Digital Development Group Corp (OTCMKTS:DIDG) Grows Despite Toxic Debt

The news around Digital Development Group Corp (OTCMKTS:DIDG) has been pretty good recently. On April 8, the company announced that the growth experienced during March has been absolutely great. Apparently, the number of subscribers during the third month of 2014 has increased by 66% and, perhaps more importantly, the same thing has happened to the revenues.

Then, on May 6, DIDG announced that they are taking advantage of the craze around the recently relaxed marijuana laws. Apparently, they plan to launch an internet platform dedicated to the “cannabis lifestyle” on July 4.

In another press release dated June 12, they told us that the number of subscribers has doubled since June 30, 2013. They are pretty happy with the achievement, but they want to see even more people using their services in the future. They also have a plan to make that happen.

At first, investors didn’t seem all that interested, but the performance over the last couple of days suggests that the ticker is attracting more and more attention. In a matter of three sessions, DIDG gained nearly 70% and yesterday, it also logged a dollar volume of almost $400 thousand which means that a lot of money is now on the line.

Seeing a stock grow is always a good thing, but, having done some research, we get the sense that DIDG is running too quickly for its own good.

For one, despite the promising press releases, the company’s latest 10-Q doesn’t look like much. Here’s what they recorded at the end of the first quarter of 2014:

• cash: $0
• current assets: $249 thousand
• current liabilities: $4.6 million
• quarterly revenues: $25 thousand
• quarterly operating loss: $547 thousand

The revenues are indeed growing. In that respect, DIDG registered an impressive 443% increase year over year. Unfortunately, the rest of the statement looks pretty dismal. The lack of cash is an obvious problem and the amount of debt certainly raises some serious questions around the company’s future.

Speaking of which, a rather huge part of the liabilities consists of convertible debt. During the first quarter of 2014, some creditors turned $335,015 worth of notes into 18,528,347 shares of common stock.

If you scroll down to Page 31 of the report, you’ll see that DIDG‘s total O/S count grew from around 61 million in March 31, 2013 to 142 million in May 28, 2014. The same section of the 10-Q also tells us that DIDG expect to see even more notes being converted in the future.

Earlier today, they announced that they have paid off $27,500 in convertible notes to Asher Enterprises. They didn’t say whether the debt has been satisfied through the issuance of stock or with cash, but they did inform us that currently, the O/S count hovers around 160 million.

The threat of severe dilution coming from the convertible notes is certainly very real. The filings do show that DIDG are making some progress with their business plan, but we’re not sure if this alone will be enough to counteract the effects of the toxic debt. That’s why, doing your own due diligence and carefully considering the risks is absolutely essential.