
            **Option**
              **Expiration**
              **Date**
            
            **Number
                of**
              **Shares
                or**
              **Units
                of Stock**
              **That
                Have Not**
              **Vested
                (#)**
            
            **Equity**
              **Incentive
                Plan**
              **Awards:**
              **Number
                of**
              **Unearned**
              **Shares,
                Units**
              **Or
                Other**
              **Rights
                That**
              **Have
                Not**
              **Vested(#)**Jay
                Rifkin
            
            
            1,466,666
              -0-
            
            
            2,933,334
              150,000
            
            $
              $
            0.85
              0.20
            
            
            9/30/2015
              11/8/2016
            
            
            -0-
              -0-
            
            
            -0-
              -0-




**Benefit
      Plans**





Effective
      July 20, 2005, the Board of Directors approved our Stock Option and Restricted
      Stock Plan. Under the Stock Option and Restricted Stock Plan, we can issue
      restricted shares of common stock, options to purchase shares of common stock
      (both incentive stock options and non-incentive stock options) and warrants
      to
      purchase shares of common stock to employees, directors and consultants. The
      number of shares subject to the Stock Option and Restricted Stock Plan may
      not
      exceed 15,000,000 shares. The Stock Option and Restricted Stock Plan is
      administered by our Compensation Committee. On July 14, 2006, the stockholders
      approved our Stock Option and Restricted Stock Plan.





**Compensation
      of Directors**





During
      2006, the Company did not compensate any of its directors in cash. The Chairman
      of the Audit Committee is entitled to receive $6,000 annually paid in cash.
      During 2006, the Company did not pay this amount; however, $6,000 has accrued
      and is payable to the Chairman of the Audit Committee for the 2006 fiscal year.
      All directors are reimbursed for their reasonable out-of-pocket expenses
      incurred in connection with their duties to the Company. In addition, directors
      are eligible to receive restricted shares of common stock and stock options
      pursuant to our Stock Option Restricted Stock Plan described above. Directors
      were issued stock options for there service during 2006 as described under
      “Recent Sales of Unregistered Securities” in “Item 5. Market for Common Equity
      and Related Stockholder Matters.”




41




The
      following table provides certain summary information concerning the compensation
      paid to directors, other than Jay Rifkin (our Chief Executive Officer), during
      2006. All compensation paid to Mr. Rifkin is set forth in the table under
“Executive Compensation.”





**Director
      Compensation**





**Name**
            
            **Fees**
              **Earned
                or**
              **Paid
                in**
              **Cash
                ($)****(1)**
            
            **Stock**
              **Awards
                (S)**
            
            **Option**
              **Awards
                ($)****(2)**
            
            **All
                Other**
              **Compensation**
              **($)**
            
            **Total
                ($)**William
                B. Horne
            
            **$**
            **0**
            
            
            **-0-**
            
            **$**
            **26,725**
            
            
            **-0-**
            
            **$**
            **26,725**Alice
                M. Campbell
            
            **$**
            **6,000**
            
            
            **-0-**
            
            **$**
            **26,725**
            
            
            **-0-**
            
            **$**
            **32,725**Alan
                Morelli
            
            **$**
            **0**
            
            
            **-0-**
            
            **$**
            **-0-**
            
            
            **-0-**
            
            **$**
            **-0-**David
                M. Kaye
            
            **$**
            **0**
            
            
            **-0-**
            
            **$**
            **44,541**
            
            
            **-0-**
            
            **$**
            **44,541**





(1)
            Consists
                of accrued fees for 2006, none of which has been paid to
                date.


(2)
            Represents
                the dollar amount recognized for financial reporting purposes of
                stock
                options awarded in 2006 computed in accordance with Financial Accounting
                Standards 123R.




**Employment
      Agreements with Executive Officers**





In
      connection with the acquisition of Rebel Crew Films, on December 29, 2005,
      we
      entered into an employment agreement with Jay Rifkin to employ Mr. Rifkin as
      our
      Chief Executive Officer effective as of September 30, 2005. The term of the
      employment continues for three years from September 30, 2005 and automatically
      renews for successive one-year terms unless either party delivers to the other
      party written notice of termination at least 30 days before the end of the
      then
      current term. Mr. Rifkin's base compensation in the first year of the term
      is
      $150,000, will increase at least 10% in the second year of the term and at
      least
      10% more in the third year of the employment term. Mr. Rifkin was granted
      options to purchase 4,400,000 shares of common stock with an exercise price
      equal to the FMV of the common stock on September 30, 2005 and vesting annually
      over a period of three years from December 29, 2005. Mr. Rifkin is also eligible
      to receive shares of common stock and stock options from time to time and an
      annual bonus as determined by the Board of Directors. The agreement also
      contains customary provisions for disability, death, confidentiality,
      indemnification and non-competition. If Mr. Rifkin voluntarily terminates the
      agreement without good reason or if we terminate the agreement for cause, we
      must pay Mr. Rifkin all accrued compensation through the date of termination
      and
      provide life, accident and disability insurance, and health, dental and vision
      benefits to Mr. Rifkin and his dependents for a period of three months after
      termination. If we terminate the agreement without cause, if Mr. Rifkin
      terminates the agreement for good reason or if the agreement is terminated
      upon
      the death or disability of Mr. Rifkin, then we must pay Mr. Rifkin or his estate
      all unpaid compensation through the duration of the three-year employment term
      and must provide insurance and health benefits through the duration of such
      term. "Good Reason" is defined in the agreement as: (i) material breach of
      the
      agreement by us including, without limitation, any diminution in title, office,
      rights and privileges of Mr. Rifkin or failure to receive base salary payments
      on a timely basis; (ii) relocation of the principal place for Mr. Rifkin to
      provide his services to any location more than 20 miles away from 100 Wilshire
      Boulevard, Santa Monica, California 90401; (iii) failure to maintain in effect
      directors' and officers' liability insurance covering Mr. Rifkin; (iv) any
      assignment or transfer of any of our rights or obligations under the agreement;
      or (v) any change in control of our company including, without limitation,
      if
      Mr. Rifkin shall cease to own a majority of our outstanding voting securities.





42




**ITEM
                11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS.**





The
      following table sets forth certain information, as of April 4, 2007 with respect
      to the beneficial ownership of the outstanding common stock by (i) any holder
      of
      more than five (5%) percent; (ii) each of the named executive officers and
      directors; and (iii) our directors and named executive officers as a group.
      Except as otherwise indicated, each of the stockholders listed below has sole
      voting and investment power over the shares beneficially owned.





Name
                of Beneficial Owner (1)
            
            Common
                Stock
              Beneficially
                Owned (2)
            
            Percentage
                of
              Common
                Stock (2)Jay
                Rifkin
            
            
            26,577,664
                (3
            )
            
            62.8
            %William
                B. Horne
            
            
            600,000
                (4
            )
            
            1.6
            %Alice
                M. Campbell
            
            
            500,000
                (5
            )
            
            1.3
            %Cesar
                Chatel
            
            
            2,920,708
                (6
            )
            
            7.7
            %Alan
                Morelli
            
            
            600,000
                (7
            )
            
            1.6
            %David
                M. Kaye
            
            
            600,000
                (8
            )
            
            1.6
            %Ault
                Glazer Asset Management, LLC
            
            
            2,642,090
                (9
            )
            
            7.1
            %Bodnar
                Capital Management, LLC
            
            
            2,570,176
                (10
            )
            
            6.9
            %All
                named executive officers and directors as a group (5
                persons)
            
            
            28,877,664
            
            
            63.3
            %




(1)
            Except
                as otherwise indicated, the address of each beneficial owner is c/o
                Digicorp, Inc., 4143 Glencoe Avenue, Marina Del Rey, CA 90292.





(2)
            Applicable
                percentage ownership is based on 37,239,002 shares of common stock
                outstanding as of April 4, 2007, together with securities exercisable
                or
                convertible into shares of common stock within 60 days of April 4,
                2007
                for each stockholder. Beneficial ownership is determined in accordance
                with the rules of the Securities and Exchange Commission and generally
                includes voting or investment power with respect to securities. Shares
                of
                common stock that a person has the right to acquire beneficial ownership
                of upon the exercise or conversion of options, convertible stock,
                warrants
                or other securities that are currently exercisable or convertible
                or that
                will become exercisable or convertible within 60 days of April 4,
                2007 are
                deemed to be beneficially owned by the person holding such securities
                for
                the purpose of computing the percentage of ownership of such person,
                but
                are not treated as outstanding for the purpose of computing the percentage
                ownership of any other person.





(3)
            Includes:
                (a) 19,086,372 shares held by Rebel Crew Holdings, LLC (“Rebel Holdings”)
                of which Mr. Rifkin is the sole managing member; (b) 2,441,292 shares
                which are directly held by Mr. Rifkin (2,421,292 shares of which
                have been
                pledged to Patient Safety Technologies, Inc. (“PST”) (see below)); (c)
                500,000 shares issuable upon conversion of a $556,306.53 principal
                amount
                secured convertible note held by Rebel Holdings with a conversion
                price of
                $1.112614 per share; (d) 4,400,000 shares issuable upon exercise
                of stock
                options with an exercise price of $0.85 per share, which stock options
                vest annually over a period of three years from December 30, 2006;
                and (e)
                and 150,000 shares issuable upon exercise of stock options with an
                exercise price of $0.20 per share, which stock options vest annually
                over
                a period of three years from November 8, 2007. Mr. Rifkin's reported
                beneficial ownership does not include approximately 5,258,208 shares
                of
                common stock issued and issuable for which certain shareholders have
                granted Mr. Rifkin an irrevocable proxy to vote for certain directors.
                The
                2,421,292 shares pledged to PST were purchased by Mr. Rifkin from
                PST on
                December 27, 2006. Part of the purchase price paid by Mr. Rifkin
                was a
                promissory note due four years from issuance. Unless Mr. Rifkin is
                in
                default, he has full voting rights with respect to the shares pledged
                to
                PST.





(4)
            Includes
                (a) 50,000 shares owned by Mr. Horne; (b) 400,000 shares issuable
                upon
                exercise of stock options with an exercise price of $0.25 per share
                and an
                expiration date 18 months from the date Mr. Horne's services terminate;
                and (c) 150,000 shares issuable upon exercise of stock options with
                an
                exercise price of $0.20 per share which stock options vest annually
                over a
                period of four years from November 8, 2007. Mr. Horne has granted
                Mr.
                Rifkin an irrevocable proxy to vote the shares of common stock issuable
                upon exercise of such stock options for certain directors.




43




(5)
            Represents
                (a) 350,000 shares issuable upon exercise of stock options with an
                exercise price of $0.25 per share and an expiration date 18 months
                from
                the date Ms. Campbell's services terminate; and (b) 150,000 shares
                issuable upon exercise of stock options with an exercise price of
                $0.20
                per share which stock options vest annually over a period of four
                years
                from November 8, 2007. Ms. Campbell has granted Mr. Rifkin an irrevocable
                proxy to vote the shares of common stock issuable upon exercise of
                such
                stock options for certain directors.





(6)
            Includes
                2,120,708 shares held by Mr. Chattel (400,000 shares of which are
                held in
                escrow pending satisfaction of certain performance milestones through
                March 31, 2007; and 800,000 shares issuable upon exercise of stock
                options
                with an exercise price of $0.85 per share which stock options vest
                annually over a period of three years from December 30, 2006. Mr.
                Chatel
                has granted Mr. Rifkin an irrevocable proxy to vote the shares of
                common
                stock owned by Mr. Chatel for certain directors.





(7)
            Includes:
                (a) options to purchase 350,000 shares of common stock with an exercise
                price of $1.50 per share, which stock options vest annually over
                a period
                of three years from March 26, 2006; and (b) 250,000 shares issuable
                upon
                exercise of warrants with an exercise price of $0.145 per share and
                an
                expiration date of September 15,
                2010.





(8)
            Includes
                (a) options to purchase 350,000 shares of common stock with an exercise
                price of $1.50 per share, which stock options vest annually over
                a period
                of three years from March 26, 2006; and (b) options to purchase 250,000
                shares issuable upon exercise of stock options with an exercise price
                of
                $0.20 per share which stock options vest annually over a period of
                four
                years from November 8, 2007.





(9)
            This
                information is based solely upon information reported in filings
                made to
                the SEC on behalf of Ault Glazer Asset Management, LLC (“Ault Glazer”).
                Includes 2,167,090 shares held directly by certain individually managed
                accounts and private investment funds (the “Ault Glazer Advisory Clients”)
                managed by Ault Glazer over which Ault Glazer holds discretionary
                voting
                and investment authority, and 475,000 shares issuable upon exercise
                of
                options held directly by Milton C. Ault, III (“Ault”). Ault is the Chief
                Investment Officer of Ault Glazer. Each of Ault Glazer and Ault disclaim
                beneficial ownership of the shares held on behalf of the Ault Glazer
                Advisory Clients. The address for Ault Glazer Asset Management, LLC
                and
                Milton C. Ault, III, is 1800 Century Park East, Suite 200, Los Angeles,
                CA
                90067.





(10)
            The
                address for Bodnar Capital Management, LLC is 680 Old Academy Road,
                Fairfield, CT 06824.




**Securities
      Authorized for Issuance Under Equity Compensation Plans**





The
      following table shows information with respect to each equity compensation
      plan
      under which the Company's common stock is authorized for issuance as of the
      fiscal year ended December 31, 2006.





**EQUITY
      COMPENSATION PLAN INFORMATION**




**Plan
                category**
            
            **Number
                of securities**
              **to
                be issued upon**
              **exercise
                of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Weighted
                average**
              **exercise
                price of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Number
                of securities**
              **remaining
                available for future issuance under equity compensation plans (excluding
                securities reflected in column (a)****(a)**
            
            **(b)**
            
            **(c)****Equity
                compensation plans approved by security holders**
            
            
            5,029,167
            
            $
            0.73
            
            
            9,720,833**Equity
                compensation plans not approved by security
                holders**
            
            
            550,000
            
            $
            0.42
            
            
            -0-**Total**
            
            
            5,579,167
            
            $
            0.70
            
            
            9,720,833





44





**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR**  **INDEPENDENCE.**





Since
      January 1, 2006, there has not been, nor is there currently proposed, any
      transaction or series of similar transactions to which we were or will be a
      party: (i) in which the amount involved exceeds the lesser of $120,000 or one
      percent of the average of our total assets at year-end for the last three
      completed fiscal years; and (ii) in which any director, executive officer,
      shareholder who beneficially owns 5% or more of our common stock or any member
      of their immediate family had or will have a direct or indirect material
      interest, except as follows:





Our
      management believes that all of the below transactions were on terms at least
      as
      favorable as could have been obtained from unrelated third parties.





During
      the period March 23, 2006 through September 28, 2006, the Company was a party
      to
      a Revolving Line of Credit Agreement (the ***“Revolving
      Line of Credit”*** )
      with
      Ault Glazer Bodnar Acquisition Fund, LLC ( ***“AGB
      Acquisition Fund”*** ).
      The
      Revolving Line of Credit allowed the Company to request advances totaling an
      aggregate of up to $150,000 from AGB Acquisition Fund. At December 31, 2006,
      the
      Company had borrowed $50,000 against the Revolving Line of Credit and incurred
      interest expense of $2,519. Amounts borrowed against the Revolving Line of
      Credit are evidenced by Convertible Secured Promissory Notes (the ***“Convertible
      Notes”*** )
      which
      allow for the conversion of all or any part of the outstanding principal balance
      of the Convertible Notes including any accrued interest thereon, to shares
      of
      the Company’s common stock at a price equal to the lesser of the closing price
      of the Company’s common stock on March 23, 2006 or the share price of the
      Company’s common stock offered in the Company’s next round of financing in a
      private placement offering completed while the principal balance of the
      Convertible Notes are outstanding. William B. Horne, the Company’s Chief
      Financial Officer and a director, was the Chief Financial Officer of AGB
      Acquisition Fund.





At
      December 31, 2006 and 2005 the Company has a liability of $73,000 due to Jay
      Rifkin, the sole member of Rebel Holdings, LLC, a California limited liability
      company ( ***"Rebel
      Holdings"*** ).
      Mr.
      Rifkin is the Company’s Chief Executive Officer, director and a principal
      stockholder. In connection with the borrowings, the Company issued a promissory
      note in the amount of $73,000 to Mr. Rifkin (the ***"Note"*** )
      on
      December 29, 2005. The monies loaned by the member to the Company were utilized
      to pay for certain capitalized license agreements and operating expenses of
      the
      Company. The Note was due on June 30, 2006 with 5.0% simple interest.




On
      July
      13, 2006, William B. Horne loaned the Company $5,000. As consideration for
      the
      loan, the Company issued Mr. Horne a demand promissory note at a rate equal
      to
      the prime rate published in *The
      Wall Street Journal* from
      time to time ,
      and
      currently 8.25%, to
      the
      date of payment in full.





From
      July
      14, 2006 through April 10, 2007, Jay Rifkin loaned the Company a total of
      $654,000. As consideration for the loans, the Company issued Mr. Rifkin demand
      promissory notes at interest rates that ranged from the prime rate to the prime
      rate plus one percent.




The
      Company was a party to a Production Services Agreement (the ***“Services
      Agreement”*** )
      between
      RC3 Cine, Arte & Entretenimiento S.A. de C.V. ( ***“Producer”*** )
      and
      Rebel Crew Films, with an effective date of May 18, 2006. Pursuant to the terms
      of the Agreement, the Company was obligated to pay the Producer a series of
      payments totaling $120,000 of which the Company had made payments of $12,000.
      On
      November 1, 2006, due to the Company’s current financial condition and its
      inability to fund the additional $108,000 financial obligation the Company’s
      Board of Directors approved and authorized the Company to assign to Jay Rifkin
      its rights in the Services Agreement and write-off the previously capitalized
      payments of $12,000.




Other
      current assets at December 31, 2006 includes $11,000 owed to the Company by
      Ault
      Glazer Bodnar & Company, Inc. ( ***“AGB
      & Company”*** )
      based
      on an agreement to reimburse the Company for salaries paid in connection with
      the recapitalization of the Company. William B. Horne, our Chief Financial
      Officer, is also the Chief Financial Officer of AGB &
Company.




45




**Director
      Independence**




Our
      board
      of directors currently consists of five members. They are Jay Rifkin, William
      B.
      Horne, Alice M. Campbell, Alan Morelli and David M. Kaye. Messrs. Morelli and
      Kaye are independent directors. We have determined their independence using
      the
      definition of independence set forth in NASD Rule 4200.





**Item
      13.**  **EXHIBITS.**




**Exhibit
                Number**
            
            **Description**2.1
            
            Stock
                Purchase Agreement dated as of December 20, 2005 among Digicorp,
                Rebel
                Crew Films, Inc., Rebel Holdings, LLC and Cesar Chatel (Incorporated
                by
                reference to the Company’s Form 8-K filed with the Securities and Exchange
                Commission on December 21, 2005)2.2
            
            Letter
                Agreement dated December 20, 2005 among Digicorp, Rebel Crew Films,
                Inc.,
                Rebel Holdings, LLC and Cesar Chatel (Incorporated by reference to
                the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                December 21, 2005)2.3
            
            Purchaser
                and Company Disclosure Schedules to Stock Purchase Agreement dated
                as of
                December 20, 2005 among Digicorp, Rebel Crew Films, Inc., Rebel Holdings,
                LLC and Cesar Chatel (Incorporated by reference to the Company’s Form 8-K
                filed with the Securities and Exchange Commission on January 5,
                2006)2.4
            
            Lock
                Up Agreements of Sellers in connection with Stock Purchase Agreement
                dated
                as of December 20, 2005 among Digicorp, Rebel Crew Films, Inc., Rebel
                Holdings, LLC and Cesar Chatel (Incorporated by reference to the
                Company’s
                Form 8-K filed with the Securities and Exchange Commission on January
                5,
                2006)2.5
            
            Escrow
                Agreement dated December 29, 2005 by and among Digicorp, Rebel Holdings,
                LLC, Cesar Chatel and Sichenzia Ross Friedman Ference LLP as Escrow
                Agent
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on January 5, 2006)3.1
            
            Articles
                of Incorporation (Utah) (Incorporated by reference to the Company’s
                registration statement on Form 10-SB (File No. 000-33067) filed with
                the
                Securities and Exchange Commission on August 9, 2001)3.2
            
            Certificate
                of Incorporation of Digicorp, Inc. (Delaware) (Incorporated by reference
                to the Company’s quarterly report on Form 10-QSB for the quarter ended
                September 30, 2006, filed with the Securities and Exchange Commission
                on
                December 13, 2006)3.3
            
            State
                of Utah Articles of Merger of Digicorp, a Utah corporation, into
                Digicorp,
                Inc., a Delaware corporation (Incorporated by reference to the Company’s
                quarterly report on Form 10-QSB for the quarter ended September 30,
                2006,
                filed with the Securities and Exchange Commission on December 13,
                2006)3.4
            
            State
                of Delaware Articles of Merger of Digicorp, a Utah corporation, into
                Digicorp, Inc., a Delaware corporation (Incorporated by reference
                to the
                Company’s quarterly report on Form 10-QSB for the quarter ended September
                30, 2006, filed with the Securities and Exchange Commission on December
                13, 2006)3.5
            
            Bylaws
                (Incorporated by reference to the Company’s registration statement on Form
                10-SB (File No. 000-33067) filed with the Securities and Exchange
                Commission on August 9, 2001)3.6
            
            Amendment
                No. 1 to Bylaws (Incorporated by reference to the Company’s Form 8-K filed
                with the Securities and Exchange Commission on July 21,
                2005)4.1
            
            Secured
                Convertible Note due December 19, 2010 in the principal amount of
                $556,306.53 issued to Rebel Crew Holdings, LLC (Incorporated by reference
                to the Company’s Form 8-K filed with the Securities and Exchange
                Commission on January 5, 2006)4.2
            
            Promissory
                Note due June 30, 2006 in the principal amount of $73,000 issued
                to Jay
                Rifkin (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on January 5, 2006)4.3
            
            Revolving
                Line of Credit dated and effective as of March 23, 2006 by and between
                Ault Glazer Bodnar Acquisition Fund LLC and Digicorp (Incorporated
                by
                reference to the Company’s Form 8-K filed with the Securities and Exchange
                Commission on April 10, 2006)




46




4.4*
            
            Form
                of Demand Promissory Note issued at various times by Digicorp to
                Jay
                Rifkin for loans made by Jay Rifkin from July 2006 to date4.5
            
            Demand
                Promissory Note in the principal amount of $5,000 issued July 13,
                2006 to
                William Horne (Incorporated by reference to the Company’s quarterly report
                on Form 10-QSB for the quarter ended June 30, 2006, filed with the
                Securities and Exchange Commission on August 21, 2006)9.1
            
            Voting
                Agreement dated December 29, 2005 by and among Jay Rifkin and the
                stockholders of Digicorp listed on the signature pages thereto
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on January 5, 2006)10.1
            
            Subscription
                Agreement dated May 18, 2005 between Digicorp and Bodnar Capital
                Management, LLC (Incorporated by reference to the Company’s Form 8-K filed
                with the Securities and Exchange Commission on May 24,
                2005)10.2
            
            Asset
                Purchase Agreement dated September 19, 2005, among Digicorp and Philip
                Gatch (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on September 22,
                2005)10.3
            
            Securities
                Purchase Agreement dated December 29, 2005 by and among Rebel Holdings,
                LLC and Digicorp (Incorporated by reference to the Company’s Form 8-K
                filed with the Securities and Exchange Commission on January 5,
                2006)10.4
            
            Assignment
                Agreement dated December 29, 2005 by and among Rebel Holdings, LLC,
                Digicorp and Rebel Crew Films, Inc. (Incorporated by reference to
                the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                January 5, 2006)10.5
            
            Security
                Agreement dated December 29, 2005 by and among Digicorp and Rebel
                Crew
                Holdings, LLC (Incorporated by reference to the Company’s Form 8-K filed
                with the Securities and Exchange Commission on January 5,
                2006)10.6
            
            Digicorp
                Stock Option and Restricted Stock Plan (Incorporated by reference
                to the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                December 22, 2005)10.7
            
            Employment
                Agreement dated September 20, 2005, among Digicorp and Philip Gatch
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on September 22,
                2005)10.8
            
            Employment
                Agreement effective as of September 30, 2005 by and between Digicorp
                and
                Jay Rifkin (Incorporated by reference to the Company’s Form 8-K filed with
                the Securities and Exchange Commission on January 5,
                2006)10.9
            
            Standard
                Industrial/Commercial Multi-Tenant Lease dated July 18, 2005 between
                The
                Welk Group, Inc. and Rebel Crew Films, Inc. (Incorporated by reference
                to
                the Company’s Form 8-K filed with the Securities and Exchange Commission
                on January 5, 2006)10.10
            
            Videogram
                License Agreement dated August 19, 2003 by and between Rebel Crew
                Films
                and BCI Eclipse, LLC (Incorporated by reference to the Company’s Form 8-K
                filed with the Securities and Exchange Commission on January 5,
                2006)10.11
            
            Videogram
                License Agreement dated March 29, 2004 by and between Rebel Crew
                Films and
                BCI Eclipse Company, LLC (Incorporated by reference to the Company’s Form
                8-K filed with the Securities and Exchange Commission on January
                5,
                2006)10.12
            
            Videogram
                License Agreement dated May 26, 2004 by and between Rebel Crew Films
                and
                BCI Eclipse Company, LLC (Incorporated by reference to the Company’s Form
                8-K filed with the Securities and Exchange Commission on January
                5,
                2006)10.13
            
            License
                Agreement dated November 15, 2002 between Rebel Crew Films and VAS
                Entertainment/Rise Above Entertainment (Incorporated by reference
                to the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                January 5, 2006)10.14
            
            License
                Agreement dated December 31, 2002 between Rebel Crew Films and VAS
                Entertainment/Rise Above Entertainment (Incorporated by reference
                to the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                January 5, 2006)10.15
            
            Asset
                Purchase Agreement made as of February 7, 2006 by and between Digicorp
                and
                Matthew B. Stuart (Incorporated by reference to the Company’s Form 8-K
                filed with the Securities and Exchange Commission on February 13,
                2006)10.16
            
            Subscription
                Agreement made as of April 20, 2006 by and between Digicorp and MLPF&S
                Custodian, FBO William B. Horne, IRA ((Incorporated by reference
                to the
                Company’s Form 8-K filed with the Securities and Exchange Commission on
                April 24, 2006)




47




10.17
            
            Placement
                Agreement dated April 26, 2006 between Digicorp and Ault Glazer Bodnar
                Securities LLC (Incorporated by reference to the Company’s Form 8-K filed
                with the Securities and Exchange Commission on April 27,
                2006)10.18
            
            Asset
                Purchase Agreement dated April 24, 2006 by and between Digicorp and
                EAI
                Technologies in connection with the $152,000 purchase of ITunesBucks
                and
                its associated assets (Incorporated by reference to the Company’s
                quarterly report on Form 10-QSB for the quarter ended June 30, 2006,
                filed
                with the Securities and Exchange Commission on August 21,
                2006)14.1
            
            Code
                of Ethics (Incorporated by reference to the Company’s annual report on
                Form 10-KSB for the fiscal year ended June 30, 2005, filed with the
                Securities and Exchange Commission on September 28,
                2005)21.1
            
            Subsidiaries
                (Incorporated by reference to the Company’s Form 8-K filed with the
                Securities and Exchange Commission on January 5, 2006)31.1*
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act31.2*
            
            Certification
                by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
                of the Exchange Act32.1*
            
            Certification
                by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code32.2*
            
            Certification
                by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
                of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
                the
                United States Code





*
      Filed
      herewith **.**




48




**Item
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.**





**Audit
      Fees**





The
      aggregate fees billed for professional services rendered by our principal
      accountants for the audit of our financial statements, for the reviews of the
      financial statements included in our annual report on Form 10-KSB, and for
      other
      services normally provided in connection with statutory filings were $84,040
      and
      $11,235 for the years ended December 31, 2006 and December 31, 2005,
      respectively.





**Audit-Related
      Fees**





We
      did
      not incur any fees for the years ended December 31, 2006 and December 31, 2005,
      respectively, for professional services rendered by our principal accountants
      that are reasonably related to the performance of the audit or review of our
      financial statements and not included in "Audit Fees."





**All
      Other Fees**





We
      did
      not incur any fees for other professional services rendered by our principal
      accountants during the years ended December 31, 2006 and December 31, 2005.





**Audit
      Committee Pre-Approval Policies and Procedures**





Our
      Audit
      Committee was formed during the year ended December 31, 2005. The fees for
      audit
      services were approved by our chief executive officer and the full board
      approved the financial statements filed on Forms 10-QSB and 10-KSB. Management
      is required to periodically report to the Audit Committee regarding the extent
      of services provided by the independent auditor **.**




49


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


**DIGICORP,
                INC.**Date:
                April 17, 2007
            By:
            /s/ Jay
              RifkinJay
                Rifkin
              Chief
                  Executive Officer


Date:
                April 17, 2007
            By:
            /s/ William
              B. HorneWilliam
                B. Horne
              Chief
                  Financial Officer and
                Principal
                  Accounting Officer




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





**Signature**
            
            **Title**
            
            **Date**/s/
                Jay Rifkin
            
            Chief
                Executive Officer and Director
            
            April
                17, 2007Jay
              Rifkin/s/
                William B. Horne
            
            Director
            
            April
                17, 2007William
              B. Horne/s/
                Alice M. Campbell
            
            Director
            
            April
                17, 2007Alice
              M.Campbell/s/
                Alan Morelli
            
            Director
            
            April
                17, 2007Alan
              Morelli/s/
                David M. Kaye
            
            Director
            
            April
                17, 2007David
              M. Kaye





50