U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________
Commission File Number 333-165719
Delta Entertainment Group, Inc.
(Exact name of small business issuer as specified in its charter)
Florida | 27-1059780 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation of organization) | Identification No.) |
7546 La Paz Blvd. # 101 Boca Raton, FL 33433
(Address of principal executive offices)
(954) 449-2690
(Issuer’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated Filer |
| Non-accelerated filer (Do not check if a smaller reporting company) | Smaller Reporting Company X |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At November 14, 2012 the issuer had outstanding 38,014,205 shares of Common Stock, par value $.001 per share.
PART I – FINANCIAL INFORMATION
Item 1 Financial Statements
DELTA ENTERTAINMENT GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
|
| September 30, |
|
| December 31, |
| ||
|
| 2012 |
|
| 2011 |
| ||
Assets |
| |||||||
Current Assets: |
|
|
|
|
|
| ||
Cash |
| $ | 23,354 |
|
| $ | 34 |
|
Accounts receivable |
|
| 60,781 |
|
|
| 1,650 |
|
Prepaid expenses |
|
| 5,161 |
|
|
| 894 |
|
Inventory |
|
| 13,409 |
|
|
| 9,912 |
|
Advance royalty payments |
|
| — |
|
|
| 20,000 |
|
|
|
| 102,705 |
|
|
| 32,490 |
|
Computer equipment, net |
|
| 1,190 |
|
|
| 1,707 |
|
Total Assets |
| $ | 103,895 |
|
| $ | 34,197 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity (Deficit) |
| |||||||
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 29,505 |
|
| $ | 19,107 |
|
Accounts payable and accrued liabilities-related party |
|
| 43,635 |
|
|
| 35,634 |
|
Accrued liabilities |
|
| 19,359 |
|
|
| 13,643 |
|
Note payable |
|
| 78,500 |
|
|
| 28,500 |
|
Note payable-related party |
|
| 5,000 |
|
|
| — |
|
Convertible note payable, net of discount |
|
| 28,500 |
|
|
| 32,667 |
|
Convertible notes payable-related party |
|
| 45,900 |
|
|
| 95,900 |
|
Total Current Liabilities |
|
| 250,399 |
|
|
| 225,451 |
|
Total Liabilities |
|
| 250,399 |
|
|
| 225,451 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
38,014,205 shares and 30,904,384 shares issued |
|
| 38,015 |
|
|
| 30,905 |
|
Additional Paid in Capital |
|
| 801,323 |
|
|
| 252,792 |
|
Accumulated Deficit |
|
| (985,842 | ) |
|
| (474,951 | ) |
Total Stockholders’ Equity (Deficit) |
|
| (146,504 | ) |
|
| (191,254 | ) |
Total Liabilities and Stockholders’ Equity (Deficit) |
| $ | 103,895 |
|
| $ | 34,197 |
|
The Accompanying Notes are an Integral Part of the Unaudited Consolidated Financial Statements
- 2 -
DELTA ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
| For the Three Months |
|
| For the Nine Months |
| ||||||||||
|
| Ended September 30, |
|
| Ended September 30, |
| ||||||||||
|
| 2012 |
|
| 2011 |
|
| 2012 |
|
| 2011 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 139,026 |
|
| $ | 25,581 |
|
| $ | 188,749 |
|
| $ | 36,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 50,047 |
|
|
| 19,397 |
|
|
| 81,431 |
|
|
| 22,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 88,979 |
|
|
| 6,184 |
|
|
| 107,318 |
|
|
| 13,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General administrative expenses |
|
| 119,267 |
|
|
| 132,682 |
|
|
| 511,425 |
|
|
| 208,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (30,288 | ) |
|
| (126,498 | ) |
|
| (404,107 | ) |
|
| (194,314 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (4,998 | ) |
|
| (2,497 | ) |
|
| (106,784 | ) |
|
| (3,272 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
| (35,286 | ) |
|
| (128,995 | ) |
|
| (510,891 | ) |
|
| (197,586 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Common Share |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Weighted Average Common Shares Outstanding |
|
| 37,597,659 |
|
|
| 30,522,922 |
|
|
| 35,321,350 |
|
|
| 30,259,009 |
|
The Accompanying Notes are an Integral Part of the Unaudited Consolidated Financial Statements
- 3 -
DELTA ENTERTAINMENT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
| For the Nine Months |
| |||||
|
| Ended September 30, |
| |||||
|
| 2012 |
|
| 2011 |
| ||
Operating Activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (510,891 | ) |
| $ | (197,586 | ) |
Adjustments to reconcile net loss to net cash provided (used) by operating activities: |
|
|
|
|
|
|
|
|
Shares issued for services |
|
| 186,862 |
|
|
| 11,000 |
|
Shares issued for services - related parties and accrued liabilities related party |
|
| 67,150 |
|
|
| 9,450 |
|
Stock option expense |
|
| 25,129 |
|
|
| — |
|
Debt discount |
|
| 95,833 |
|
|
| — |
|
Depreciation |
|
| 517 |
|
|
| 336 |
|
Changes in Assets and Liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (59,131 | ) |
|
| 4,385 |
|
Prepaid expenses |
|
| (4,267 | ) |
|
| 1,411 |
|
Inventory |
|
| 5,503 |
|
|
| 1,684 |
|
Deposits |
|
| — |
|
|
| (3,200 | ) |
Advance royalty |
|
| 20,000 |
|
|
| (17,500 | ) |
Accounts payable |
|
| 10,398 |
|
|
| 18,722 |
|
Accounts payable-related parties |
|
| 8,001 |
|
|
| 4,667 |
|
Accrued wages- related parties |
|
| — |
|
|
| 5,537 |
|
Accrued liabilities- related parties |
|
| — |
|
|
| 26,032 |
|
Accrued liabilities |
|
| 8,216 |
|
|
| 12,936 |
|
Net Cash Provided (Used) by Operating Activities |
|
| (146,680 | ) |
|
| (122,126 | ) |
Investing Activities |
|
|
|
|
|
|
|
|
Purchase of computer equipment |
|
| — |
|
|
| (1,032 | ) |
Purchase of customer list |
|
| — |
|
|
| (44,018 | ) |
|
|
| — |
|
|
| (45,050 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from notes payable |
|
| 50,000 |
|
|
| 15,000 |
|
Proceeds from notes payable-related party |
|
| 12,500 |
|
|
| 121,800 |
|
Proceeds from convertible notes payable |
|
| 50,000 |
|
|
| — |
|
Repayment of notes payable |
|
| — |
|
|
| (2,500 | ) |
Repayment of notes payable-related party |
|
| (17,500 | ) |
|
| — |
|
Proceeds from sale of common stock |
|
| 75,000 |
|
|
| 30,000 |
|
Net Cash Provided by Financing Activities |
|
| 170,000 |
|
|
| 164,300 |
|
Net Increase in Cash |
|
| 23,320 |
|
|
| (2,876 | ) |
Cash at Beginning of Period |
|
| 34 |
|
|
| 7,993 |
|
Cash at End of Period |
| $ | 23,354 |
|
| $ | 5,117 |
|
Supplemental Disclosures: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | — |
|
| $ | — |
|
Cash paid for interest |
| $ | 525 |
|
| $ | — |
|
Non Cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
Beneficial conversion feature |
| $ | 50,000 |
|
| $ | — |
|
Common stock issued for repayment of related party note payable |
| $ | 40,000 |
|
| $ | — |
|
Purchase of customer list through note payable |
| $ | — |
|
| $ | 25,600 |
|
Common stock issued for repayment of note payable and accrued in |
| $ | 102,500 |
|
| $ | 3,000 |
|
Common stock issued for purchase of inventory |
| $ | 9,000 |
|
| $ | — |
|
Common stock issued for advance royalties |
| $ | — |
|
| $ | 12,500 |
|
The Accompanying Notes are an Integral Part of the Unaudited Consolidated Financial Statements
- 4 -
DELTA ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation and Interim Unaudited Consolidated Financial Statements
Delta Entertainment Group Inc. (“Delta”, “We”, or the “Company”) was incorporated in the state of Florida on October 2, 2009. The principal business purpose of Delta is to operate as a holding company of its subsidiaries Creative Music Group, Inc. (“Creative”), PearlBrite Concepts, Inc. (“PearlBrite”) and Captivating Cosmetics Corp (“Captivating”).
Creative was formed in the state of Florida in October 2010. The principal business purpose of Creative is the management, promotion and development of recording artists and offer live music services.
PearlBrite was formed in the state of Florida on May 31st 2011, The principal business purpose of Pearlbrite is to supply and market professional teeth whitening products.
Captivating was formed in the state of Florida on June 1st 2011 The principal business purpose of Captivating is to produce and market color cosmetics, such as nail polish, lipstick and lip gloss) through mass market retailers.
Interim Financial Statements
The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information required to be included in a complete set of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2012. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s 2011 Annual Report filed with the SEC on Form 10-K on April 16, 2012.
Going Concern
At September 30, 2012 the Company has a working capital deficit. As such, the accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company does not have sufficient working capital for its planned activities, which raises substantial doubt about its ability to continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining additional working capital and the management of the Company has developed a strategy, which it believes will accomplish this objective through short-term loans from related parties and additional equity investments, which will enable the Company to continue operations for the coming year.
Note 2 – Convertible Notes Payable
In January 2012, the Company received proceeds of $50,000 from an 8% convertible note payable. The note plus accrued interest is convertible into common stock at the rate of $.025 per share. Based on our share price on the date the note was entered into, we recognized a beneficial conversion feature in the amount of $50,000. The beneficial conversion feature was amortized to interest expense over the term of the note using the effective interest method. The note plus accrued interest of $1,000 was converted into 2,040,000 shares of common stock in April 2012. At that time, we expensed the remaining unamortized discount and recorded a total of $50,000 to interest expense as of September 30, 2012.
- 5 -
In November 2011, the Company received proceeds of $50,000 from an 8% convertible note payable. The note plus accrued interest is convertible into common stock at the rate of $.05 per share. Based on our share price on the date the note was entered into, we recognized a beneficial conversion feature in the amount of $50,000. The beneficial conversion feature was amortized to interest expense over the term of the note using the effective interest method. The note plus accrued interest of $1,500 was converted into 1,030,000 shares of common stock in April 2012. At that time, we expensed the remaining unamortized discount of $45,833 to interest expense.
As of September 30, 2012, $28,500 in convertible notes remain outstanding. These notes accrue interest at 8% per annum and are convertible at $0.10 per share.
The Company analyzed the convertible notes for derivative accounting consideration under FASB ASC 815-15 and FASB ASC 815-40. The Company determined the embedded conversion option in the convertible met the criteria for classification in stockholders equity under FASB ASC 815-15 and FASB ASC 815-40. Therefore, derivative accounting was not applicable for these convertible notes payable.
Note 3 – Notes Payable
In August 2012, the Company, through its subsidiary Pearlbrite, received proceeds $50,000 for the purpose of financing the purchase of inventory subject to purchase orders from a corporate customer. The note bears interest at the rate of 3% for the first thirty days and then at a rate of 1% for each additional ten day period. The note is secured by accounts receivable and all assets of the company and is due on collection of the accounts receivable.
In addition, $28,500 in notes payable remains outstanding as of September 30, 2012. These notes are unsecured, due on demand, and non-interest bearing.
Note 4 – Related Party
Convertible Notes Payable – related party
In February 2012 and May 2012, the Company repaid $10,000 and $40,000 was converted into common shares, respectively on a $50,000 convertible related party note. As of September 30, 2012 and December 31, 2011, the convertible notes payable related party balance was $45,900 and $95,900, respectively.
Notes Payable – related party
In July 2012, the Company, through its subsidiary Pearlbrite, received proceeds $12,500 for the purpose of financing the purchase of inventory subject to a purchase orders from a corporate customer. The note bears interest at the rate of 3% for the first thirty days and then at a rate of 1% for each additional ten day period. The note is secured by accounts receivable and is due on collection of the accounts receivable. As of September 30, 2012, there was $5,000 outstanding on the note.
Accounts payable – related party
At September 30, 2012 and December 31, 2011, accounts payable – related party consisted of the following:
| · | Accounts payable related party of $14,509 and $20,195, respectively |
| · | Accrued wages related party of $29,126 and $15,439, respectively |
Stock issued for services-related party
As of September 30, 2012 the Company has issued 510,003 shares of its common stock and recorded a total of $67,149 related to stock compensation.
- 6 -
Note 5 – Equity
During the nine months ended September 30, 2012, the Company issued 1,454,818 shares of its common stock for consulting fees of $186,862.
The Company also issued 75,000 shares of common stock for the purchase of inventory valued at $9,000.
During the nine months ended September 30, 2012 the Company issued 600,000 shares of common stock for proceeds of $30,000 in a private placement at a per share price of $0.05. In relation to the issuance, the Company also extended a warrant to the investor for the purchase of an additional 600,000 shares at $0.05. This warrant is exercisable immediately and expires on March 12, 2013.
During the nine months ended September 30, 2012 the Company issued 600,000 shares of common stock for proceeds of $30,000 in private placements at a per share price of $0.05.
During the nine months ended September 30, 2012 the Company issued 200,000 shares of common stock for proceeds of $10,000. In relation to the issuance the Company also extended a warrant to the investor for the purchase of an additional 200,000 shares at $0.10. This warrant is exercisable immediately and expires on June 6, 2013.
During the nine months ended September 30, 2012 the Company also issued 200,000 shares of common stock to a related party for proceeds of $5,000 at a per share price of $0.025.
For the nine months ended September 30, 2012, the Company issued 152,777 warrants for services provided at a fair value of $25,129. The fair value of the warrants were determined using a Black-Scholes option valuation model using the following key assumptions: exercise price of $0.25, stock price of between $.07 and $0.20, term of 3 years, expected volatility of 280%, and a discount rate of 0.35%. The fair value recorded to expense during the three months and nine months ended September 30, 2012 was $4,305 and $25,129.
Note 6 – Subsequent Events
On November 5, 2012, Michelle Tucker the Company’s former president and wife of Leonard Tucker our current president, in connection with pending divorce proceedings [Case No. 10-011803(37/91) filed in the Circuit Court of the Seventeenth Judicial Circuit, in and for Broward County, Florida] obtained an ex parte temporary injunction prohibiting Mr. Tucker from transferring, issuing, liquidating, buying or selling shares of the Company’s common stock and any subsidiary of the Company.
On November 19, 2012, Mr. Tucker filed an Emergency motion in Circuit Court to immediately modify or vacate the court order.
- 7 -
Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operation.
Overview
Delta Entertainment Group, Inc. (the “Company”, the “Registrant”, “Delta Entertainment” or “Delta”) was incorporated in the state of Florida in October 2009. Until April, 2011, the Company’s business strategy was to acquire, develop and represent up and coming artists in the entertainment field through its operating subsidiary Creative Music Group, Inc. To date, we have not been successful in this endeavor. When Marshall Freeman stepped down as our president and director, Leonard Tucker was appointed as the Company’s sole officer and a director. Mr. Tucker investigated multiple business opportunities and chose to focus on the teeth whitening industry. In furtherance thereof, in June 2011, the Company, through its wholly owned subsidiary, Pearl Brite Concepts, Inc. acquired a teeth whitening company which is marketed under the name “PearlBrite”.
We currently have three subsidiaries, PearlBrite Concepts, Inc, Captivating Cosmetics Corp. dba TG Cosmetics and Creative Music Group, Inc.
Creative Music Group, Inc. is a service-based company focused on artist management services for recording artists. It has limited operations.
PearlBrite Concepts, Inc. (“PearlBrite”) is a non dental cosmetic teeth whitening company specializing in providing turnkey professional solutions and products for salons, spas, tanning facilities, and other professional establishments as well as an at home kit and pen for consumers. TG Cosmetics (“TG Cosmetics”) is engaged in the business of producing, outsourcing, packaging, marketing, distributing, advertising, promoting, merchandising and selling cosmetic products to the mass markets, including, but not limited to, nail polish, lipstick, eyeliners, mascara, make-up and related accessories. To date, TG Cosmetics has not conducted meaningful operations
Results of Operations
Three and Nine months Ended September 30, 2012 and 2011
We generated revenues for the three months ended September 30, 2012 and 2011 of $139,026 and $25,581, respectively. We generated revenues for the nine months ended September 30, 2012 and 2011 of $188,749 and $36,971 respectively. The increase in the current year periods are primarily due to revenues generated from sales of our teeth whitening products.
Our cost of sales for the three months ended September 30, 2012 were $50,047 versus $19,397 for the three months ended September 30, 2011. The cost of sales for the nine months ended September 30, 2012 and 2011 were $81,431 and $22,990, respectively. The increase in cost of sales was also due to the teeth whitening product sales.
During the three months ended September 30, 2012 we incurred general and administrative expenses of $119,267 as compared to $132,682 for the three months ended September 30, 2011. For the nine months ended September 30, 2012 and 2011, we incurred general and administrative expenses of $511,425 and $208,295 respectively. The increase in general and administrative expenses for the current year is due to an increase in Officers’ and Directors compensation, other compensation, professional fees, and marketing expenses. We did not begin to incur similar expenses in the same period of the prior year until June 2011 and we expect to incur these expenses going forward.
Liquidity
As of September 30, 2012 we had cash of $23,354 as compared to cash at December 31, 2011 of $34. We had total current assets at September 30, 2012 of $102,705 as compared to $32,490 at December 31, 2011. Our operations to date have primarily been funded through convertible notes payable and advances from a related party as we have not yet generated revenues sufficient to fund our operating costs. Our total current liabilities at September 30, 2012 were $250,399 as compared to $225,451 at December 31, 2011. The increase in the current liabilities is due to revenues insufficient to fund our operations requiring us to borrow funds.
We have a deficit in working capital of $147,694 as of September 30, 2012 as compared to a deficit in working capital at December 31, 2011 of $192,961.
- 8 -
Off-balance sheet arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures. Our principal executive and financial officer, based on his evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q, has concluded that (i) our disclosure controls and procedures are effective for ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive and financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
FORWARD-LOOKING INFORMATION
The statements contained in this Quarterly Report on Form 10-Q that are not historical fact are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995), within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. The Company wishes to caution the reader that these forward-looking statements that are not historical facts are only predictions. No assurances can be given that the future results indicated, whether expressed or implied, will be achieved. While sometimes presented with numerical specificity, these projections and other forward-looking statements are based upon a variety of assumptions relating to the business of the Company, which, although considered reasonable by the Company, may not be realized. Because of the number and range of assumptions underlying the Company’s projections and forward-looking statements, many of which are subject to significant uncertainties and contingencies that are beyond the reasonable control of the Company, some of the assumptions inevitably will not materialize, and unanticipated events and circumstances may occur subsequent to the date of this report. These forward-looking statements are based on current expectations and the Company assumes no obligation to update this information. Therefore, the actual experience of the Company and the results achieved during the period covered by any particular projections or forward-looking statements may differ substantially from those projected. Consequently, the inclusion of projections and other forward-looking statements should not be regarded as a representation by the Company or any other person that these estimates and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations will be realized or that any of the forward-looking statements contained herein will prove to be accurate.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
On November 5, 2012, Michelle Tucker the Company’s former president and wife of Leonard Tucker our current president, in connection with pending divorce proceedings [Case No. 10-011803(37/91) filed in the Circuit Court of the Seventeenth Judicial Circuit, in and for Broward County, Florida] obtained an ex parte temporary injunction prohibiting Mr. Tucker from transferring, issuing, liquidating, buying or selling shares of the Company’s common stock and any subsidiary of the Company.
On November 19, 2012, Mr. Tucker filed an Emergency motion in Circuit Court to immediately modify or vacate the court order.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. However, they are more fully disclosed in the Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on April 16, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
We have issued shares of our common stock and other securities for services rendered and capital formation. We have relied on the exemptive provisions of Section 4(2) of the Securities Act.
In the months of January through March 2011, we issued 45,000 shares of common stock at $.01 per share for officer and director compensation. We also issued 300,000 shares for repayment of a $3,000 advance from a shareholder.
In the months of April through September 2011, we issued 90,000 shares of common stock at $.10 per share for officer and director compensation.
In the months of June and July 2011, we issued 50,000 shares of common stock for advisory compensation and 125,000 shares for the purchase of a licensing agreement. The aforementioned shares were all issued at $.10 per share.
In August 2011, we issued 10,000 shares of common stock at $.10 per share and 12,157 shares of common stock at $.16 per share for advisory compensation. We also issued 200,000 shares of common stock for cash proceeds of $20,000.
In September 2011, we issued 5,714 shares of common stock at $.35 per share and 10,000 shares of common stock at $.10 per share for advisory compensation. We also issued 100,000 shares of common stock for cash proceeds of $10,000.
In October 2011, we issued 15,000 shares of common stock at $.05 per share for officer and director compensation. We also issued 19,532 shares of common stock at $.0512 per share for advisory compensation.
In November 2011, we issued 21,666 shares of common stock at $.15 per share for officer, director, and advisory compensation.
In December 2011, we issued 19,444 shares of common stock at $.23 per share and 43,056 share of common stock at $.27 per share for officer, director, and advisory compensation.
In January 2012 we issued 120,371 shares of common stock at $.27 per share for officer, director, and advisory compensation.
On January 18, 2012 we issued 500,000 shares of common stock at $.20 per share for a three year endorsement, promotional, and advisory agreement.
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In February 2012 we issued 75,114 shares of common stock at $.29 per share for officer, director, and advisory compensation.
In March 2012 we issued 126,667 shares of common stock at $.20 per share for officer, director, and advisory compensation.
On March 16, 2012, we issued 600,000 shares of common stock in a private placement for proceeds of $30,000.
In April 2012, the holder of two $50,000 convertible notes payable issued in November 2011 and January 2012 elected to convert the principal and accrued interest into shares of common stock. In relation the conversion, the Company issued 3,070,000 shares of common stock.
In April 2012, the Company issued 130,001 shares of common stock at $0.12 per share for officer, director, and advisory compensation.
In May 2012, the Company issued 171,667 shares of common stock at $.07 per share for officer, director, and advisory compensation. Also in May 2012, the holder of $40,000 of convertible notes payable-related party elected to convert the principal balance into shares of common stock. In relation to the conversion the Company issued 400,000 shares of common stock. During the month of May the Company issued 100,000 shares of common stock for cash of $5,000 in a private placement and also 75,000 shares of common stock for the purchase of $9,000 worth of inventory.
In June 2012, the Company issued 166,000 shares of common stock at $.075 per share for officer, director, and advisory compensation. The Company issued 300,000 shares of common stock for $15,000 cash, and 200,000 shares for cash of $5,000 in private placements. In relation to the private placements, the Company issued options to two of the investors as follows: 600,000 shares of common stock at $.05 and 200,000 shares of common stock at $.10. The options were exercisable immediately and have a one year life.
In July 2012, the Company issued 276,667 shares of common stock at $.03 per share for officer, director, and advisory compensation.
In August 2012, the Company issued 196,667 shares of common stock at $.05 per share for officer, director, and advisory compensation.
In September 2012, the Company issued 201,667 shares of common stock at $.08 per share for officer, director, and advisory compensation.
We have also issued the following debt obligations:
In June 2011, the Company issued an 8% convertible promissory note in the amount of $28,500.
On various dates between January and September 2011, we received proceeds from 8% convertible notes payable in the aggregate amount of $73,500.
In May 2011, through our subsidiary Pearlbrite, we received proceeds from an 8% convertible note payable of $5,600. The note plus accrued interest is convertible into shares of Pearlbrite at the rate of $.0001.
In July 2011, through our subsidiary Captivating, we received proceeds from an 8% convertible note payable of $7,500. The note plus accrued interest is convertible into shares of Captivating at the rate of $.0001.
In September 2011, through our subsidiary Pearlbrite, we received proceeds from an 8% convertible note payable of $2,800. The note plus accrued interest is convertible into shares of Pearlbrite at the rate of $.0001.
During September 2011, through ours our subsidiary Creative subsidiary, we received proceeds from an 8% convertible note payable in the amount of $9,500. The note accrues interest at the rate of 8% per annum. The note is convertible into shares of our subsidiary common stock at the rate of $.001.
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With respect to the sale of all unregistered securities:
| · | the sale was made to a sophisticated or accredited investor, as defined in Rule 502; |
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| · | we gave the purchaser the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information which we possessed or could acquire without unreasonable effort or expense that is necessary to verify the accuracy of information furnished; |
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| · | at a reasonable time prior to the sale of securities, we advised the purchaser of the limitations on resale in the manner contained in Rule 502(d)2; and |
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| · | neither we nor any person acting on our behalf sold the securities by any form of general solicitation or general advertising; |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other information
None.
Item 6. Exhibits
(a) | The following exhibits are filed herewith pursuant to Item 601 of Regulation S-K. | |
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| 31 | Section 302 Certification of Chief Executive and Financial Officer |
| 32 | Section 906 Certification |
| 101* | Interactive Date Files of Financial Statements and Notes. |
* In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Delta Entertainment Group, Inc.
Dated: November 19, 2012
By/s/ Leonard Tucker
President and Chief Executive and Financial Officer
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Exhibit 31
Certification of Chief Executive and Financial Officer
Pursuant to Rules 13A-14 and 15D-14
Of the Securities Exchange Act of 1934
I, Leonard Tucker, President and Chief Executive and Financial Officer of Delta Entertainment Group, Inc. (the “Company”), certify that:
(1) I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “Report”);
(2) Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; and
(3) Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods represented in this Report.
(4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the Report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this Report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
(5) I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and to the audit committee of the small business issuer’s board of directors (or persons performing the equivalent function):
(i) All significant deficiencies in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(ii) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Dated: November 19, 2012
By: /s/ Leonard Tucker
Leonard Tucker
President and Chief Executive Officer and Chief Financial Officer
Exhibit 32
DELTA ENTERTAINMENT GROUP, INC. AND SUBSIDIARY
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Delta Entertainment Group, Inc. (the “Company”) for the quarter ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Leonard Tucker, President, Chief Executive Officer and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Dated: November 19, 2012
By: /s/ Leonard Tucker
Leonard Tucker
President, Chief Executive Officer and Chief Financial Officer
Related Party
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9 Months Ended | ||||||
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Sep. 30, 2012
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Related Party Transactions [Abstract] | |||||||
Related Party |
Note 4 - Related Party
Convertible Notes Payable related party
In February 2012 and May 2012, the Company repaid $10,000 and $40,000 was converted into common shares, respectively on a $50,000 convertible related party note. As of September 30, 2012 and December 31, 2011, the convertible notes payable related party balance was $45,900 and $95,900, respectively.
Notes Payable related party
In July 2012, the Company, through its subsidiary Pearlbrite, received proceeds $12,500 for the purpose of financing the purchase of inventory subject to a purchase orders from a corporate customer. The note bears interest at the rate of 3% for the first thirty days and then at a rate of 1% for each additional ten day period. The note is secured by accounts receivable and is due on collection of the accounts receivable. As of September 30, 2012, there was $5,000 outstanding on the note.
Accounts payable related party
At September 30, 2012 and December 31, 2011, accounts payable related party consisted of the following:
Stock issued for services-related party
As of September 30, 2012 the Company has issued 510,003 shares of its common stock and recorded a total of $67,149 related to stock compensation. |