UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




Form 10-Q/A


(Amendment No.1)




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





For the quarterly period ended March 31, 2011





OR




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





For the transition period from  to





Commission file number 000-50621




DOLPHIN DIGITAL MEDIA INC.


(Exact name of registrant as specified in its charter)




Nevada

86-0787790(State of incorporation)

(I.R.S. employer identification no.)





804 Douglas Road, Executive Tower Building, Suite 365, Miami, Florida 33134


(Address of principal executive offices, including zip code)





(305) 774-0407


(Registrant’s telephone number)








(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þNo o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes oNo o





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




Large accelerated filer    o

Accelerated filer    o

Non-accelerated filer    o

Smaller reporting company    þ





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





The number of shares of Common Stock outstanding was 64,190,987 as of May 20, 2011.












DOLPHIN DIGITAL MEDIA INC. AND SUBSIDIARIES


TABLE OF CONTENTS




PAGEPART I — FINANCIAL INFORMATION

4ITEM 1. FINANCIAL STATEMENTS

4Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010

4Condensed Consolidated Statements of Operations for the three month periods ended March 31, 2011 and March 31, 2010 (unaudited)

5Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2011 and March 31, 2010 (unaudited)

6Notes to Condensed Consolidated Financial Statements (unaudited)

7ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

15ITEM 4. CONTROLS AND PROCEDURES

22PART II — OTHER INFORMATION

24ITEM 1. LEGAL PROCEEDINGS

24ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

25ITEM 3. DEFAULTS UPON SENIOR SECURITIES

25ITEM 4. REMOVED AND RESERVED

25ITEM 5. OTHER INFORMATION

25ITEM 6. EXHIBITS

25Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




2




EXPLANATORY NOTE




Dolphin Digital Media, Inc. (the “Company”) is filing this amendment to its Quarterly Report on Form 10-Q for the interim period ended March 31, 2011, which was originally filed with the Securities and Exchange Commission (“SEC”) on May 20, 2011 (the “Original Filing”), to include restated financial statements as described in Note 2 to the condensed consolidated financial statements. The Company has restated its previously issued condensed consolidated financial statements as of and for the three months ended March 31, 2011, to properly recognize revenue associated with a Software License Agreement that was previously deferred.




In addition, the Company has restated the previously filed note 3 and notes 9 through 11 to the condensed consolidated financial statements to remove the disclosure of significant accounting policies and other information previously contained in the Company’s Annual Report on Form 10-K.  The significant accounting policies followed by the Company for interim reporting are consistent with those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.  As a result, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements.




This Form 10-Q/A amends the following items in the Company’s Original Filing:





●
Part I – Item 1 – Condensed Consolidated Financial Statements





●
Part I – Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations





●
Part I – Item 4T – Controls and Procedures





●
Part II – Item 6 – Exhibits





For the convenience of the reader, this Form 10-Q/A sets forth the Quarterly Report on Form 10-Q in its entirety. Other than as described above, none of the other disclosures in the Original Filing have been amended or updated. Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the Original Filing, and such forward-looking statements should be read in their historical context. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s subsequent filings to the Original Filing with the SEC.




3


PART I – FINANCIAL INFORMATION




ITEM 1.
FINANCIAL STATEMENTS




DOLPHIN DIGITAL MEDIA, INC. AND SUBSIDIARIESConsolidated Balance Sheetsas of March 31, 2011 (unaudited) and December 31, 2010  March 31,


December 31,2011


2010(Unaudited)(Restated)ASSETSCurrentCash

$
332,228


$
1,467Inventory


8,256



8,256Other current assets


724



724Total Assets

$
341,208


$
10,447LIABILITIESCurrentAccounts payable

$
1,296,145


$
1,388,395Other current liabilities


299,521



480,599Deferred revenue


177,823



352,823Debt


458,996



-Note payable – related party


1,286,361



930,145Advances - convertible


95,000



100,000Total Liabilities


3,613,846



3,251,962Commitments and ContingenciesSTOCKHOLDERS' DEFICITCommon stock, $0.015 par value, 100,000,000 sharesauthorized, 64,190,987 issued and outstanding


962,869



962,750Preferred stock $0.001 par value, 10,000,000 shares authorized1,042,753 shares issued and outstanding, liquidation preference of $1,042,753


1,043



1,043Additional paid-in capital


29,128,041



29,028,156Accumulated deficit


(33,299,356
)


(33,168,229
)Accumulated other comprehensive loss


(65,235
)


(65,235
)Total Stockholders' Deficit


(3,272,638
)


(3,241,515
)Total Liabilities and Stockholders' Deficit

$
341,208


$
10,447





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




4


DOLPHIN DIGITAL MEDIA, INC. AND SUBSIDIARIESConsolidated Statement of Operationsfor the Three Month Periods ended March 31, 2011 and March 31, 2010(Unaudited)  For The Three Months EndedMarch 31,2011


2010(Restated)Revenues

$
275,000


$
-Cost of revenues


-



-Gross Profit


275,000



-Expenses:General and administrative


358,914



586,210Development costs


21,374



-Total Expenses


380,288



586,210Loss from Operations


(105,288
)


(586,210
)Other ExpensesFinance charges


-



966,649Interest expense


25,839



38,108Total Other Expenses


25,839



1,004,757Net loss

$
(131,127
)

$
(1,590,967
)Foreign currency gain


-



266Comprehensive Loss

$
(131,127
)

$
(1,590,701
)Basic and Diluted Loss per Share

$
(0.00
)

$
(0.03
)Basic and Diluted Weighted AverageNumber of Shares Outstanding duringthe Period


64,190,987



59,997,836




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




5


DOLPHIN DIGITAL MEDIA, INC. AND SUBSIDIARIESConsolidated Statements of Cashflowsfor the Three Month Periods ended March 31,2011 and March 31, 2010(Unaudited)  For The Three Months Ended March 31,2011


2010(Restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(131,127
)

$
(1,590,967
)Adjustments to reconcile net loss to net cash used inoperating activities:Amortization of debt discount


-



24,175Common Stock issued for compensation


-



72,500Warrants repricing


-



945,615Changes in operating assets and liabilities:Decrease in prepaid expenses


-



204,065Increase in other current assets


-



(59
)Decrease in Inventory


-



3,440Decrease in deferred revenue


(175,000
)


-Decrease in accounts payable


(92,250
)


(81,916
)Increase in accrued expenses


26,138



49,717Net Cash Used In Operating Activities


(372,239
)


(373,430
)CASH FLOWS FROM INVESTING ACTIVITIES:Payment for intangible assets


-



(239,564
)Net Cash Used In Investing Activities


-



(239,564
)CASH FLOWS FROM FINANCING ACTIVITIES:Increase in cash overdraft


-



(14,087
)Proceeds from sale of common stock


-



685,500Repayment of advances - convertible


(5,000
)


-Advances from related party


174,500



45,000Repayment to related party


(25,500
)


-Proceeds from revenue sharing agreements accounted for as debt


459,000



-Proceeds from re-pricing of warrants


100,000



200,000Net Cash Provided By Financing Activities


703,000



916,413Effect of foreign currency exchange rate changes on cash


-



(127,008
)NET  INCREASE IN CASH


330,761



176,411CASH, BEGINNING OF PERIOD


1,467



3,218CASH, END OF PERIOD

$
332,228


$
179,629SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid

$
17,534


$
-SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING ACTIVITIES:Conversion of accrued interest to note payable

$
207,216


$
-




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




6


DOLPHIN DIGITAL MEDIA, INC. AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 2011


(Unaudited)


(Restated)




NOTE 1 — BASIS OF PRESENTATION AND ORGANIZATION (Restated):




The accompanying unaudited condensed consolidated financial statements are presented in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal occurring adjustments) considered necessary for a fair presentation of the financial position and results of operations for the interim periods presented.  The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and the notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, that were filed with the SEC on May 13, 2011.  Operating results for the six months ended March 31, 2011 are not necessarily indicative of results that may be expected for the year ending December 31, 2011. The unaudited condensed consolidated financial statements are presented on the accrual basis.




The accompanying unaudited condensed consolidated financial statements represent the consolidated financial position and results of operations of the Company and include the accounts and results of operations of the Company and its wholly owned subsidiaries. The accompanying unaudited condensed consolidated financial statements include the accounts of Dolphin Digital Media, Inc. and its subsidiaries, Dolphin Digital Media (Canada) Inc, Anne’s World Limited and Curtain Rising Inc. for three months ended March 31, 2011 and 2010. Intercompany accounts and transactions have been eliminated in consolidation.




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




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




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




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




On June 23, 2008, Logica Holdings purchased 100% of Dolphin Digital Media, Inc. The Company issued a total of 24,063,735 of common shares, equivalent to 51% of its outstanding common stock, for the acquisition of Dolphin Digital Media, Inc resulting in a change of control. The total amount of issued and outstanding share for the period ended June 30, 2008 was 47,183,793. The acquisition was accounted for as a purchase transaction with Logica Holdings. In September 2010, the Company announced the launch of Dolphin Digital Studios as a new division of the Company. Dolphin Digital Studios will create original programming that premieres online, with an initial focus on content geared toward tweens and teens.




7





NOTE 2 – RESTATEMENT TO PRIOR CONSOLIDATED FINANCIAL STATEMENTS (Restated)





On August 10, 2011, the Company’s determined that the previously issued consolidated financial statements for the three months ended March 31, 2011, contained in the Company’s Quarterly Report on Form 10-Q filed May 20, 2011, contained errors in the application of generally accepted accounting principles.  The Company has restated its previously issued condensed consolidated financial statements as of and for the three months ended March 31, 2011 to properly recognize revenue associated with a Software License Agreement that was previously deferred.




The following table provides a summary of the amounts restated as of and for the three months ended March 31, 2011:




Previously





Restated asReported as of





ofMarch 31,


Effect of


March 31,2011


Restatement


2011Changes to Condensed Consolidated Balance SheetDeferred revenue

$
439,073


$
(261,250
)

$
177,823Accumulated deficit

$
(33,560,606
)

$
261,250


$
(33.299,356
)Changes to Condensed Consolidated Statement of IncomeRevenue

$
13,750


$
261,250


$
275,000Net loss

$
(392,377
)

$
261,250


$
(131,127
)Basic and Diluted Loss per Share

$
(.01
)

$
.01


$
.00Changes to Condensed Consolidated Statement of Cash FlowsNet loss

$
(392,377
)

$
261,250


$
(131,127
)Deferred revenue

$
86,250


$
(261,250
)

$
(175,000
)





NOTE 3 – GOING CONCERN (Restated)




The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the Company as a going concern. The Company has incurred a net loss for the three months ended March 31, 2011 of $131,127. As of March 31, 2011 the Company recorded an accumulated deficit of approximating $33,299,356 Further, the Company has inadequate working capital to maintain or develop its operations, and it is dependent upon funds from private investors and the support of certain stockholders.




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




8




NOTE 4 – SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Restated)




The significant accounting policies followed by the Company for interim reporting are consistent with those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, with the exception of the following:





Revenue Recognition





Revenue is recognized in accordance with the provision of FASB ASC Topic 605, “Revenue Recognition”. In general, the Company records revenue when persuasive evidence of an arrangement exists, products have been delivered or services have been rendered, the selling price is fixed and determinable, and collectability is reasonably assured. The Company recognizes monthly and annual subscription revenues over the service period. Advertising revenue is recognized over the period the advertisement is displayed.




We account for contracts for development, production and services activities consistent with FASB ASC 605-35, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, and other relevant revenue recognition accounting literature. We consider the nature of these contracts and the types of products and services provided when determining the proper accounting for a particular contract. Generally for fixed-price contracts, other than service-type contracts, revenue is recognized primarily under the percentage of completion method or, for certain short-term contracts, by the completed contract method. Revenue from service-type fixed-price contracts is recognized ratably over the contract period or by other appropriate input or output methods to measure service provided, and contract costs are expensed as incurred. We establish billing terms at the time project deliverables and milestones are agreed.  Revenues recognized in excess of the amounts invoiced to clients are classified as unbilled receivables. The risk to us on a fixed-price contract is that if estimates to complete the contract change from one period to the next, profit levels will vary from period to period. For all types of contracts, we recognize anticipated contract losses as soon as they become known and estimable. Out-of-pocket expenses that are reimbursable by the customer are included in revenue and cost of revenue.




The use of contract accounting requires significant judgment relative to estimating total contract revenues and costs, including assumptions relative to the length of time to complete the contract, the nature and complexity of the work to be performed, anticipated increases in wages and prices for subcontractor services and materials, and the availability of subcontractor services and materials. Our estimates are based upon the professional knowledge and experience of our personnel. Changes in estimates are applied retrospectively and when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods.




Recent Accounting Pronouncements




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




ASU No. 2010-11 was issued in March 2010, and clarifies that the transfer of credit risk that is only in the form of subordination of one financial instrument to another is an embedded derivative feature that should not be subject to potential bifurcation and separate accounting. This ASU will be effective for the first fiscal quarter beginning after June 15, 2010, with early adoption permitted. The adoption of the provisions of ASU 2010-11 did not have a material effect on the condensed consolidated financial position, results of operations or cash flows of the Company.




ASU No. 2010-13 was issued in April 2010, and will clarify the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This ASU will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted. The adoption of the provisions of ASU 2010-13 did not have a material effect on the condensed consolidated financial position, results of operations or cash flows of the Company.




9




In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition. The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption.  The adoption of the provisions of ASU 2010-17 did not have a material effect on the condensed consolidated financial position, results of operations or cash flows of the Company.




In January 2010, the FASB issued FASB ASU 2010-06, “Improving Disclosures about Fair Value Measurements”, which clarifies certain existing disclosure requirements in ASC 820 as well as requires disclosures related to significant transfers between each level and additional information about Level 3 activity. FASB ASU 2010-06 begins phasing in the first fiscal period after December 15, 2009. The Company has adopted the requirements of this accounting pronouncement.




In January 2010, the FASB issued Update No. 2010-02“Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification” (“2010-02”) an update of ASC 810 “Consolidation.” 2010-02 clarifies the scope of ASC 810 with respect to decreases in ownership in a subsidiary to those of a: subsidiary or group of assets that are a business or nonprofit, a subsidiary that is transferred to an equity method investee or joint venture, and an exchange of a group of assets that constitutes a business or nonprofit activity to a non-controlling interest including an equity method investee or a joint venture.  The adoption of the provisions of ASU 2010-02 did not have a material effect on the condensed consolidated financial position, results of operations or cash flows of the Company.




In January 2010, the FASB issued Update No. 2010-01 “Accounting for Distributions to Shareholders with Components of Stock and Cash—a consensus of the FASB Emerging Issues Task Force” (“2010-03”) an update of ASC 505 “Equity.” 2010-03 clarifies the treatment of stock distributions as dividends to shareholders and their affect on the computation of earnings per shares. ASU 2010-01 is effective for interim and annual periods ending on or after December 15, 2009 and should be applied on a retrospective basis. The Company has not and does not intend to declare dividends for preferred to common stock holders. The adoption of this standard did not have any material impact on the Company’s condensed consolidated financial position, results of operations or operating cash flows.




Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited condensed consolidated financial statements.




NOTE 5 – DEFERRED REVENUE (Restated)




On September 29, 2010 the Company entered into Software License Agreement for the sale of software and licensing right of the technology in specific European countries. The Company delivered the software and source code during the first quarter 2011 in accordance with the contractual terms. During 2010 the Company received $275,000 related to the contract, which was recorded as deferred revenue at December 31, 2010. During the three months ended March 31, 2011 the Company recognized revenue of $275,000 related to the sale of the software.




On November 8, 2010 the Company entered into a 6 months production agreement in the amount of $100,000. $77,823 was received during 2010 and was recorded as deferred revenue as of December 31, 2010 and March 31, 2011.




On November 18, 2010, the Company entered into an agreement with Dolphin Entertainment, Inc., a related party, for production services related to two digital episodic series. On January 25, 2011, the Company received $100,000 of a total contract price of $200,000 for production income related to a web series. During the three months ended March 31, 2011, the Company had not performed any services or incurred any costs associated with the web series and the $100,000 was recorded as deferred revenue as of March 31, 2011.




10




NOTE 6 – DEBT




In February of 2011, the Company entered into Revenue Participation Agreements with two parties for the future development of a Dolphin Group Kids Club (“Kids Club”). Each party paid the Company $50,000 in return for the participation of revenue related to that Kids Club. The amount will be repaid based on a pro rata basis of the future revenue generated by the Kids Club until the total investment is recouped. Thereafter, they will share in a percentage of the profit of that Kids Club. As of March 31, 2011 there were no revenues generated or costs incurred related to the Kids Club.




In March of 2011, the Company entered into Equity Finance Agreements for the future production of web series and the option to participate in the production of future web series. The Investors contributed a total equity investment of $359,000 and will share in the future revenues of the web series, on a pro rata basis, until the total equity investment is recouped and then will share at a lower percentage of the additional revenues. Prior to December 31, 2012, the Company may utilize all, or any portion, of the total equity investment to fund the production.  On January 1, 2013, the production “cycle” will cease and all of the Company’s gross receipts will be distributed in accordance with the Equity Finance Agreements. The Company will be entitled to a production fee that will not exceed $250,000 per production. As of March 31, 2011 the Company has not generated any revenue from or incurred any costs related to its web series.




NOTE 7 – ADVANCES – CONVERTIBLE





Balance December 31, 2010

$
100,000Repayments


(5,000
)Balance March 31, 2011

$
95,000





In March 2009 the Company received proceeds of $100,000 from an advance with terms agreed verbally. The advance bears interest at a rate of 10% and is convertible at $.50 per share. The advance is due two years from the date of the advance. During the three months ended March 31, 2011, the Company paid accrued interest of $17,534 and repaid $5,000 of the advance. Accrued interest at March 31, 2011 and December 31, 2010 amounted to $2,455 and $17,534, respectively.




NOTE 8 – NOTE PAYABLE – RELATED PARTY




As of March 31, 2011 and December 31, 2010 the Company’s CEO had loaned the Company a total of $1,079,145 and $930,145, respectively. On January 1, 2011, the Company and the Company’s CEO, signed a Promissory Note in the amount of $1,137,361 for the outstanding principal and interest as of December 31, 2010. The CEO has the right at any time to demand that all outstanding principal and accrued interest be repaid within 10 days notice to the Company. During the three months ended March 31, 2011 the Company CEO loaned the Company an additional $174,500 and received repayments of $25,500. The note accrues interest at a rate of 10%. Accrued interest amounted to $23,384 and $207,216 at March 31, 2011 and December 31, 2010, respectively. During the three month period ended March 31, 2011, interest of $23,384 was expensed related to the note payable.




NOTE 9 – LICENSING AGREEMENT – RELATED PARTY




The Company has entered into a ten year licensing agreement between Dolphin Entertainment Inc. and Dolphin Digital Media Inc. Under the license, the Company is authorized to use Dolphin Entertainment’s brand properties in connection with the creation, promotion and operation of subscription based Internet social networking websites for children and young adults. The license requires that the Company pays to Dolphin Entertainment, Inc. royalties at the rate of fifteen percent of net sales from performance of the licensed activities. No sales were recorded for the three months ended March 31, 2011 and 2010.




11




NOTE 10 – STOCKHOLDERS’ EQUITY (Restated)




A) Preferred Stock




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




As of March 31, 2011 and December 31, 2010, the Company had 1,042,753 of preferred shares issued and outstanding.




B) Common Stock




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




As of March 31, 2011 and December 31, 2010, the Company had 64,190,987 shares issued and outstanding.




C) Anti-Dilution Rights





On June 23, 2008, we obtained an exclusive license to Dolphin Entertainment’s family entertainment brand properties through the acquisition of 100% of the capital stock of Dolphin Digital Media (“DDM”), a newly formed Delaware corporation wholly owned by Mr. O’Dowd. At the time of the acquisition, DDM was the grantee of an exclusive ten-year worldwide license from Dolphin Entertainment, dated as of the date of the closing of the acquisition, to use Dolphin Entertainment’s family entertainment brand properties. This license was the sole asset of DDM at the time of the acquisition, and DDM had not yet commenced planned principal operations. Under the license, we are authorized to use Dolphin Entertainment’s brand properties in connection with the creation, promotion and operation of subscription based Internet social networking websites for children and young adults. The license requires that we pay to Dolphin Entertainment royalties at the rate of fifteen percent of our net sales from performance of the licensed activities. In consideration of the acquisition, we issued that number of shares of our common stock constituting fifty-one percent of our issued and outstanding common stock to Mr. O’Dowd. In addition, we granted to Mr. O’Dowd certain anti-dilution protection for five (5) years from the date of the acquisition under which we agreed to issue such number of shares of our common stock as necessary for Mr. O’Dowd to maintain his fifty-one percent ownership any time that we issue additional shares to a party other than Mr. O’Dowd, or upon the exercise by any such party of options, warrants, notes or other securities exercisable or exchangeable for, or convertible into, any share of our common stock. As consideration for the agreement the shareholder agreed to become our Chief Executive Officer and Chairman of the Board of Directors.




NOTE 11 – WARRANTS (Restated)





A summary of warrants issued, exercised and expired during the three months ended March 31, 2011, is as follows:





WeightedAvg.ExerciseWarrants:

Shares


PriceBalance at December 31, 2010


10,614,007


$
.31Issued


—



—Exercised


—



—Expired


—



—Balance at March 31, 2011


10,614,007


$
.31




12





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





a)

650,000 shares of common stock exercisable at $0.72 per share.b)

1,500,000 shares of common stock exercisable at $1.00 per share.c)

1,500,000 shares of common stock exercisable at $2.00 per share.




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





●

Warrant “A” for 650,000 shares;●

Warrant “B” for 1,500,000 shares;●

Warrant “C” for 1,500,000 shares; and,●

Warrant “4” for 384,615 shares.




Post such cancellation, the only warrants held by T Squared Investments LLC was their existing Warrant “D” for 231,000 shares with an exercise price of $0.0001 per share and the following warrant below. Pursuant to this agreement the expiration date of Warrant “D” was reduced from July 29, 2014 to December 31, 2012.




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




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




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




On February 16, 2011 T-Squared Investments, LLC paid down an additional $100,000 reducing the exercise price on the warrants to $.0214.




NOTE 12 – RELATED PARTY




For the three months ended March 31 2011 the Company’s CEO was not compensated for services performed. The Company does not currently have an employment agreement with the CEO, and as a result no amount has been accrued.




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NOTE 13 – LITIGATION




On October 1, 2009, Dolphin Digital Media, Inc, Dolphin Entertainment, Inc. and Dolphin Entertainment Capital, Inc. brought suit in the U.S. District Court for the Southern District of Florida against Mark Peikin, Joshua M. Gold, Bespoke Growth Partners, Inc., Gsquared, Ltd., Carta De Dinero, LLC, Nevada Agency And Transfer Co. and Merrill Lynch Pierce Fenner & Smith Incorporated. The suit sought recovery of corporate stock and damages occasioned by the misfeasance of Peikin, Gold and the corporate entities over which they presided. As alleged in the complaint, Peikin and Gold served as outside and inside counsel to and officers of Plaintiffs in 2008 and 2009. In the course of their affiliation with Plaintiffs, they were able to use their positions of trust to gain access to Plaintiffs’ assets and opportunities and divert same to Bespoke, Gsquared and Carta De Dinero. Among their actions, the Company alleged Peikin and Gold improperly directed Nevada Agency And Transfer Co. to issue one million shares of Dolphin Digital Media, Inc.’s stock to Carta De Dinero, who then transferred such shares to its account at Merrill Lynch and sold them on the open market. In this lawsuit, Plaintiffs sought recovery of the damages occasioned by the improper issuance and sale of the Dolphin Digital Media, Inc. stock, as well as the value of the actual funds and opportunities misappropriated by Peikin and Gold and also alleged civil racketeering counts. On or about April 19, 2010, the Court dismissed the civil racketeering counts on the basis that the alleged enterprise was primarily formed and existed for the commission of the theft of the above-mentioned stock. The Court made no determination on the merits of the underlying allegations. As a result of the dismissal, the Court was deprived of jurisdiction over the cause. On April 20, 2010, Peikin and Gold filed an action in Miami-Dade County Circuit Court against Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc., respectively, relating to their employment with the companies. Peikin has sued Dolphin Entertainment, Inc. for: 1) breach of contract; 2) promissory estoppel; 3) fraud in the inducement; and 4) negligent misrepresentation and Gold has sued Dolphin Digital Media, Inc. for negligent misrepresentation. On or about May 10, 2010, Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc. filed their Answer, Affirmative Defenses, Counterclaim against Peikin and Gold and a Third Party Claim against Bespoke Growth Partners, Inc., Gsquared, Ltd. and Carta De Dinero, LLC, alleging virtually the same counts alleged in the action filed in the U. S. District Court action. The Counterclaim and the Third-Party Claim allege among other things, fraud, civil theft, unjust enrichment and conversion and seek an accounting. On March 24, 2011 the parties entered into a confidential Mutual Stipulation and Settlement Agreement wherein they settled all matters between them which were the subject of the actions.




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




NOTE 14 – SUBSEQUENT EVENTS




Between April 1, 2011 and May 16, 2011, the Company has received an additional $230,000 in loans from its CEO.




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





Special Note Regarding Forward Looking Statements




Certain statements in this Form 10-Q/A under “Management’s Discussion and Analysis” constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such statements are indicated by words or phrases such as “anticipates,” “projects,” “believes,” “intends,” “expects,” and similar words or phrases. Such factors include, among others, the following: competition; seasonality; success of operating initiatives; new product development and introduction schedules; acceptance of new product offerings; advertising and promotional efforts; adverse publicity; availability, changes in business strategy or development plans; availability and terms of capital; labor and employee benefit costs; changes in government regulations; and other factors particular to the Company.




Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance, or achievements of the Company may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. The Company disclaims any obligation to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.




Business Summary




Dolphin Digital Media, Inc. is dedicated to the twin causes of online safety for children and the production of high-quality digital content. By creating and managing child-friendly social networking websites utilizing state-of the-art fingerprint identification technology, Dolphin Digital Media has taken an industry-leading position with respect to Internet safety. Also, with the launch of Dolphin Digital Studios, the Company is at the forefront of the growing digital entertainment sector.




Dolphin Secure




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




Safer Surfing with Dolphin Secure




During a registration process that takes less than 10 minutes, parents receive a “master white list” of pre-determined age-appropriate web sites for their child to visit. The Dolphin Secure “master white list” of pre-approved sites is updated daily, and ensures that children are free to explore and learn online more safely without the risk of stumbling onto pornography, inappropriate content or other illicit material. Parents can also customize the specific “white list” for each individual child, including the opportunity to add to, or delete from, the Dolphin Secure “master white list.” So, a parent could add or allow specific sites for her teenager that would remain blocked for her younger children. With Dolphin Secure, children can only visit sites on their specific “white list,” as customized (or not) by their parent.




Safer Chat with Dolphin Secure




For the first time, parents have the option to set the boundaries of who their child can speak to, or who they can be approached by to speak with, online. Upon registration, parents have a wide variety of options to customize these parameters, from general groups to specific individuals, including:





●
Everyone within the Dolphin Surf social network.●
Only children of a specific gender.





●
Only other children within a specific age range chosen by the parent.●
Only a select group of hand-picked friends.●
No one at all.




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All other chat applications otherwise installed on the applicable computer are blocked from a child’s use, thereby ensuring that everyone that could approach the child with an IM request needs to be registered with Dolphin Secure.




How “Dolphin Secure” Works: Fingerprint Log-In




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




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




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




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




“Dolphin Surf”




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




“Dolphin Surf” will be the online destination for children to create, explore, interact and play, with the assurance that access to their account is available only to them — unlike other social networking sites where users, and their personal content, are vulnerable to anyone who knows, or can guess, their password.




It is the sharing of passwords among the overwhelming majority of children that exposes them to so many dangers of cyber-bullying, including online impersonation (e.g. when a classmate or “friend” who knows their password goes into their social network account and sends out an embarrassing e-mail, photo or IM to their entire address book, pretending to be them while also switching their password so that they can’t even access their account after the fact to try and limit the damage).




“Dolphin Groups”




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




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




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




Dolphin Digital Media has focused much of its recent development efforts on the expansion of the functionality and use of Dolphin Groups. Now, each group is in control of their own pricing, either on a monthly or annual basis, which gives them complete freedom to respond to their own fundraising needs, and to monetize their content on their own digital platform. For the first time, a children’s organization can safely create their own environment with full online interactivity occurring by their children.




In addition, groups now have the ability to “link” with one another. Any group administrator may request affiliation with any other group within Dolphin Surf. If accepted, the group members will receive an invitation to join the new group. For example, a child joining his Little League team group site may be invited to join a fantasy baseball league site selected by his group administrator. Or, a parent purchasing admission for her child into a fan club site for a popular actor may be invited to join the fan club of the actor’s television series.




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





It is management’s belief that such “links,” or affiliations with other groups, will allow group administrators to drive membership for their own groups, while enriching the online experience for their members, and that these dual features of affiliation and monetization create a unique and compelling opportunity for any children’s organization or content owner.





The Need for “Dolphin Secure”





Many parents want to protect their children online without feeling like they are spying on them. Spyware is difficult to use in the best of circumstances, but it has two even more fundamental problems. First, it is oftentimes reactive. It only tells a parent which sites their child has visited, and who their child has chatted with, after the damage has already been done. Secondly, by its very definition, spyware assumes the parent has the time to constantly review and monitor their children’s online activities.





Dolphin Secure was born out of a decision to provide a proactive solution for parents concerned with the online safety of their children. Busy parents need an easy-to-use system which gives them peace of mind that their rules for internet safety are being followed even when they are not around. Now, a mother busy doing the five hundred tasks in her typical day, usually all at once, doesn’t have to stop to worry that her 8 year-old daughter is receiving an instant message from someone that she doesn’t know, or that her 11 year-old son has incorrectly spelled the name of a new game and has wound up on a pornography site.




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Pricing & Availability




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




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




Target Market




Our primary initial target market is North America. This market represents 43.85 million girls and boys aged 5-15. This number breaks down as follows:





●
In Canada, there are 3.71 million girls and boys aged 5-15. This represents 11.19% of the Canadian population.●
In the United States, there are 40.13 million girls aged 5-15. This represents 13.21% of the US population.




International Expansion — Germany




On February 8, 2011, the Company announced its entry into the European market by licensing its core product, Dolphin Secure, in Germany. Philip von Alvensleben, a twenty-year veteran of the media space within Germany and the U.S., has formed Dolphin Media Germany and has recruited a team of top-level marketing and technology experts to localize, promote, distribute and support Dolphin Secure within Europe, beginning with the German market.




Under the deal terms, Dolphin Digital Media will receive a royalty from all customer licenses and sales, once royalty payments due to the Company exceed the initial license fee of $275,000. In turn, Dolphin Media Germany has retained the German-language rights to Dolphin Secure, as well as a right of first negotiation to launch the product in other European territories.




Mr. von Alvensleben is involved in a number of digital and media ventures such as Adconion Media Group, one of the largest online audience networks in the world, as well as Smaato and Burstly, pioneering mobile advertising companies, and Filmaka Inc. and Alive Entertainment. Mr. von Alvensleben’s 20 year career also includes the position of Managing Director at the TeleMunchen Group, one of Germany’s largest media conglomerates, with interests in broadcasting, feature film and television production and distribution, and music.




Dolphin Digital Studios




During the three months ended March 31, 2011 the Company focus has primarily been devoted to its new division of the company, Dolphin Digital Studios. Dolphin Digital Studios will create original content that premieres online, with an initial focus on content geared toward tweens and teens. Substantially all of the Company’s operating expenses during the three months ended March 31, 2011 were related to the initial set-up of its new division.




Dolphin Digital Studios is a natural fit and progression in the core business of Dolphin Digital Media—entertaining its customers through high-quality digital programming. Furthermore, the web series from Dolphin Digital Studios can be repackaged for distribution into “traditional media,” such as television and home video.




For distribution into such outlets, Dolphin Digital Studios will capitalize on its existing relationship with Dolphin Entertainment, one of the top independent producers and distributors of children’s programming in the world. Founded in 1996, Dolphin Entertainment is an Emmy-nominated production and distribution company that has recently produced programming for Nickelodeon, Cartoon Network, and Canada’s Family Channel. Dolphin Entertainment currently distributes its children’s programming into 300 million homes in over 100 countries.




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The Company expects the launch of Dolphin Digital Studios to create near-term revenue, since the new division already has several projects due to commence development within the next 12 months. Web series, in general, have a fairly short development and production cycle, thus allowing for quick distribution (as opposed to traditional television and film models). Thus, the Company anticipates that its financials will be positively impacted shortly after the distribution of any particular web series produced by Dolphin Digital Studios.




Dolphin Digital Studios will ramp up to produce between 6 and 8 web series a year. Some projects may be self-financed, while some projects will feature strategic and financial partnerships. This will allow Dolphin Digital Studios to have attractive project financing alternatives while developing its slate of programming.




According to a recent study by the Kaiser Family Foundation, 8-18 year-olds devote an average of 7 hours and 38 minutes across a typical day, or more than 53 hours per week, to using entertainment media. This creates a huge opportunity for quality content for this audience, which is no longer merely entertained by traditional television programming. In addition, advertisers have taken notice, with digital-marketing research firm eMarketer estimating that online video ad spending will have grown 48 percent to $1.5 billion in 2010 and will hit $5 billion by 2014.




Warner Bros. Digital Distribution Partnership




Dolphin Digital Media, Inc. announced in 2010 the first two productions for Dolphin Digital Studios. These first two live-action multi-platform digital series with top Hollywood talent are being co-financed through an agreement with entertainment industry veteran Dolphin Entertainment (Executive Producer of hit Nickelodeon seriesZoey 101) and Warner Bros. Digital Distribution.




The first titles produced under this agreement will be the futuristic survival taleH+: The Series from blockbuster Director / Producer Bryan Singer (Director ofX-Men ,Superman Returns  andThe Usual Suspects, and Executive Producer of hit television seriesHouse ) and the action-packed high school spy thrillerAim High  from multi-talented Executive Producer and Director McG (Director ofCharlie’s Angels ,Terminator: Salvation  and Executive Producer of television seriesChuck  andSupernatural ).




“H+: The Series”




H+ takes viewers on an episodic two-and-a-half hour, apocalyptic journey into the future where technology has gone horrifically wrong. In 2019, 33% of the world’s population uses a radical new piece of technology — an implanted computer system called H+. This allows a person’s mind and nervous system to be connected to the Internet 24 hours a day.




But that same year, a mysterious and vicious computer virus is released, and within seconds millions of people die — leading to radical changes to the political and social landscape of the planet.





H+ is produced by Director / Producer Bryan Singer in association with Bad Hat Harry Productions (House). The series comes from the imaginative minds of writers John Cabrera (Gilmore Girls ) and Cosimo de Tommaso who also serve as Executive Producers, directed by Stewart Hendler (Sorority Row ) and produced by Lance Sloane (Yucatan ).H+  is currently in post-production and was filmed in Santiago Chile.




“Aim High”




Aim High is the story of a young man leading a double life — juggling his studies by day and serving as a government agent by night. This series chronicles the life of Nick Green, a high school sophomore who’s just starting a new school year as one of the country’s 64 highly trained teenage operatives.




When he’s not risking his life on top-secret missions, Nick is dreaming of Amanda Meyers, the most popular girl in school, who’s cool, intelligent, and very alluring. Amanda mercilessly flirts with Nick, but before he can enjoy her advances he has to avoid Derek — her overly protective boyfriend who threatens him for even looking at her.




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Aim High comes from Director/ Producer McG, production company Wonderland Sound and Vision, and production services were provided by Bandito Brothers. Peter Murrieta, who served as Executive Producer for the Disney Channel mega-hitWizards of Waverly Place, is the Executive Producer. The series is written by Heath Corson (Living with Abandon / Scary Godmother) and Richie Keen (Living with Abandon), who also serve as Executive Producers, directed by Thor Freudenthal (Hotel for Dogs/ Diary of a Wimpy Kid ) and produced by Lance Sloane (Yucatan ).




Jackson Rathbone, best known for his role as the scarred vampire “Jasper Hale” in theTwilight movie series, stars as teenage government operative “Nick Green.” He is joined by Aimee Teegarden, known to loyalFriday Night Lights  fans as “Julie Taylor,” who stars as Nick’s charming love interest “Amanda Miles.”




Aim High also stars Rebecca Mader (Lost) as Nick’s sultry science teacher “Ms. Walker,” Johnny Pemberton (Megadrive ) as the well connected best friend “Marcus,” Clancy Brown (Highlander ) as Russian mercenary “Boris the Bear,” Jonathan McDaniel (That’s So Raven ) as Amanda’s jealous boyfriend and swim team captain “Derek Long,” and Greg Germann (Ally McBeal ) as the protective “Vice Principal Ockenhocker.”




Management Expertise




The launch of Dolphin Digital Studios leverages our management expertise in creating high-quality entertainment for children and young adults.




Dolphin Entertainment (“DE”), founded in 1996 by our Chairman, C.E.O. and President, Bill O’Dowd, is one of the world’s leading entertainment companies specializing in children’s and young adult live-action programming, with divisions dedicated to Television Production, Feature Film Production, International Distribution, and Merchandising and Licensing. DE served as Executive Producer to Nickelodeon’s EmmyTM-nominated hit seriesZoey 101  andNed’s Declassified School Survival Guide , as well as eight different television movies that have premiered on Nickelodeon in the past three years. DE enjoys worldwide distribution of its programs, with sales in over 100 countries (reaching almost 300 million homes) for its current children’s properties, including Mexico, Italy, France, Spain, the United Kingdom, Germany, Canada, Australia, New Zealand, Brazil, and South Africa, among many others. DE has successfully launched international merchandising lines for its children’s properties in nearly every consumer category, including publishing, apparel, sleepwear, accessories, and cosmetics.




We hold a multiyear exclusive licensing agreement with DE. Under the terms of our 10 year agreement, DE will work with us to create and manage social networking websites which will be themed around DE’s own branded properties. Under the license, the Company is authorized to use Dolphin Entertainment’s brand properties in connection with the social networking sites. The license requires that the Company pays to Dolphin Entertainment, Inc. royalties at the rate of fifteen percent of net sales from performance of the licensed activities.




Results for the three months ended March 31, 2011 compared to the three months ended March 31, 2010




The Company had limited revenues of $275,000 from licensing fees for the three months ended March 31, 2011 compared to $0 for three months ended March 31, 2010. The Company expects to begin generating additional revenues from Dolphin Secure, Dolphin Surf websites and Dolphin Digital Media during fiscal 2011.




During the three months ended March 31, 2011 the Company focus has primarily been devoted to its new division of the company, Dolphin Digital Studios. Dolphin Digital Studios will create original content that premieres online, with an initial focus on content geared toward tweens and teens. Substantially all of the Company’s operating expenses during the three months ended March 31, 2011 were derived from its new division.




General and administration costs decreased by $205,922 from $586,210 for the three months ended March 31, 2010 to $380,288 for the three months ended March 31, 2011 as a result of decreased marketing, administrative, and advertising costs relating to the change in the Company’s focus to its new division of the company, Dolphin Digital Studios..




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Finance charges decreased by $966,649 from $966,649 for the three months ended March 31, 2010 to $0 for the three months ended March 31, 2011. Financing charges for the three months ended March 31, 2010 were primarily as a result of expenses associated with re-pricing of stock warrants.




Interest expense decreased by $12,269 from $38,108 for the three months ended March 31, 2010 to $25,839 for the three months ended March 31, 2011.




The net loss was $131,127 or $(.00) per share based on 64,190,987 weighted average shares outstanding for three months ended March 31, 2011 compared to a loss of $1,590,967 $(.03) per share based on 59,997,836 weighted average shares outstanding for the three months ended March 31, 2010.




Liquidity and Capital Resources




Cash flows used in operating activities decreased by $1,191 from $373,430 for the three months ended March 31, 2010 to $372,239 for the three months ended March 31, 2011. During the three months ended March 31, 2010 the Company incurred a loss from operation of $1,590,967 which was primarily offset by Amortization of debt discount of $24,175, common stock issued for compensation of $72,500 and warrant repricing of $945,615.




Cash flows used in investing activities decreased by $239,564 from $239,564 for the three months ended March 31, 2010 to $0 for the three months ended March 31, 2011. During the three months ended March 31, 2010 the Company capitalized costs of $239,564 for web-site development.




Cash flows from financing activities decreased by $213,413 from $916,413 for the three months ended March 31, 2010 to $703,000 for the three months ended March 31, 2011. During the three months ended March 31, 2010 the Company received advances of $45,000 from our President and CEO. We received $200,000 from the pay down of warrants and we sold a total of 1,443,938 shares of common stock for proceeds of $685,000 During the three months ended March 31, 2011 we have relied on advances of $174,500 from our President and CEO. The Company has largely relied on loans from the CEO to meet working capital requirements. To date, it has received a net total of $1,286,361 in loans from him. There is no guarantee that Mr. O’Dowd will continue to loan the Company money. During the first quarter of 2011, we received $100,000 from the pay down of warrants and $459,000 in advances for future production.




As of March 31, 2011, we had cash of $332,228 and a working capital deficit of $3,272,640.




Our independent auditors issued an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern based upon our net loss for the year ended December 31, 2010, our accumulated deficit as of December 31, 2010, and our level of working capital. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Management is planning to raise any necessary additional funds through loans and additional sales of its common stock, however, there can be no assurance that the Company will be successful in raising any necessary additional capital.




Critical Accounting Policies




The significant accounting policies followed by the Company for interim reporting are consistent with those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, with the exception of the following:





Revenue Recognition





Revenue is recognized in accordance with the provision of FASB ASC Topic 605, “Revenue Recognition”. In general, the Company records revenue when persuasive evidence of an arrangement exists, products have been delivered or services have been rendered, the selling price is fixed and determinable, and collectability is reasonably assured. The Company recognizes  monthly and annual subscription revenues over the service period. Advertising revenue is recognized over the period the advertisement is displayed.




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We account for contracts for development, production and services activities consistent with FASB ASC 605-35, Accounting for Performance of Construction-Type and Certain Production-Type Contracts, and other relevant revenue recognition accounting literature. We consider the nature of these contracts and the types of products and services provided when determining the proper accounting for a particular contract. Generally for fixed-price contracts, other than service-type contracts, revenue is recognized primarily under the percentage of completion method or, for certain short-term contracts, by the completed contract method. Revenue from service-type fixed-price contracts is recognized ratably over the contract period or by other appropriate input or output methods to measure service provided, and contract costs are expensed as incurred. We establish billing terms at the time project deliverables and milestones are agreed.  Revenues recognized in excess of the amounts invoiced to clients are classified as unbilled receivables. The risk to us on a fixed-price contract is that if estimates to complete the contract change from one period to the next, profit levels will vary from period to period. For all types of contracts, we recognize anticipated contract losses as soon as they become known and estimable. Out-of-pocket expenses that are reimbursable by the customer are included in revenue and cost of revenue.




The use of contract accounting requires significant judgment relative to estimating total contract revenues and costs, including assumptions relative to the length of time to complete the contract, the nature and complexity of the work to be performed, anticipated increases in wages and prices for subcontractor services and materials, and the availability of subcontractor services and materials. Our estimates are based upon the professional knowledge and experience of our personnel. Changes in estimates are applied retrospectively and when adjustments in estimated contract costs are identified, such revisions may result in current period adjustments to earnings applicable to performance in prior periods.




Off-Balance Sheet Arrangements




As of March 31, 2011, we did not have any off-balance sheet arrangements.




ITEM 4.
CONTROLS AND PROCEDURES





Management’s Report on the Effectiveness of Disclosure Controls and Procedures





Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.





We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2011. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective due to material weaknesses identified in the Company's internal control over financial reporting described below.





Material Weakness





A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.  As a result of the restatement of our financial statements for the interim period ending March 31, 2011, our Chief Executive Officer and Principal Financial Officer re-assessed the effectiveness of the Company's internal control over financial reporting as of March 31, 2011. Based on that assessment, management identified the following material weakness:




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*
During the three month period ended March 31, 2011, the Company did not correctly account for revenue recognition related to a software license agreement.  The Company had initially deferred revenue associated with agreement and was recognizing revenue over a five year period.  Upon further evaluation, revenue recognition was required upon delivery of the software.  This error resulted in the restatement of the Company’s previously filed Form 10-Q for the period ended March 31, 2011 to recognize additional revenue of $261,250.  After a review of our current review and approval of certain aspects of the accounting process, management concluded that the inadequate review and approval process of material agreements for the proper accounting treatment represented a material weakness.




Remediation of Material Weaknesses in Internal Control over Financial Reporting





In order to remediate the material weaknesses in internal control over financial reporting, the Company is in the process of finalizing a remediation plan, under the direction of the Company’s Board of Directors, and intends to implement improvements during fiscal year 2011 as follows:





●
Document all significant accounting policies and ensure that the accounting policies are in accordance with accounting principles generally accepted in the United States and that internal controls are designed effectively to ensure that the financial information is properly reported. Management will engage independent accounting specialists to ensure that there is an independent verification of the accounting positions taken.





●
In connection with the reported inadequately documented review and approval of certain aspects of the accounting process, management has plans to review the current review and approval processes and implement changes to ensure that all material agreements, accounting reconciliations and journal entries are reviewed and approved on a timely basis and that this review is documented by a member of management separate from the preparer.





Limitations on Effectiveness of Controls and Procedures





Our management, including our chief executive officer and chief financial officer (principal financial officer), does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.





Changes in Internal Control over Financial Reporting





During the Company’s last fiscal quarter there were no changes in the Company’s internal controls over financial reporting that have materially affected or are reasonably likely to materially affect such internal controls over financial reporting.




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PART II - OTHER INFORMATION




ITEM 1.
LEGAL PROCEEDINGS




On October 1, 2009, Dolphin Digital Media, Inc, Dolphin Entertainment, Inc. and Dolphin Entertainment Capital, Inc. brought suit in the U.S. District Court for the Southern District of Florida against Mark Peikin, Joshua M. Gold, Bespoke Growth Partners, Inc., Gsquared, Ltd., Carta De Dinero, LLC, Nevada Agency And Transfer Co. and Merrill Lynch Pierce Fenner & Smith Incorporated. The suit sought recovery of corporate stock and damages occasioned by the misfeasance of Peikin, Gold and the corporate entities over which they presided. As alleged in the complaint, Peikin and Gold served as outside and inside counsel to and officers of Plaintiffs in 2008 and 2009. Among their actions, the Company alleged Peikin and Gold improperly directed Nevada Agency And Transfer Co. to issue one million shares of Dolphin Digital Media, Inc.’s stock to Carta De Dinero, who then transferred such shares to its account at Merrill Lynch and sold them on the open market. In this lawsuit, Plaintiffs sought recovery of the damages occasioned by the improper issuance and sale of the Dolphin Digital Media, Inc. stock, as well as the value of the actual funds and opportunities misappropriated by Peikin and Gold and also alleged civil racketeering counts. On or about April 19, 2010, the Court dismissed the civil racketeering counts on the basis that the alleged enterprise was primarily formed and existed for the commission of the theft of the above-mentioned stock. The Court made no determination on the merits of the underlying allegations. As a result of the dismissal, the Federal Court was deprived of jurisdiction over the cause. On April 20, 2010, Peikin and Gold filed an action in Miami-Dade County Circuit Court against Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc., respectively, relating to their employment with the companies. Peikin sued Dolphin Entertainment, Inc. for: 1) breach of contract; 2) promissory estoppel; 3) fraud in the inducement; and 4) negligent misrepresentation and Gold sued Dolphin Digital Media, Inc. for negligent misrepresentation. On or about May 10, 2010, Dolphin Entertainment, Inc. and Dolphin Digital Media, Inc. filed their Answer, Affirmative Defenses, and Counterclaims against Peikin and Gold and a Third Party Claim against Bespoke Growth Partners, Inc., Gsquared, Ltd. and Carta De Dinero, LLC, alleging virtually the same counts alleged in the action filed in the U. S. District Court action. The Counterclaims and the Third-Party Claim alleged among other things, fraud, civil theft, unjust enrichment and conversion and seek an accounting. On March 24, 2011 the parties entered into a confidential Mutual Stipulation and Settlement Agreement wherein they settled all matters between them which were the subject of the actions.




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





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




None.




ITEM 3.
DEFAULTS UPON SENIOR SECURITIES




None.




ITEM 4.
REMOVED AND RESERVED




None.




ITEM 5.
OTHER INFORMATION




None.




ITEM 6.
EXHIBITS





No.31.1
Certification of the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
Certification of the Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
Certification of the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
Certification of the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002





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SIGNATURES




In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized August 22, 2011.






Dolphin Digital Media Inc.By:
/s/ William O’Dowd IVName: William O’Dowd IVChief Executive Officer  and Chief Financial Officer