UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
———————
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
☐ 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: 001-38331
DOLPHIN ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
———————
Florida | 86-0787790 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
150 Alhambra Circle, Suite 1200, Coral Gables, Florida 33134
(Address of principal executive offices, including zip code)
(305) 774-0407
(Registrant's telephone number)
———————
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.015 par value per share | DLPN | The Nasdaq Capital Market |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock outstanding was 7,600,306 as of May 14, 2021
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
As
of March 31, 2021 | As
of December 31, 2020 | |||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | $ | 7,111,717 | $ | 7,923,280 | ||||
Restricted cash | 714,096 | 714,096 | ||||||
Accounts receivable, net | 4,708,359 | 5,027,101 | ||||||
Other current assets | 323,020 | 231,890 | ||||||
Total current assets | 12,857,192 | 13,896,367 | ||||||
Capitalized production costs, net | 325,866 | 271,139 | ||||||
Right-of-use asset | 7,586,271 | 7,106,279 | ||||||
Intangible assets, net of accumulated amortization of $6,142,939 and $5,747,941, respectively. | 7,327,061 | 7,452,059 | ||||||
Goodwill | 20,098,451 | 19,627,856 | ||||||
Property, equipment and leasehold improvements, net | 736,996 | 800,071 | ||||||
Deposits and other assets | 232,253 | 198,180 | ||||||
Total Assets | $ | 49,164,090 | $ | 49,351,951 |
(Continued)
The accompanying notes are an integral part of these condensed consolidated financial statements.
1 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(unaudited)
As
of March 31, 2021 | As
of December 31, 2020 | |||||||
LIABILITIES | ||||||||
Current | ||||||||
Accounts payable | $ | 620,913 | $ | 1,190,184 | ||||
Term loan | 800,260 | 900,292 | ||||||
Notes payable | 1,049,935 | 846,749 | ||||||
Convertible notes payable at fair value | — | 580,000 | ||||||
Paycheck Protection Program loan | 582,438 | 582,438 | ||||||
Loan from related party | 1,107,873 | 1,107,873 | ||||||
Accrued interest – related party | 1,875,161 | 1,783,121 | ||||||
Accrued compensation – related party | 2,625,000 | 2,625,000 | ||||||
Put rights | 1,054,235 | 1,544,029 | ||||||
Lease liability | 1,926,917 | 1,791,773 | ||||||
Contract liabilities | 2,928,797 | 1,855,209 | ||||||
Other current liabilities | 2,314,912 | 2,045,842 | ||||||
Total current liabilities | 16,886,441 | 16,852,510 | ||||||
Noncurrent | ||||||||
Notes payable | 200,721 | 426,645 | ||||||
Convertible notes payable | 150,000 | 1,445,000 | ||||||
Convertible notes payable at fair value | 1,298,740 | 947,293 | ||||||
Paycheck Protection Program loan | 2,517,431 | 2,517,431 | ||||||
Contingent consideration | 895,000 | 530,000 | ||||||
Lease liability | 6,313,936 | 5,964,275 | ||||||
Warrant liability | 215,000 | 450,000 | ||||||
Other noncurrent liabilities | 200,000 | 550,000 | ||||||
Total noncurrent liabilities | 11,790,828 | 12,830,644 | ||||||
Total Liabilities | 28,677,269 | 29,683,154 | ||||||
Commitments and contingencies (Note 18) | ||||||||
STOCKHOLDERS' EQUITY | ||||||||
Common stock, $0.015 par value, 40,000,000 shares authorized, 7,605,477 and 6,618,785, respectively, issued and outstanding at March 31, 2021 and December 31, 2020 | 114,080 | 99,281 | ||||||
Preferred stock, Series C, $0.001 par value, 50,000 shares authorized, issued and outstanding at March 31, 2021 and December 31, 2020 | 1,000 | 1,000 | ||||||
Additional paid in capital | 123,615,767 | 117,540,557 | ||||||
Accumulated deficit | (103,244,026 | ) | (97,972,041 | ) | ||||
Total Stockholders' Equity | 20,486,821 | 19,668,797 | ||||||
Total Liabilities and Stockholders' Equity | $ | 49,164,090 | $ | 49,351,951 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For
the three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenues: | ||||||||
Entertainment publicity and marketing | $ | 7,177,117 | $ | 6,633,800 | ||||
Content production | — | — | ||||||
Total revenues | 7,177,117 | 6,633,800 | ||||||
Expenses: | ||||||||
Direct costs | 829,151 | 688,977 | ||||||
Selling, general and administrative | 1,482,471 | 1,120,616 | ||||||
Depreciation and amortization | 482,712 | 521,003 | ||||||
Legal and professional | 344,607 | 284,440 | ||||||
Payroll | 5,233,116 | 4,889,623 | ||||||
Total expenses | 8,372,057 | 7,504,659 | ||||||
Loss from operations | (1,194,940 | ) | (870,859 | ) | ||||
Other Income (expenses): | ||||||||
(Loss) gain on extinguishment of debt | (57,363 | ) | 3,259,865 | |||||
Loss on the deconsolidation of Max Steel VIE | — | (1,484,591 | ) | |||||
Change in fair value of convertible notes and derivative liabilities | (871,449 | ) | 147,459 | |||||
Change in fair value of warrants | (2,562,877 | ) | 72,515 | |||||
Change in fair value of put rights | (71,106 | ) | 1,470,740 | |||||
Change in fair value of contingent consideration | (365,000 | ) | 103,000 | |||||
Acquisition costs | (22,907 | ) | — | |||||
Interest expense and debt amortization | (165,194 | ) | (624,282 | ) | ||||
Total other (expense) income, net | (4,115,896 | ) | 2,944,706 | |||||
(Loss) income before income taxes | $ | (5,310,836 | ) | $ | 2,073,847 | |||
Income tax benefit | 38,851 | — | ||||||
Net (loss) income | $ | (5,271,985 | ) | $ | 2,073,847 | |||
(Loss) earnings per share - Basic | $ | (0.73 | ) | $ | 0.40 | |||
(Loss) earnings per share - Diluted | $ | (0.73 | ) | $ | 0.05 | |||
Weighted average number of shares used in per share calculation | ||||||||
Basic | 7,267,297 | 4,099,713 | ||||||
Diluted | 7,267,297 | 5,676,996 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For
the three months ended March 31, | ||||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) income | $ | (5,271,985 | ) | $ | 2,073,847 | |||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | 482,712 | 521,003 | ||||||
Loss on deconsolidation of Max Steel VIE | — | 1,484,591 | ||||||
Beneficial conversion feature of convertible notes payable | — | 425,821 | ||||||
Loss (gain) on extinguishment of debt | 57,363 | (3,259,865 | ) | |||||
Bad debt and recovery of account receivable written off, net | 113,991 | 87,539 | ||||||
Change in fair value of put rights | 71,106 | (1,470,740 | ) | |||||
Change in fair value of contingent consideration | 365,000 | (103,000 | ) | |||||
Change in fair value of warrants | 2,562,877 | (72,515 | ) | |||||
Change in fair value of notes payable and derivative instruments | 871,449 | (147,459 | ) | |||||
Change in deferred tax | (38,851 | ) | — | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 358,913 | 28,680 | ||||||
Other current assets | (75,868 | ) | (167,515 | ) | ||||
Capitalized production costs | (54,727 | ) | (36,241 | ) | ||||
Deposits and other assets | (10,456 | ) | (1,021 | ) | ||||
Contract liability | 1,016,594 | 215,832 | ||||||
Accounts payable | (673,995 | ) | (22,469 | ) | ||||
Accrued interest, related party | 92,040 | — | ||||||
Lease liability, net | 4,813 | (5,832 | ) | |||||
Other current liabilities | 76,988 | 97,678 | ||||||
Net Cash Used in Operating Activities | (52,036 | ) | (351,666 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of fixed assets | — | (10,532 | ) | |||||
Acquisition of Shore Fire Media, Ltd, net of cash acquired | — | (250,000 | ) | |||||
Acquisition of B/HI Communications, Inc, net of cash acquired | (525,856 | ) | — | |||||
Net Cash Used in Investing Activities | (525,856 | ) | (260,532 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Repayment of the line of credit | — | (500,000 | ) | |||||
Proceeds from convertible notes payable | 150,000 | 2,395,000 | ||||||
Repayment of convertible notes payable | — | (1,202,064 | ) | |||||
Repayment of term loan | (100,032 | ) | — | |||||
Repayment of notes payable | (22,739 | ) | (21,243 | ) | ||||
Exercise of put rights | (260,900 | ) | (375,000 | ) | ||||
Net Cash (Used in) Provided by Financing Activities | (233,671 | ) | 296,693 | |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (811,563 | ) | (315,505 | ) | ||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 8,637,376 | 2,910,338 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 7,825,813 | $ | 2,594,833 |
(Continued)
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For
the three months ended March 31, | ||||||||
2021 | 2020 | |||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: | ||||||||
Interest paid | $ | 68,017 | $ | 115,161 | ||||
SUPPLEMENTAL DISCLOSURES OF NON CASH FLOW INFORMATION: | ||||||||
Principal balance of convertible notes converted into shares of common stock | $ | 2,545,000 | $ | 1,350,000 | ||||
Issuance of shares of Common Stock related to the acquisitions | $ | 350,000 | $ | — | ||||
Put rights exchanged for shares of Common Stock | $ | 300,000 | $ | — | ||||
Interest on notes paid in stock | $ | 8,611 | $ | — |
Reconciliation of cash, cash equivalents and restricted cash. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statement of cash flows that sum to the total of the same such amounts shown in the statement of cash flows:
For
the three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Cash and cash equivalents | $ | 7,111,717 | $ | 1,880,744 | ||||
Restricted cash | 714,096 | 714,089 | ||||||
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statement of cash flows | $ | 7,825,813 | $ | 2,594,833 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the three months ended March 31, 2021 and 2020
For the three months ended March 31, 2021
Additional | Total | |||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
Balance December 31, 2020 | 50,000 | $ | 1,000 | 6,618,785 | $ | 99,281 | $ | 117,540,557 | $ | (97,972,041 | ) | $ | 19,668,797 | |||||||||||||||
Net loss for the three months ended March 31, 2021 | — | — | — | — | — | (5,271,985 | ) | (5,271,985 | ) | |||||||||||||||||||
Issuance of shares related to conversion of notes payable | — | — | 663,155 | 9,948 | 2,543,664 | — | 2,553,612 | |||||||||||||||||||||
Issuance of shares related to cashless exercise of warrants | — | — | 146,027 | 2,190 | 2,795,687 | — | 2,797,877 | |||||||||||||||||||||
Issuance of shares issued to seller of Be Social | — | — | 103,245 | 1,549 | 348,451 | — | 350,000 | |||||||||||||||||||||
Consideration for acquisition of B/HI Communications, Inc | — | — | — | — | 31,158 | — | 31,158 | |||||||||||||||||||||
Issuance of shares related to exchange of Put Rights for stock | — | — | 77,519 | 1,163 | 356,199 | — | 357,362 | |||||||||||||||||||||
Shares retired from exercise of puts | — | — | (3,254 | ) | (51 | ) | 51 | — | — | |||||||||||||||||||
Balance March 31, 2021 | 50,000 | $ | 1,000 | 7,605,477 | $ | 114,080 | $ | 123,615,767 | $ | (103,244,026 | ) | $ | 20,486,821 |
For the three months ended March 31, 2020
Additional | Total | |||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
Balance December 31, 2019 | 50,000 | $ | 1,000 | 3,578,580 | $ | 53,679 | $ | 106,680,619 | $ | (97,158,766 | ) | $ | 9,576,532 | |||||||||||||||
Net income for the three months ended March 31, 2020 | — | — | — | — | — | 2,073,847 | 2,073,847 | |||||||||||||||||||||
Deconsolidation of Max Steel VIE | — | — | — | — | — | 1,125,917 | 1,125,917 | |||||||||||||||||||||
Issuance of shares related to acquisition of Viewpoint | — | — | 49,747 | 746 | (746 | ) | — | — | ||||||||||||||||||||
Issuance of shares related to financing agreement | — | — | 10,000 | 150 | (150 | ) | — | — | ||||||||||||||||||||
Beneficial conversion of convertible promissory note | — | — | — | — | 301,781 | — | 301,781 | |||||||||||||||||||||
Issuance of shares related to conversion of notes payable | — | — | 375,562 | 5,633 | 1,169,788 | — | 1,175,421 | |||||||||||||||||||||
Shares retired from exercise of puts | — | — | (6,507 | ) | (98 | ) | (1,637,102 | ) | — | (1,637,200 | ) | |||||||||||||||||
Balance March 31, 2020 | 50,000 | $ | 1,000 | 4,007,382 | $ | 60,110 | $ | 106,514,190 | $ | (93,959,002 | ) | $ | 12,616,298 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
NOTE 1 – GENERAL
Dolphin Entertainment, Inc., a Florida corporation (the “Company,” “Dolphin,” “we,” “us” or “our”), is a leading independent entertainment marketing and premium content development company. Through its acquisitions of 42West LLC (“42West”), The Door Marketing Group, LLC (“The Door”), Shore Fire Media, Ltd (“Shore Fire”), Viewpoint Computer Animation Incorporated (“Viewpoint”), Be Social Public Relations, LLC (“Be Social”) and B/HI Communications, Inc.(“B/HI”), the Company provides expert strategic marketing and publicity services to all of the major film studios, and many of the leading independent and digital content providers, A-list celebrity talent, including actors, directors, producers, celebrity chefs, social media influencers and recording artists. The Company also provides strategic marketing publicity services and creative brand strategies for prime hotel and restaurant groups and consumer brands. The strategic acquisitions of 42West, The Door, Shore Fire, Viewpoint, Be Social and B/HI bring together premium marketing services, including digital and social media marketing capabilities, with premium content production, creating significant opportunities to serve respective constituents more strategically and to grow and diversify the Company’s business. Dolphin’s content production business is a long established, leading independent producer, committed to distributing premium, best-in-class film and digital entertainment. Dolphin produces original feature films and digital programming primarily aimed at family and young adult markets.
Impact of COVID-19
On March 11, 2020, the World Health Organization categorized a novel coronavirus (COVID-19) as a pandemic, and it has spread throughout the United States. The outbreak of COVID-19 and public and private sector measures to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place have adversely affected the demand for certain of the services the Company offers resulting in decreased revenues and cash flows. One of our subsidiaries operates in the food and hospitality sector and has been negatively impacted by the orders to either suspend or reduce operations of restaurants and hotels. Another subsidiary represents talent, such as actors, directors and producers. The revenues from these clients has been negatively impacted by the suspension of content production. Conversely, the television and streaming consumption around the globe has increased as well as the demand for consumer products. Revenues from the marketing of these shows and products has somewhat offset the decrease in revenue from the sectors discussed above. The Company has taken steps such as freezes on hiring, staff reductions, salary reductions and cuts in non-essential spending to mitigate the effects of COVID-19 on the Company’s financial results.
Between April 19, 2020 and April 23, 2020, the Company and its subsidiaries received five separate unsecured loans for an aggregate amount of $2.8 million (the “PPP Loans”) under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). Through our acquisition of Be Social, the Company assumed a PPP Loan of $304,169. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments and covered utilities during the measurement period beginning on the date of first disbursement of the PPP Loans. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40% of the forgiven amount can be attributable to non-payroll costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the PPP Loans and qualifying for the forgiveness of the PPP Loans based on its adherence to the forgiveness criteria. The Company has not yet applied for forgiveness.
Depending on the extent and duration of the pandemic and the related economic impacts, COVID-19 may continue to impact our business and financial results, as well as significant judgements and estimates, including those related to goodwill and other asset impairments and allowances for doubtful accounts.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Dolphin, and all of its wholly owned subsidiaries, comprising Dolphin Films, Inc. (“Dolphin Films”), Dolphin SB Productions LLC, Dolphin Max Steel Holdings, LLC (“Max Steel Holdings”), Dolphin JB Believe Financing, LLC, Dolphin JOAT Productions, LLC, 42West, The Door, Viewpoint, Shore Fire, Be Social and B/HI.
7 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
The Company enters into relationships or investments with other entities, and in certain instances, the entity in which the Company has a relationship or investment may qualify as a variable interest entity (“VIE”). A VIE is consolidated in the financial statements if the Company is deemed to be the primary beneficiary of the VIE. The primary beneficiary is the party that has the power to direct activities that most significantly impact the activities of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE. The Company has included JB Believe, LLC formed on December 4, 2012 in the State of Florida in its condensed consolidated financial statements for the three months ended March 31, 2021 and 2020 as a VIE.
The unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Reclassifications
Reclassifications have been made to our unaudited condensed consolidated financial statements for the prior period to conform to classifications used in 2021.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates made by management in the preparation of the financial statements relate to the expected revenue and costs for investments in digital and feature film projects, estimates of sales returns and other allowances, provisions for doubtful accounts and impairment assessments for investment in feature film projects, goodwill and intangible assets. Actual results could differ materially from such estimates.
Additionally, the full impact of the COVID-19 outbreak is unknown and cannot be reasonably estimated. However, management has made appropriate accounting estimates on certain accounting matters, which include the allowance for doubtful accounts, carrying value of the goodwill and other intangible assets, carrying amount of certain convertible notes payable and embedded derivatives and warrant liabilities, based on the facts and circumstances available as of the reporting date. The Company’s future assessment of the magnitude and duration of the COVID-19 outbreak, as well as other factors, could result in material impacts to the Company’s financial statements in future reporting periods.
Update to Significant Accounting Policies
The Company’s significant accounting policies are detailed in "Note 3: Summary of Significant Accounting Policies" within Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. Significant changes to our accounting policies as a result of adopting ASU 2020-06 during the three months ended March 31, 2021 is discussed below:
Convertible Notes
On January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2020-06 that simplifies the accounting for convertible instruments. ASU 2020-06 (i) reduced the number of accounting models for convertible instruments, by eliminating the models that require separation of cash conversion or beneficial conversion features from the host and (ii) revised derivative scope exception and (iii) provided targeted improvements for EPS. The adoption of ASU 2020-06 did not have a material impact on the Company’s outstanding convertible debt instruments as of March 31, 2021.
Income Tax
The Company recorded an income tax benefit of $38,851 for the three months ended March 31, 2021. There was no income tax expense or benefit for the three ended March 31, 2020. The income tax benefit of $38,851 is due to a reduction of the valuation allowance against the deferred tax liability recorded as a result of the B/HI acquisition.
8 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Recent Accounting Pronouncements
Accounting Guidance Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. The guidance simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this new guidance on January 1, 2021 using the modified retrospective approach without a material impact on its condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12 to simplify the accounting for income taxes by removing certain exceptions and amending certain exceptions related to the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This ASU also clarifies and simplifies other aspects of the accounting for income taxes. This amended guidance was effective for the Company beginning January 1, 2021. The Company adopted this new guidance on January 1, 2021 without a material impact on its condensed consolidated financial statements
Accounting Guidance Not yet Adopted
In June 2016, the FASB issued new guidance on measurement of credit losses (ASU 2016-13, Measurement of Credit Losses on Financial Instruments) with subsequent amendments issued in November 2018 (ASU 2018-19) and April 2019 (ASU 2019-04). This update changes the accounting for credit losses on loans and held-to-maturity debt securities and requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. It is applicable to trade accounts receivable. The guidance is effective for fiscal years beginning after December 15, 2022 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted. The Company is in the process of evaluating the impact of the adoption of ASU 2016-13 on the Company's consolidated financial statements and disclosures.
NOTE 2 — GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP and contemplate the continuation of the Company as a going concern. The Company has suffered recurring losses, including a net loss of $5,271,985, for the three months ended March 31, 2021, and had an accumulated deficit of $103,244,026 as of March 31, 2021. As of March 31, 2021, the Company had a working capital deficit of $4,029,249 and therefore does not have adequate capital to fund its obligations as they come due or to maintain or grow its operations. In addition, several of our subsidiaries operate in industries that have been adversely affected by the government mandated work-from-home, stay-at-home and shelter-in-place orders as a result of the novel coronavirus COVID-19. As a result, the Company’s revenues have been negatively impacted by a reduction in the services we provide to clients operating in these industries. The Company has taken measures such as a freeze on hiring, salary reductions, staff reductions and cuts in non-essential spending to mitigate the reduction in revenues. The Company is dependent upon funds from the issuance of debt securities, securities convertible into shares of its common stock, par value $0.015, (“Common Stock”), sales of shares of Common Stock and financial support of certain shareholders. The continued spread of COVID-19 and uncertain market conditions may limit the Company’s ability to access capital. If the Company is unable to obtain funding from these sources within the next 12 months, it could be forced to curtail its business operations or liquidate.
9 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
These factors raise substantial doubt about the ability of the Company to continue as a going concern within one year after these condensed consolidated financial statements are issued. The condensed consolidated financial statements, of which these notes form a part, do not include any adjustments that might result from the outcome of these uncertainties. The Company’s management currently plans to raise any necessary additional funds through additional issuances of its Common Stock, securities convertible into its Common Stock and/or debt securities, as well as available bank and non-bank financing, or a combination of such financing alternatives. There is no assurance that the Company will be successful in raising additional capital. Any issuance of shares of Common Stock or securities convertible into Common Stock would dilute the equity interests of our existing shareholders, perhaps substantially. The Company currently has the rights to several scripts, including one currently in development for which it intends to obtain financing to produce and release following which it expects to earn a producer and overhead fee. There can be no assurances that such production, together with any other productions, will be commenced or released or that fees will be realized in future periods or at all. The Company is currently exploring opportunities to expand the services currently being offered by 42West, The Door, Viewpoint, Shore Fire, Be Social and B/HI while reducing expenses of their respective operations through synergies with the Company. There can be no assurance that the Company will be successful in expanding such services or reducing expenses.
NOTE 3 — GOODWILL AND INTANGIBLE ASSETS
As of March 31, 2021, in connection with its acquisitions of 42West, The Door, Viewpoint, Shore Fire, Be Social and B/HI, the Company has a balance of $20,098,451 of goodwill on its condensed consolidated balance sheet which management has assigned to the entertainment publicity and marketing segment. The Company accounts for goodwill in accordance with FASB ASC No. 350, Intangibles—Goodwill and Other (“ASC 350”). ASC 350 requires goodwill to be reviewed for impairment annually, or more frequently if circumstances indicate a possible impairment. The Company evaluates goodwill in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator.
The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its’ carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of the reporting unit is less than its’ carrying amount, management conducts a quantitative goodwill impairment test. This impairment test involves comparing the fair value of the reporting unit with its’ carrying value (including goodwill). The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows approach and the market approach, which utilizes comparable companies’ data. If the estimated fair value of the reporting unit is less than its carrying value, a goodwill impairment exists for the reporting unit and an impairment loss is recorded.
Goodwill
All of the Company’s goodwill is related to the entertainment, publicity and marketing segment. Changes in the carrying value of goodwill were as follows:
Balance as of December 31, 2020 | $ | 19,627,856 | |||
Measurement period adjustments | — | ||||
Business Acquisitions(1) | 470,595 | ||||
Balance as of March 31, 2021 | $ | 20,098,451 |
———————
(1) | Acquisition of B/HI during the three months ended March 31, 2021. |
Intangible Assets
10 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Intangible assets consisted of the following as of March 31, 2021 and December 31,2020:
March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||||||||||
Customer relationships | $ | 8,290,000 | $ | 4,057,653 | $ | 4,232,347 | $ | 8,130,000 | $ | 3,787,406 | $ | 4,342,593 | ||||||||||||
Trademarks and trade names | 4,490,000 | 1,450,286 | 3,039,714 | 4,440,000 | 1,330,535 | 3,109,465 | ||||||||||||||||||
Non-compete agreements | 690,000 | 635,000 | 55,000 | 630,000 | 630,000 | — | ||||||||||||||||||
$ | 13,470,000 | $ | 6,142,939 | $ | 7,327,061 | $ | 13,200,000 | $ | 5,747,941 | $ | 7,452,059 |
Amortization expense associated with the Company’s intangible assets for the three months ended March 31, 2021 and 2020 was $394,998 and $430,912, respectively. Amortization expense remaining relating to intangible assets for each of the years ended December 31, 2021 through 2025 is estimated at approximately $1.5 million, $1.3 million, $1.1 million, $1.0 million and $1.0 million, respectively.
NOTE 4 — MERGERS AND ACQUISITIONS
B/HI Communications, Inc.
On January 8, 2021, but made effective January 1, 2021, the Company acquired all of the issued and outstanding shares of B/HI, a California corporation, (the “B/HI Purchase”) pursuant to a share purchase agreement (the “B/HI Share Purchase Agreement”) between the Company and Dean G. Bender and Janice L. Bender, as co-trustees of the Bender Family Trust dated May 6, 2013 (collectively, the “B/HI Sellers). B/HI is an entertainment public relations agency that specializes in corporate and product communications programs for interactive gaming, esports, entertainment content and consumer product organizations.
The total consideration paid to the B/HI Seller in respect to the B/HI Purchase is $0.8 million of shares of Common Stock based on a 30-day trailing trading average closing price immediately prior to, but not including, the applicable payment date adjusted for working capital, cash targets and the B/HI indebtedness as defined in the B/HI Share Purchase Agreement. The shares of Common Stock will be issued upon the B/HI Sellers review of the working capital adjustment and final indebtedness calculation. The B/HI Sellers may also earn up to an additional $1.2 million of which 50% will be paid in cash and 50% will be paid in Common Stock upon achieving certain specified financial performance targets during the years ended December 31, 2021 and 2022. The B/HI Share Purchase Agreement contains customary representations, warranties, and covenants of the parties thereto. The Common Stock that will be issued as part of the consideration has not been registered under the Securities Act of 1933, as amended (the “Securities Act”).
The following table summarizes the provisional fair value of the consideration transferred:
Payments made to settle final indebtedness, net of minimum operating cash as defined in the B/HI Share Purchase Agreement | $ | 575,856 | ||
Provisional working capital adjustment | 192,986 | |||
Provisional amount of Common Stock to be issued to the B/HI Sellers | 31,158 | |||
$ | 800,000 |
As a condition to the B/HI Purchase, Dean Bender, one of the sellers and Shawna Lynch, a key employee of B/HI entered into employment agreements with the Company to continue as employees after the closing of the B/HI Purchase. Mr. Bender’s agreement is for a period of two years through December 31, 2022 and he will serve as Co-President of B/HI during that term. Ms. Lynch’s agreement is for a period of four years and may be renewed on the same terms for two successive two-year terms. Ms. Lynch will serve as Co-President of B/HI during the term of her agreement. Each of the employment agreements of Mr. Bender and Ms. Lynch define base compensation and contains provisions for termination including as a result of death or disability and entitles the employee to vacations and to participate in all employee benefit plans offered by the Company.
11 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
The following table summarizes the provisional fair values of the assets acquired and liabilities assumed by the B/HI Purchase. Amounts in the table are estimates that may change, as described below.
Cash | $ | 65,465 | ||
Accounts receivable | 154,162 | |||
Other current assets | 15,262 | |||
Property, equipment and leasehold improvements | 24,639 | |||
Right-of-use asset | 1,044,864 | |||
Other assets | 23,617 | |||
Intangibles | 270,000 | |||
Total identifiable assets acquired | 1,598,009 | |||
Accrued payable | (104,724 | ) | ||
Accrued expenses and other current liabilities | (259,936 | ) | ||
Lease liability | (1,044,864 | ) | ||
Deferred revenue | (56,994 | ) | ||
Line of credit | (456,527 | ) | ||
Deferred tax liability | (38,851 | ) | ||
Loans payable | (75,550 | ) | ||
Total liabilities assumed | (2,037,446 | ) | ||
Net identifiable liabilities acquired | (439,437 | ) | ||
Goodwill | 470,595 | |||
Net assets acquired | $ | 31,158 |
Unaudited Pro Forma Consolidated Statements of Operations
For the three months ended March 31, 2021, the Company’s statement of operations includes revenue of $608,432 and net income of $18,908. The following represents the Company’s unaudited pro forma consolidated operations after giving effect to the Be Social and B/HI acquisitions for the three months ended March 31, 2020 as if the Company had completed both acquisitions on January 1, 2020 and its results had been included in the consolidated results of the Company for the three months ending March 31, 2020.
March 31, 2020 | ||||
Revenues | $ | 7,782,783 | ||
Net income | 1,789,627 |
12 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of the acquisitions to reflect the amortization that would have been charged, assuming the intangible assets had been recorded on January 1, 2020.
The impact of the acquisition of Be Social and B/HI on the Company’s actual results for periods following the acquisition may differ significantly from that reflected in this unaudited pro forma information for a number of reasons. As a result, this unaudited pro forma information is not necessarily indicative of what the combined company’s financial condition or results of operations would have been had the acquisitions been completed on January 1, 2020, as provided in this pro forma financial information. In addition, the pro forma financial information does not purport to project the future financial condition and results of operations of the combined company.
NOTE 5 — CAPITALIZED PRODUCTION COSTS, ACCOUNTS RECEIVABLES AND OTHER CURRENT ASSETS
Capitalized Production Costs
Capitalized production costs include costs of scripts, fees for casting agents and other development costs for projects that are in development but have not been produced. Capitalized production costs are stated on the Company’s condensed consolidated balance sheets at the lower of unamortized costs or net realizable value. The Company has a balance of $325,866 and $271,139 in capitalized production costs associated with these scripts and development costs as of March 31, 2021 and December 31, 2020, respectively. The Company has assessed events and changes in circumstances that would indicate whether the Company should assess if the fair value of the productions is less than the unamortized costs capitalized and did not identify indicators of impairment.
The Company did not generate any revenue from its content production segment during the three months ended March 31, 2021 and 2020.
13 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Accounts Receivables
The Company’s trade accounts receivables related to its entertainment publicity and marketing business are recorded at amounts billed to customers, and presented on the balance sheet, net of the allowance for doubtful accounts. The allowance is determined by various factors, including the age of the receivables, current economic conditions, historical losses and other information management obtains regarding the financial condition of customers. As of March 31, 2021 and December 31, 2020, the Company had accounts receivable balances of $4,708,359 and $5,027,101, respectively, net of allowance for doubtful accounts of $621,104 and $653,272, respectively, related to its entertainment publicity and marketing segment.
Other Current Assets
The Company had a balance of $323,020 and $231,890 in other current assets on its condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, these amounts were primarily composed of the following:
Prepaid expenses – The Company records in other assets on its condensed consolidated balance sheets amounts prepaid for insurance premiums. The amounts are amortized on a monthly basis over the life of the policies.
Income tax receivable – The Company is owed an overpayment from certain taxes paid for 2020. As of March 31, 2021 and December 31, 2020, the Company had a balance of $37,200 from income tax receivable.
NOTE 6 — PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvement consists of:
March
31, 2021 | December
31, 2020 | |||||||
Furniture and fixtures | $ | 900,451 | $ | 883,491 | ||||
Computers and equipment | 1,717,224 | 1,759,659 | ||||||
Leasehold improvements | 770,629 | 770,629 | ||||||
3,388,304 | 3,413,779 | |||||||
Less: accumulated depreciation and amortization | (2,651,308 | ) | (2,613,708 | ) | ||||
Property, equipment and leasehold improvements, net | $ | 736,996 | $ | 800,071 |
The Company depreciates furniture and fixtures over a useful life of between five and seven years, computer and equipment over a useful life of between three and five years and leasehold improvements are amortized over the remaining term of the related leases. The Company recorded depreciation and amortization expense of $87,714 and $90,091 for the three months ended March 31, 2021 and 2020, respectively.
NOTE 7 — DEBT
Total debt of the Company was as follows as of March 31, 2021 and December 31, 2020:
Debt Type | As of
March 31, 2021 | As of
December 31, 2020 | ||||||
Convertible notes payable | $ | 150,000 | $ | 1,445,000 | ||||
Convertible notes payable - fair value option | 1,298,740 | 1,527,293 | ||||||
Nonconvertible notes payable | 1,250,656 | 1,273,394 | ||||||
Term loan | 800,260 | 900,292 | ||||||
Payroll Protection Program loans | 3,099,869 | 3,099,869 | ||||||
Total debt | $ | 6,599,525 | $ | 8,245,848 | ||||
Less current portion of debt | (2,432,633 | ) | (2,909,479 | ) | ||||
Noncurrent portion of debt | $ | 4,166,892 | $ | 5,336,369 |
14 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
The table below details the maturity dates for the Company’s debt as of March 31, 2021:
Debt Type | Maturity Date | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | |||||||||||||||||||
Convertible notes payable | Ranging between March 2023 and March 2030 | $ | — | $ | — | $ | 150,000 | $ | — | $ | — | $ | 500,000 | |||||||||||||
Nonconvertible promissory notes | Ranging between June 2021 and December 2023 | 824,010 | 307,685 | 118,960 | — | — | — | |||||||||||||||||||
Term loan Bank United | March 31, 2023 | 300,098 | 400,130 | 100,032 | — | — | — | |||||||||||||||||||
Payroll Protection Program loans | Two years after the effective date which range between April 22, 2020 and May 5, 2020 | 582,438 | 1,549,935 | 967,496 | — | — | — | |||||||||||||||||||
$ | 1,706,546 | $ | 2,257,750 | $ | 1,336,488 | $ | — | $ | — | $ | 500,000 |
Production Service Agreement
On February 20, 2020, the Company received notification from the lender of the Production Service Agreement that the Max Steel VIE did not owe any debt to the lender. As a result, the Company recorded a gain on extinguishment of debt in the amount of approximately $3.3 million during the three months ended March 31, 2020.
Convertible Notes Payable
On March 30, 2021, December 1, 2020, October 26, 2020, September 11, 2020 and March 18, 2020, the Company issued convertible promissory notes in the aggregate amount of $1,595,000. The convertible promissory notes bear interest at a rate of 10% per annum and mature on the second anniversary of their respective issuances. The balance of each convertible promissory note and any accrued interest may be converted at the noteholder’s option at any time at a purchase price based on either a 30-day or 90-day average closing market price per share of the Common Stock. During the three months ended March 31, 2021, the holders of five of the convertible notes converted the principal balance of $1,445,000 plus accrued interest of $8,611 into 381,601 shares of Common Stock at conversion prices ranging between $3.69 and $3.96 per share. During the three months ended March 31, 2021 and 2020, the Company recorded interest expense of $27,538 and $704, respectively, related to these convertible notes payable. The Company made interest payments of $17,815 during the three months ended March 31, 2021 related to the nonconvertible promissory notes. As of March 31, 2021 and December 31, 2020, the principal balance of the convertible promissory notes of $150,000 and $1,445,000, respectively, was recorded in noncurrent liabilities under the caption convertible promissory notes on the Company’s condensed consolidated balance sheets.
15 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Convertible Notes Payable at fair value
On January 3, 2020, March 4, 2020 and March 25, 2020, the Company entered into three separate securities purchase agreements and issued three convertible promissory notes with aggregate principal amounts of $2,360,000 at a purchase price of $2,200,000 (the “January 3rd Note”, the “March 4th Note” and the “March 25th Note”, respectively). The January 3rd Note contains an original issue discount of $100,000 and the March 24th Note contains an original issue discount of $50,000 and transaction fees of $10,000 were deducted from the proceeds of the convertible note. The January 3rd Note matures on January 3, 2022, the March 4th Note matures on March 4, 2030 and the March 25th Note matures on March 25, 2021. The January 3rd Note and March 4th Note were issued with warrants (“Warrants E, F, G, H and I”) to purchase up to 186,072 shares of Common Stock at a purchase price of $3.91 per share. See Note 14 for further discussion on the warrants. The January 3rd Note may be converted at any time into shares of Common Stock at a conversion price equal to the lower of (A) $5.25 per share and (B) the lower of (i) the lowest intraday sales price of Common Stock on the applicable conversion date and (ii) the average of the three lowest closing sales prices of Common Stock during the twelve consecutive trading days including the trading day immediately preceding the conversion date but under no circumstances lower than $3.91 per share. The March 4th Note is convertible at a fixed conversion price of $3.91 per share and the March 4th Note is convertible at fixed conversion price of $3.90 per share. The March 4, 2020 convertible promissory note with a principal amount of $500,000 bears interest at a rate of 8% per annum, payable monthly. The Company recorded interest expense of $9,863 in its condensed consolidated statement of operations and made interest payments of $9,863 during the three months ended March 31, 2021, related to the March 4th Note. The Company elected the fair value option to account for these convertible promissory notes. As such, the estimated fair value of each note was recorded on their respective issue dates. At each balance sheet date the Company records the fair value of the convertible promissory notes with any changes in the fair value recorded in the condensed consolidated statement of operations.
On each of July 14, 2020 and August 17, 2020, the January 3rd Note converted an aggregate principal amount of $760,000 into 172,181 shares using a conversion prices ranging between $4.38 and $4.45 per share. On each of January 13, 2021, and January 27, 2021, The January 3rd Note and the March 25th Note, with an aggregate principal balance of $1,100,000 were converted into 281,554 shares of Common Stock at purchase prices ranging between $3.90 and $3.91 per share. As of March 31, 2021, the Company had a balance of $1,298,740 in noncurrent liabilities recorded on its condensed consolidated balance sheets related to the fair value of the March 4th Note. As of March 31, 2021, the January 3rd Note and the March 25th Note had been fully converted into shares of Common Stock. As of December 31, 2020, the Company had a balance of $580,000 in current liabilities and $947,293 in noncurrent liabilities on its condensed consolidated balance sheet related to these convertible notes at fair value. For the three months ended March 31, 2021 and 2020, the Company recorded a loss in fair value of $(871,449) and a gain in fair value of $147,459, respectively, on its condensed consolidated statement of operations.
Nonconvertible Promissory Notes
On November 5, 2019, November 30, 2017 and June 14, 2017, the Company issued unsecured promissory notes in the aggregate amount of $950,000. The promissory notes bear interest at a rate of 10% per annum and had initial maturity dates ranging between one and two years of the initial issuance date. The maturity dates have been extended and the promissory notes now have maturity dates ranging between November 5, 2021 and November 30, 2022.
On December 10, 2018, the Company agreed to exchange a promissory note in the amount of $300,000, including accrued interest of $192,233 for a new unsecured promissory note in the amount of $492,233 that matures on December 10, 2023. This promissory note bears interest of 10% per annum and can be prepaid without a penalty at any time prior to its maturity. The note requires monthly repayments of principal and interest in the amount of $10,459 throughout the life of the note.
As of March 31, 2021 and December 30, 2020, the Company had a balance of $1,049,935 and $846,749, respectively, recorded as current liabilities and $200,721 and $426,645, respectively in noncurrent liabilities on its condensed consolidated balance sheets related to these nonconvertible promissory notes. The Company recorded interest expense of $31,659 and $33,759 for the three months ended March 31, 2021 and 2020 related to these nonconvertible promissory notes. The Company made interest payments of $31,659 during the three months ended March 31, 2021 related to the nonconvertible promissory notes.
16 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Term Loan
On March 31, 2020, 42West and The Door, as co-borrowers, entered into a business loan agreement with Bank United, N.A. to convert the balance of a 42West line of credit of $1,200,390 into a three-year term loan (the “Term Loan”). The Term Loan bears interest at a rate of 0.75% points over the Lender’s Prime Rate and matures on March 15, 2023. As of March 31, 2021, the outstanding balance on the Term Loan was $800,260. The Company made interest payments in the amount of $8,681 related to the term loan during the three months ended March 31, 2021.
The Term Loan contains customary affirmative covenants, including covenants regarding maintenance of a maximum debt to total net worth ratio of at least 4.0:1.0 and a minimum fixed charge coverage of 1.06x based on fiscal year-end audit to be calculated as provided in the Term Loan. Further, the Term Loan contains customary negative covenants, including those that, subject to certain exceptions, restrict the ability of 42West and The Door to incur additional indebtedness, grant liens, make loans, investments or certain acquisitions, or enter into certain types of agreements. Upon the occurrence of an event of default, the bank may accelerate the maturity of the loan and declare the unpaid principal balance and accrued but unpaid interest immediately due and payable. In the event of 42West and The Door’s insolvency, such outstanding amounts will automatically become due and payable. 42West and The Door may prepay any amounts outstanding under the Term Loan without penalty. The bank tests for compliance with debt covenants on an annual basis based on the financial statements of 42West and The Door as of and for the year ended December 31. Based on current economic factors and uncertainties due to COVID-19, the Company believes it is out of compliance with certain debt covenants as of and for the three months ended March 31, 2021. As such, the Company classified the entire balance of $800,260 of the Term Loan in current liabilities on its condensed consolidated balance sheet.
Payroll Protection Program Loan
Between April 19, 2020 and April 23, 2020, the Company and four of its subsidiaries executed notes and received an aggregate amount of $2,795,700 from five PPP Loans from BankUnited, N.A., under the PPP which was established under the CARES Act and is administered by the U.S. Small Business Administration. Be Social, which the Company acquired on August 17, 2020, received a PPP Loan in the amount of $304,169 prior to the acquisition. Loans obtained through the PPP are eligible to be forgiven as long as the proceeds are used for qualifying purposes and certain other conditions are met. The receipt of these funds, and the forgiveness of the loan is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its adherence to the forgiveness criteria. In June 2020, Congress passed the Payroll Protection Program Flexibility Act that made several significant changes to PPP loan provisions, including providing greater flexibility for loan forgiveness. The Company used the proceeds from the PPP Loans to fund payroll costs in accordance with the relevant terms and conditions of the CARES Act. The Company is following the government guidelines and tracking costs to insure 100% forgiveness of the loan. To the extent it is not forgiven, the Company would be required to repay that portion at an interest rate of 1% over a period of two years.
As of March 31, 2021, the current and noncurrent portion of the loan were $582,438 and $2,517,431, respectively.
NOTE 8 — LOANS FROM RELATED PARTY
Dolphin Entertainment, LLC (“DE LLC”), an entity wholly owned by the Company’s CEO, William O’Dowd, previously advanced funds for working capital to Dolphin Films. During 2016, Dolphin Films entered into a promissory note with DE LLC (the “DE LLC Note”) in the principal amount of $1,009,624. Under the terms of the DE LLC Note, the CEO may make additional advancements to the Company, as needed, and may be repaid a portion of the loan, which is payable on demand and bears interest at 10% per annum. Included in the balance of the DE LLC Note are certain script costs and other payables totaling $594,315 that were owed to DE LLC.
For the three months ended March 31, 2021, the Company did not repay any principal balance of the DE LLC Note. For the three months ended March 31, 2021 and 2020, the Company recorded interest expense of $27,317 and $27,621, respectively, related to the DE LLC Note. As of March 31, 2021 and December 31, 2020, the Company had a principal balance of $1,107,873 and accrued interest of $54,000 and $27,317, respectively, relating to the DE LLC Note on its condensed consolidated balance sheets.
17 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
NOTE 9 — FAIR VALUE MEASUREMENTS
Put Rights
In connection with the 42West acquisition on March 30, 2017, the Company entered into put agreements, pursuant to which it granted Put Rights to the sellers and certain 42West employees. During the three months ended March 31, 2021, the sellers and certain employees exercised their Put Rights for an aggregate amount of 22,867 shares of Common Stock and were paid $260,900 for Put Rights that were exercised during 2020. An additional $300,000 of put rights exercised in 2020 were converted into 77,519 shares of Common Stock during the three months ended March 31, 2021. During the three months ended March 31, 2020, the sellers exercised their Put Rights, for an aggregate amount of 35,504 shares of Common Stock. During the three months ended March 31, 2020, the Company paid $375,000 related to Put Rights that were exercised of which $275,000 were exercised in December 2019. As of March 31, 2021, $1,054,237 was due to the sellers of 42West and certain 42West employees from the exercise of these Put Rights.
The Company records the fair value of the liability in the condensed consolidated balance sheets under the caption “Put Rights” and records changes to the liability against earnings or loss under the caption “Changes in fair value of put rights” in the condensed consolidated statements of operations. The carrying amount at fair value of the aggregate liability for the Put Rights recorded on the condensed consolidated balance sheets at March 31, 2021 and December 31, 2020 was $1,054,237 and $1,544,029, respectively. Due to the change in the fair value of the Put Rights for the period in which the Put Rights were outstanding for the three months ending March 31, 2021 and 2020, the Company recorded a loss of $71,106 and a gain of $1,470,740, respectively, in the condensed consolidated statement of operations.
The Company utilized the Black-Scholes Option Pricing Model, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the Put Rights reflect management’s own assumptions about the assumptions that market participants would use in valuing the Put Rights as of December 31, 2020.
The following is a reconciliation of the fair value of the Put Rights from December 31, 2020 to March 31, 2021:
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020 | $ | 1,544,029 | ||
Put rights exercised in December 2020 paid in January 2021 | (260,900 | ) | ||
Loss in fair value reported in condensed consolidated the statement of operations | 71,106 | |||
Put rights converted into common stock | (300,000 | ) | ||
Ending fair value of put rights reported in the condensed consolidated balance sheet at March 31, 2021 | $ | 1,054,235 |
Contingent Consideration
Contingent Consideration - The Door
In connection with the Company’s acquisition of The Door, the Door Members have the potential to earn the contingent consideration, comprising up to 1,538,462 shares of Common Stock, based on a purchase price of $3.25, and up $2,000,000 in cash on achievement of adjusted net income targets based on the operations of The Door over the four-year period beginning January 1, 2018.
The Company records the fair value of the liability in the condensed consolidated balance sheets under the caption “Contingent Consideration” and records changes to the liability against earnings or loss under the caption “Changes in fair value of contingent consideration” in the condensed consolidated statements of operations. The fair value of the contingent consideration on the date of the acquisition of The Door was $1,620,000. The carrying amount at fair value of The Door liability for the contingent consideration recorded on the condensed consolidated balance sheet at March 31, 2021 and December 31, 2020 is $740,000 and $370,000, respectively. Due to the change in the fair value of the contingent consideration for the period in which the contingent consideration was outstanding during the three months ended March 31, 2021 and 2020, the Company recorded a loss on the contingent consideration of $370,000 and a gain of $103,000, respectively, in the condensed consolidated statement of operations.
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DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
The Company utilized a Monte Carlo Simulation model, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the contingent consideration reflect management’s own assumptions about the assumptions that market participants would use in valuing the contingent consideration as of the acquisition date.
The Company determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:
Inputs | As of
March 31, 2021 | As of
December 31, 2020 | ||||||
Risk Free Discount Rate (based on US government treasury obligation with a term similar to that of the contingent consideration) | 0.06 | % | 0.16 | % | ||||
Annual Asset Volatility Estimate | 82.5 | % | 60.0 | % |
For the contingent consideration, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020 | $ | 370,000 | ||
Loss in fair value reported in the condensed consolidated statement of operations | 370,000 | |||
Ending fair value balance reported in the condensed consolidated balance sheet at March 31, 2021 | $ | 740,000 |
Contingent Consideration - Be Social
In connection with the Company’s acquisition of Be Social, the seller of Be Social has the potential to earn up to $800,000 of contingent consideration, of which 62.5% is payable in cash, and 37.5% in shares of Common Stock, upon achievement of adjusted net income targets based on the operations of Be Social over the fiscal years ending December 31, 2022 and 2023.
The Company records the fair value of the liability in the condensed consolidated balance sheets under the caption “Contingent Consideration” and records changes to the liability against earnings or loss under the caption “Changes in fair value of contingent consideration” in the condensed consolidated statements of operations. The fair value of the contingent consideration on the Be Social Closing Date was $145,000. The carrying amount at fair value of contingent consideration related to Be Social recorded on the condensed consolidated balance sheet at March 31, 2021 and December 31, 2020 was $155,000 and $160,000, respectively. Due to the change in the fair value of the contingent consideration for the period in which the contingent consideration was outstanding during the three months ended March 31, 2021, the Company recorded a gain on the contingent consideration of $5,000 in the condensed consolidated statement of operations.
The Company utilized a Monte Carlo Simulation model, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the contingent consideration reflect management’s own assumptions about the assumptions that market participants would use in valuing the contingent consideration as of the acquisition date.
The Company determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:
Inputs | As of
March 31, 2021 | As of
December 31, 2020 | ||||||
Risk Free Discount Rate (based on US government treasury obligation with a term similar to that of the contingent consideration) | 0.14%-0.30 | % | 0.13% - 0.17 | % | ||||
Annual Asset Volatility Estimate | 87.5 | % | 73.5 | % |
For the contingent consideration, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020 | $ | 160,000 | ||
Gain in fair value reported in the condensed consolidated statement of operations | (5,000 | ) | ||
Ending fair value balance reported in the condensed consolidated balance sheet at March 31, 2021 | $ | 155,000 |
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DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Contingent Consideration – B/HI
In connection with the Company’s acquisition of B/HI, the seller of B/HI has the potential to earn up to $1,200,000 of contingent consideration, of which 50% is payable in cash, and 50% in shares of Common Stock, upon achievement of adjusted net income targets based on the operations of B/HI over the fiscal years ending December 31, 2021 and 2022. Management estimated the fair value of the contingent consideration to be a di minimis amount as of March 31, 2021.
Fair Value Option Election – Convertible notes payable and freestanding warrants
2020 convertible notes payable
The Company issued the January 3rd Note with a principal amount of $1.3 million at a purchase price of $1.2 million. This January 3rd Note is accounted for under the ASC 825-10-15-4 FVO election. Under the FVO election the financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. As provided for by ASC 825-10-50-30(b), the estimated fair value adjustment is presented as a single line item within other income (expense) in the accompanying condensed consolidated statement of operations under the caption “change in fair value of convertible notes and derivative liabilities”.
For the January 3rd Note, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020 | $ | 436,155 | ||
Loss in fair value reported in the condensed consolidated statement of operations | 103,845 | |||
Exercised on January 12, 2021 | (540,000 | ) | ||
Ending fair value balance reported on the condensed consolidated balance sheet at March 31, 2021 | $ | — |
The estimated fair value of the January 3rd Note as of December 31, 2020, was computed using a Monte Carlo simulation, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the note reflects management’s own assumptions about the assumptions that market participants would use in valuing the note as of the acquisition date and subsequent reporting periods.
The variable conversion price is the lower of (A) $5.25 per share and (B) the lower of (i) the lowest intraday sales price of Common Stock on the applicable conversion date and (ii) the average of the three lowest closing sales prices of Common Stock during the twelve consecutive trading days including the trading day immediately preceding the conversion date but under no circumstances lower than $3.91 per share.
In addition to this note, the Company issued two other convertible notes during the year ending December 31, 2020 for which it elected FVO. The March 4th Note was issued for a face value of $500,000 and the March 25th Note was issued for a face value of $560,000. Under the FVO election the financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. As provided for by ASC 825-10-50-30(b), the estimated fair value adjustment is presented as a single line item within other income (expense) in the accompanying condensed consolidated statement of operations under the caption “change in fair value of convertible notes and derivative liabilities”.
For the March 4th Note, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020 | $ | 511,136 | ||
Loss in fair value reported in the condensed consolidated statements of operations | 787,604 | |||
Ending fair value balance reported on the condensed consolidated balance sheet at March 31, 2021 | $ | 1,298,740 |
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DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
The estimated fair value of the March 4th Note as of December 31, 2020 and as of March 31, 2021, was computed using a Black-Scholes simulation of the present value of its cash flows using a synthetic credit rating analysis and a required rate of return, using the following assumptions:
Fair Value Assumption - 2020 Convertible Note (March 4 Note) | December
31, 2020 | March
31, 2021 | ||||||
Face value principal payable | $ | 500,000 | $ | 500,000 | ||||
Original conversion price | $ | 3.91 | $ | 3.91 | ||||
Value of Common Stock | $ | 3.40 | $ | 12.71 | ||||
Expected term (years) | 9.18 | 8.93 | ||||||
Volatility | 100 | % | 100 | % | ||||
Risk free rate | 0.93 | % | 1.74 | % |
For the March 25th Note, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020 | $ | 580,000 | ||
Gain in fair value reported in the condensed consolidated statement of operations | (20,000 | ) | ||
Exercised on January 12 and January 27, 2021 | (560,000 | ) | ||
Ending fair value balance reported on the condensed consolidated balance sheet at March 31, 2021 | $ | — |
The estimated fair value of the March 25th Note was computed using a Monte Carlo simulation, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the March 25th Note reflects management’s own assumptions about the assumptions that market participants would use in valuing the note as of the acquisition date and subsequent reporting periods.
Warrants
In connection with the January 3rd Note, the Company issued warrants to purchase up to 41,518 shares of its Common Stock on January 3, 2020, as well as on each of the second, fourth, and six month anniversaries of the January 3rd Note issuance date (collectively “Series E, F, G, and H Warrants”). During the three months ended March 31, 2021, the Series E, F, G, and H Warrants were all converted into 146,027 shares via a cashless exercise formula pursuant to the warrant agreement.
For the warrants, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
Series E, F, G and H Warrants: | Fair Value | |||
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020 | $ | 400,000 | ||
Loss in fair value reported in the condensed consolidated statement of operations | 2,397,877 | |||
Conversion of warrants on March 24, 2021 | (2,797,877 | ) | ||
Ending fair value balance reported on the condensed consolidated balance sheet at March 31, 2021 | $ | — |
In connection with the March 4th Note issued, the Company issued a Series “I” Warrant to purchase up to 100,000 shares of Common Stock at a purchase price of $3.91 per share.
For the Series “I” Warrant, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
Series “I” Warrant: | Fair Value | |||
2020 Series “I” Warrants derivative liability - December 31, 2020 | $ | 50,000 | ||
Loss in fair value reported in the condensed consolidated statement of operations | 165,000 | |||
2020 Series “I” Warrants derivative liability - March 31, 2021 | $ | 215,000 |
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DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
The estimated fair value of the Series “I” Warrants was computed using a Black-Scholes valuation model, using the following assumptions:
Fair Value Assumption - Series “I” Warrants | December
31, 2020 | March
31, 2021 | ||||||
Aggregate Fair Value | $ | 50,000 | $ | 215,000 | ||||
Exercise Price per share | $ | 3.91 | $ | 3.91 | ||||
Value of Common Stock | $ | 3.40 | $ | 12.71 | ||||
Expected term (years) | 4.67 | 4.43 | ||||||
Volatility | 100 | % | 100 | % | ||||
Dividend yield | 0 | % | 0 | % | ||||
Risk free rate | 0.31 | % | 0.78 | % |
NOTE 10 — CONTRACT LIABILITIES
The Company receives advance payments from customers for public relations projects or as deposits for promotional or brand-support video projects, that it records as contract liabilities. Once the work is performed or the projects are delivered to the customer, the contract liabilities are deemed earned and recorded as revenue. Advance payments received are generally for short duration and are recognized once the performance obligation of the contract is met. As of March 31, 2021 and December 31, 2020, the Company had balances of $2,928,797 and $1,855,209, respectively, in contract liabilities in its condensed consolidated balance sheets.
NOTE 11 —VARIABLE INTEREST ENTITIES
VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses or the right to receive the residual returns of the entity. The most common type of VIE is a special-purpose entity (“SPE”). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. The legal documents that govern the transaction specify how the cash earned on the assets must be allocated to the SPE’s investors and other parties that have rights to those cash flows. SPEs are generally structured to insulate investors from claims on the SPE’s assets by creditors of other entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (1) the power to direct the activities of an entity that most significantly impact the VIE’s economic performance; and (2) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Company considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities.
To assess whether the Company has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity investments, servicing fees, and derivative or other arrangements deemed to be variable interests in the VIE. This assessment requires that the Company apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.
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DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
The Company evaluated the entities in which it did not have a majority voting interest and determined that it had (1) the power to direct the activities of the entities that most significantly impact their economic performance and (2) had the obligation to absorb losses or the right to receive benefits from these entities. As such the financial statements of JB Believe, LLC are consolidated in the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, and in the condensed consolidated statements of operations and statements of cash flows presented herein for the three months ended March 31, 2021 and 2020. This entity was previously under common control and has been accounted for at historical costs for all periods presented.
JB Believe LLC | ||||||||||||
(in USD) | As of
and for the three ended March 31, 2021 | As of
December 31, 2020 | As of
and for the three ended March 31, 2020 | |||||||||
Assets | $ | 61,151 | $ | 61,151 | $ | 190,347 | ||||||
Liabilities | $ | (6,301,314 | ) | $ | (6,559,567 | ) | $ | (6,749,914 | ) | |||
Revenues | $ | — | $ | n/a | $ | — | ||||||
Expenses | $ | — | $ | n/a | $ | — |
The Company performs ongoing reassessments of (1) whether entities previously evaluated under the majority voting-interest framework have become VIEs, based on certain triggering events, and therefore would be subject to the VIE consolidation framework, and (2) whether changes in the facts and circumstances regarding the Company’s involvement with a VIE cause the Company’s consolidation conclusion to change. The consolidation status of the VIEs with which the Company is involved may change as a result of such reassessments. Changes in consolidation status are applied prospectively with assets and liabilities of a newly consolidated VIE initially recorded at fair value unless the VIE is an entity which was previously under common control, which in that case is consolidated based on historical cost. A gain or loss may be recognized upon deconsolidation of a VIE depending on the amounts of deconsolidated assets and liabilities compared to the fair value of retained interests and ongoing contractual arrangements.
JB Believe LLC, an entity owned by Believe Film Partners LLC, of which the Company owns a 25% membership interest, was formed for the purpose of recording the production costs of the motion picture “Believe”. The Company was given unanimous consent by the members to enter into domestic and international distribution agreements for the licensing rights of the motion picture, Believe, until such time as the Company had been repaid $3,200,000 for the investment in the production of the film and $5,000,000 for the P&A to market and release the film in the US. The Company has not been repaid these amounts and as such is still in control of the distribution of the film. For the three months ended March 31, 2021 and 2020, the Company did not record any revenues related to the distribution of Believe. The capitalized production costs related to Believe were either amortized or impaired in previous years. JB Believe LLC’s primary liability is to the Company which it owes $6,301,314, which eliminates in consolidation.
NOTE 12 — STOCKHOLDERS’ EQUITY
A. | Preferred Stock |
The Company’s Amended and Restated Articles of Incorporation authorize the issuance of 10,000,000 shares of 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.
23 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
On July 6, 2017, the Company amended its Articles of Incorporation to designate 50,000 preferred shares as Series C with a $0.001 par value which may be issued only to an “Eligible Series C Preferred Stock Holder”. Pursuant to the Certificate of Designation of the Series C, each share of Series C will be convertible into one share of Common Stock, subject to adjustment for each issuance of Common Stock (but not upon issuance of common stock equivalents) that occurred, or occurs, from the date of issuance of the Series C (the “issue date”) until the fifth (5th) anniversary of the issue date (i) upon the conversion or exercise of any instrument issued on the issued date or thereafter issued (but not upon the conversion of the Series C), (ii) upon the exchange of debt for shares of Common Stock, or (iii) in a private placement, such that the total number of shares of Common Stock held by an “Eligible Class C Preferred Stock Holder” (based on the number of shares of Common Stock held as of the date of issuance) will be preserved at the same percentage of shares of Common Stock outstanding held by such Eligible Class C Preferred Stock Holder on such date. An Eligible Class C Preferred Stock Holder means any of (i) DE LLC for so long as Mr. O’Dowd continues to beneficially own at least 90% and serves on the board of directors or other governing entity, (ii) any other entity in which Mr. O’Dowd beneficially owns more than 90%, or a trust for the benefit of others, for which Mr. O’Dowd serves as trustee and (iii) Mr. O’Dowd individually. Series C became convertible by the Eligible Class C Preferred Stock Holder upon the Company satisfying one of the “optional conversion thresholds”: (i) EBITDA of more than $3.0 million in any calendar year, (ii) production of two feature films, (iii) production and distribution of at least three web series, (iv) theatrical distribution in the United States of one feature film, or (v) any combination thereof that is subsequently approved by a majority of the independent directors of the Board based on the strategic plan approved by the Board. At a meeting of the Board on November 12, 2020, a majority of the independent directors of the Board determined that the “optional conversion threshold” had been met. As a result, the Series C became immediately convertible and as of March 31, 2021 is convertible into 4,738,940 shares of Common Stock, subject to the restriction discussed below. Additionally, DE LLC, as the holder of the Series C is entitled to 14,216,819 votes, which are equal to approximately 65% of the voting securities of the Company.
At the meeting of the Board on November 12, 2020, the Board and Mr. O’Dowd agreed to restrict the conversion of the Series C until the Board approved its conversion. Therefore, on November 16, 2020, the Company and DE, LLC entered into a Stock Restriction Agreement pursuant to which the conversion of the Series C is prohibited until such time as a majority of the independent directors of the Board approves the removal of the prohibition. The Stock Restriction Agreement also prohibits the sale or other transfer of the Series C until such transfer is approved by a majority of the independent directors of the Board. The Stock Restriction Agreement shall terminate upon a Change of Control (as such term is defined in the Stock Restriction Agreement) of the Company.
The Certificate of Designation also provides for a liquidation value of $0.001 per share and dividend rights of the Series C on parity with the Company’s Common Stock.
B. | Common Stock |
As of March 31, 2021 and December 31, 2020, the Company had 7,605,477 and 6,618,785 shares of Common Stock issued and outstanding, respectively. During the three months ended March 31, 2021, the Company issued (i) 663,155 shares of Common Stock related to conversion of convertible notes payable; (ii) 103,245 shares related to the acquisition of Be Social; (iii) 77,519 shares exchanged for 6,507 Put Rights; (iv) 146,027 shares related to the cashless exercise of warrants and (v) 3,254 shares purchased in exchange for Put Rights.
24 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
NOTE 13 — (LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss) earnings per share:
Three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Numerator | ||||||||
Net (loss) income | $ | (5,271,985 | ) | $ | 2,073,847 | |||
Deemed dividend attributable to participating securities | — | (369,557 | ) | |||||
Net (loss) income attributable to Dolphin Entertainment common stock shareholders and numerator for basic earnings per share | (5,271,985 | ) | 1,704,290 | |||||
Change in fair value of put rights | — | (1,470,740 | ) | |||||
Interest expense | — | 52,566 | ||||||
Numerator for diluted (loss) earnings per share | $ | (5,271,985 | ) | $ | 286,116 | |||
Denominator | ||||||||
Denominator for basic EPS - weighted-average shares | 7,267,297 | 4,099,713 | ||||||
Effect of dilutive securities: | ||||||||
Put rights | — | 879,665 | ||||||
Convertible notes payable | — | 697,619 | ||||||
Denominator for diluted EPS - adjusted weighted-average shares | 7,267,297 | 5,676,996 | ||||||
Basic (loss) earnings per share | $ | (0.73 | ) | $ | 0.40 | |||
Diluted (loss) earnings per share | $ | (0.73 | ) | $ | 0.05 |
Basic (loss) earnings per share is computed by dividing (loss) income attributable to the shareholders of Common Stock (the numerator) by the weighted-average number of shares of Common Stock outstanding (the denominator) for the period. Diluted (loss) income per share assumes that any dilutive equity instruments, such as put rights and convertible notes payable were exercised and outstanding Common Stock adjusted accordingly.
Certain of the Company’s convertible notes payable and the Series C Preferred Stock have clauses that entitle the holder to participate if dividends are declared to the common stockholders as if the instruments had been converted into shares of Common Stock. As such, the Company uses the two-class method to compute earnings per share and attribute a portion of the Company’s net income to these participating securities. For the three months ended March 31, 2021, the Company had a net loss and as such the two-class method is not presented. For the three months ended March 31, 2020, the Company attributed $369,557 of the Company’s net income to these participating securities and reduced the net income available to common shareholders by that amount when calculating earnings per share.
In periods when the Put Rights are assumed to have been settled at the beginning of the period in calculating the denominator for diluted (loss) earnings per share, the related change in the fair value of Put Right liability recognized in the condensed consolidated statements of operations for the period, is added back or subtracted from net income during the period. The denominator for calculating diluted income per share for the three months ended March 31, 2020 assumes the Put Rights had been settled at the beginning of the period, and therefore, the related income due to the decrease in the fair value of the Put Right liability during the three months ended March 31, 2020 is subtracted from net income. The number of shares added to the denominator for the Put Rights is calculated using the reverse treasury stock method that assumes the Company issues and sells sufficient shares at the average period trading price to satisfy the Put Right contracts. For the three months ended March 31, 2021, the Company did not take the Put Rights into consideration because inclusion is considered to be anti-dilutive.
For the three months ended March 31, 2020, convertible promissory notes that were not considered participating securities, were included in the calculation of fully diluted earnings per share using the if-converted method that assumes the convertible promissory notes are converted at the beginning of the reporting period using the average market price for the three months ended March 31, 2020 of the Common Stock. For the three months ended March 31, 2021, the convertible promissory notes were not included in diluted loss per share because inclusion was considered to be anti-dilutive.
25 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
NOTE 14 — WARRANTS
A summary of warrants outstanding at December 31, 2020 and issued, exercised and expired during the three months ended March 31, 2021 is as follows:
Warrants: | Shares | Weighted
Avg. Exercise Price | |||||||
Balance at December 31, 2020 | 221,513 | $ | 7.08 | ||||||
Issued | — | — | |||||||
Exercised | (166,072 | ) | 0.00 | ||||||
Expired | (35,441 | ) | 23.70 | ||||||
Balance at March 31, 2021 | 20,000 | $ | 3.91 |
On January 22, 2018, the underwriters of our 2017 public offering exercised their over-allotment option with respect to 35,150 warrants to purchase Common Stock at a purchase price of $23.70 per share. In connection with the exercise of the over-allotment option, the Company issued to the underwriters warrants to purchase an aggregate of 291 shares of Common Stock at a purchase price of $23.70 per share. The Company determined that each of these warrants should be classified as equity and recorded the fair value of the warrants in additional paid in capital. These warrants were not exercised and expired on January 24, 2021.
On each of January 3, March 4, May 4, 2020, and July 3, 2020, in relation to the January 3rd Note, the Company issued the warrants to purchase up to 41,518 shares of Common Stock (166,072 total) at a purchase price of $3.91 per share. The warrants become exercisable on the six-month anniversary of issuance and for a period of five years thereafter. If a resale registration statement covering the shares of Common Stock underlying the warrants is not effective and available at the time of exercise, the warrants may be exercised by means of a “cashless” exercise formula. The Company determined that the warrants should be classified as freestanding financial instruments that meet the criteria to be accounted for as derivative liabilities and recorded a fair value at issuance with changes to the fair value recorded in the statement of operations on each balance sheet date. On March 24, 2021, the warrant holder exercised all of the warrants by means of a cashless exercise formula and the Company issued 146,027 shares of Common Stock. The Company recorded expense of $2,397,877 due to change in fair value during the period between December 31, 2020 and the exercise date of March 24, 2021.
On March 4, 2020, in connection with the March 4th Note, the Company issued Series “I” Warrant to purchase up to 20,000 shares of Common Stock at a purchase price of $3.91 per share. The warrants become exercisable on the six-month anniversary and for a period of five years thereafter. If a resale registration statement covering the shares of Common Stock underlying the warrants is not effective and available at the time of exercise, the warrants may be exercised by means of a “cashless” exercise formula. The Company determined that the Series “I” Warrant should be classified as a freestanding financial instrument that meets the criteria to be accounted for as a derivative liability and recorded a fair value at issuance of $40,000. The Company recorded expense of $165,000 in its condensed consolidated statement of operations due to change in fair value for the three months ending March 31, 2021. The fair value recorded on the Company’s condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020 was $215,000 and $50,000, respectively.
26 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
NOTE 15 — RELATED PARTY TRANSACTIONS
On December 31, 2014, the Company and its CEO renewed his employment agreement for a period of two years commencing January 1, 2015. The agreement stated that the CEO was to receive annual compensation of $250,000. In addition, the CEO was entitled to an annual discretionary bonus as determined by the Board. As part of his agreement, he received a $1,000,000 signing bonus in 2012 that is recorded in accrued compensation on the condensed consolidated balance sheets. Any unpaid and accrued compensation due to the CEO under this agreement will accrue interest on the principal amount at a rate of 10% per annum from the date of this agreement until it is paid. Even though the employment agreement expired and has not been renewed, the Company has an obligation under the agreement to continue to accrue interest on the unpaid balance. As of March 31, 2021 and December 31, 2020, the Company had accrued $2,625,000 of compensation as accrued compensation and has balances of $1,821,164 and $1,756,438 respectively, in accrued interest in current liabilities on its condensed consolidated balance sheet, related to Mr. O’Dowd’s employment. Amounts owing under this arrangement are payable on demand. The Company recorded interest expense related to the accrued compensation of $64,726 and $65,445, respectively for the three months ended March 31, 2021 and 2020 on the condensed consolidated statements of operations.
On March 30, 2017, in connection with the acquisition of 42West, the Company and Mr. O’Dowd, as personal guarantor, entered into the Put Agreements with each of the sellers of 42West, pursuant to which the Company granted the Put Rights. During the three months ended March 31, 2021, the Company made payments in the amount of $100,000 to Ms. Leslee Dart, a member of the Board, related to the Put Rights that had been exercised in 2020. Pursuant to the terms of one such Put Agreement, Ms. Dart exercised 6,507 Put Rights at a purchase price of $46.10 per share during the three months ended March 31, 2021. As of March 31, 2021, the Company owes Ms. Dart $300,000 related to the exercise of these Put Rights.
During the three months ended March 31, 2020, Allan Mayer, a holder of Put Rights, and a member of the Board at the time, exercised 10,848 Put Rights. As of March 31, 2020, the Company owed Mr. Mayer $500,000 related to the Put Rights that were exercised during the three months ended March 31, 2020. Mr. Mayer was subsequently paid $200,000 in cash and exchanged the remaining $300,000 for 77,519 shares of Common Stock.
NOTE 16 — SEGMENT INFORMATION
The Company operates in two reportable segments, Entertainment Publicity and Marketing Segment and Content Production Segment. The Entertainment Publicity and Marketing segment is composed of 42West, The Door, Viewpoint, Shore Fire, Be Social, and B/HI, and provides clients with diversified services, including public relations, entertainment and hospitality content marketing and strategic marketing consulting. The Content Production segment is composed of Dolphin Entertainment and Dolphin Films and engages in the production and distribution of digital content and feature films.
The profitability measure employed by our chief operating decision maker for allocating resources to operating segments and assessing operating segment performance is operating income (loss) which is the same as Loss before other income (expenses) on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2021. Salaries and related expenses include salaries, bonuses, commissions and other incentive related expenses. Legal and professional expenses primarily include professional fees related to financial statement audits, legal, investor relations and other consulting services, which are engaged and managed by each of the segments. In addition, general and administrative expenses include rental expense and depreciation of property, equipment and leasehold improvements for properties occupied by corporate office employees.
27 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
In connection with the acquisitions of 42West, The Door, Viewpoint, Shore Fire, Be Social, and B/HI, the Company assigned $7,327,061 of intangible assets, net of accumulated amortization of $6,142,939, and goodwill of $20,098,451 as of March 31, 2021 to the Entertainment Publicity and Marketing segment. The balances reflected as of March 31, 2020 for Entertainment Publicity and Marketing segment comprise 42West, The Door, Viewpoint, and Shore Fire.
Three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenues: | ||||||||
EPD | $ | 7,177,117 | $ | 6,633,800 | ||||
CPD | — | — | ||||||
Total | $ | 7,177,117 | $ | 6,633,800 | ||||
Segment Operating (Loss) Income: | ||||||||
EPD | $ | (390,067 | ) | $ | (258,966 | ) | ||
CPD | (804,873 | ) | (611,893 | ) | ||||
Total operating loss | (1,194,940 | ) | (870,859 | ) | ||||
Interest expense | (165,194 | ) | (624,282 | ) | ||||
Other income, net | (3,950,702 | ) | 3,568,988 | |||||
(Loss) Income before income taxes | $ | (5,310,836 | ) | $ | 2,073,847 |
As of
March 31, 2021 | As of December 31, 2020 | |||||||
Total assets: | ||||||||
EPD | $ | 47,018,591 | $ | 45,266,315 | ||||
CPD | 2,145,499 | 4,085,636 | ||||||
Total | $ | 49,164,090 | $ | 49,351,951 |
NOTE 17 — LEASES
Viewpoint is obligated under an operating lease agreement for office space in Newton, Massachusetts, expiring in March 31, 2021. The lease is secured by a certificate of deposit held by the Company and included in restricted cash in the amounts of $36,735 as of March 31, 2021. The lease provides for increases in rent for real estate taxes and operating expenses and contains a renewal option for an additional five years. Viewpoint did not renew the lease.
The Door occupies space in New York and signed a three-year renewal of its lease on August 23, 2020. The lease is secured by a cash security deposit of approximately $29,000. Monthly lease payments are $20,833 and contain increases of 3% annually.
42West is obligated under an operating lease agreement for office space in New York, expiring in December 2026. The lease is secured by a standby letter of credit in the amount of $677,354 and provides for increases in rent for real estate taxes and building operating costs. The lease also contains a renewal option for an additional five years.
42West is obligated under an operating lease agreement for office space in California, expiring in December 2021. The lease is secured by a cash security deposit of $44,788 and a standby letter of credit in the amount of $50,000. The lease also provides for increases in rent for real estate taxes and operating expenses and contains a renewal option for an additional five years.
On February 19, 2019, the Company entered into an agreement to lease 3,024 square feet of office space in Coral Gables, Florida. The lease is for a period of 62 months from the commencement date, at a monthly lease rate of $9,954 with annual increases of 3%. The rent payments are abated for the first four months of the lease after the commencement date, which was October 1, 2019. The lease is secured by a cash deposit of $19,908.
B/HI is obligated under an operating lease for office space in Los Angeles, CA expiring December 31, 2024. The monthly lease payments are $20,168 per month with annual increases of 3%. The lease is secured by a cash deposit of $20,883.
B/HI is obligated under an operating lease for office space in New York, NY expiring June 30, 2022. The monthly lease payments are $9,806 per month with annual increases of 2%. The lease is secured by a cash deposit of $16,400.
28 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
Shore Fire Media is obligated under an operating lease agreement for office space in Brooklyn, New York, expiring in February 2026. The lease is secured by a cash deposit of $34,490.
Be Social is obligated under an operating lease for approximately 4,505 square feet of office space in Los Angeles, California expiring December 2024. The lease is secured by a cash deposit of $47,978.
The amortizable life of the right-of-use asset is limited by the expected lease term. Although certain leases include options to extend the Company did not include these in the right-of-use asset or lease liability calculations because it is not reasonably certain that the options will be executed.
March
31, 2021 | December
31, 2020 | |||||||
Assets | ||||||||
Right-of-use asset | $ | 7,586,271 | $ | 7,106,279 | ||||
Liabilities | ||||||||
Current | ||||||||
Lease liability | $ | 1,926,917 | $ | 1,791,773 | ||||
Noncurrent | ||||||||
Lease liability | $ | 6,313,936 | $ | 5,964,275 | ||||
Total lease liability | $ | 8,240,853 | $ | 7,756,048 |
The table below shows the lease income and expenses recorded in the condensed consolidated statement of operations incurred during the three months ended March 31, 2021 and 2020.
Lease costs | Classification | Three
months ended March 31, 2021 | Three
months ended March 31, 2020 | |||||||
Operating lease costs | Selling, general and administrative expenses | $ | 747,830 | $ | 547,037 | |||||
Operating lease costs | Direct costs | 60,861 | 60,861 | |||||||
Sublease income | Selling, general and administrative expenses | — | (2,400 | ) | ||||||
Net lease costs | $ | 808,691 | $ | 605,498 |
Lease Payments
For the three months ended March 31, 2021, the Company made payments in cash related to its operating leases in the amount of $737,358.
Future maturities lease payments for operating leases in effect at March 31, 2021, were as follows:
2021 (excluding three months ended March 31, 2021) | $ | 1,996,123 | |||
2022 | 2,073,640 | ||||
2023 | 1,954,903 | ||||
2024 | 1,824,908 | ||||
2025 | 1,232,060 | ||||
Thereafter | 940,976 | ||||
Total lease payments | $ | 10,022,610 | |||
Less: Imputed interest | (1,781,757 | ) | |||
Present value of lease liabilities | $ | 8,240,853 |
As of March 31, 2021, the Company’s weighted average remaining lease terms on its operating lease is 4.6 years and the Company’s weighted average discount rate is 7.81% related to its operating leases.
29 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
The Company used its incremental borrowing rate of approximately (i) 7.88% to calculate the present value of the lease liabilities and right-of-use asset for BHI and (ii) 5.79% to calculate the present value of the lease liabilities and right-of-use asset for leases entered into in 2020 for The Door and Be Social. The Company used its incremental borrowing rate on January 1, 2019, deemed to be 8% to calculate the present value of the lease liabilities for the rest of its leases, existing at the time of the ASC 842 adoption.
NOTE 18 — COMMITMENTS AND CONTINGENCIES
Litigation
The Company may be subject to legal proceedings, claims, and liabilities that arise in the ordinary course of business. In the opinion of management and based upon the advice of its outside counsels, the liability, if any, from any pending litigation is not expected to have a material effect in the Company’s financial position, results of operations and cash flows. The Company is not aware of any pending litigation as of the date of this report.
Incentive Compensation Plan
On June 29, 2017, the shareholders of the Company approved the Dolphin Digital Media, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan was adopted as a flexible incentive compensation plan that would allow us to use different forms of compensation awards to attract new employees, executives and directors, to further the goal of retaining and motivating existing personnel and directors and to further align such individuals’ interests with those of the Company’s shareholders. Under the 2017 Plan, the total number of shares of Common Stock reserved and available for delivery under the 2017 Plan (the “Awards”), at any time during the term of the 2017 Plan, will be 200,000 shares of Common Stock. The 2017 Plan imposes individual limitations on the amount of certain Awards, in part with the intention to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Under these limitations, in any fiscal year of the Company during any part of which the 2017 Plan is in effect, no participant may be granted (i) stock options or stock appreciation rights with respect to more than 60,000 shares, or (ii) performance shares (including shares of restricted stock, restricted stock units, and other stock based-awards that are subject to satisfaction of performance goals) that the Compensation Committee intends to be exempt from the deduction limitations under Section 162(m) of the Code, with respect to more than 600,000 shares, in each case, subject to adjustment in certain circumstances. The maximum amount that may be paid out to any one participant as performance units that the Compensation Committee intends to be exempt from the deduction limitations under Section 162(m) of the Code, with respect to any 12-month performance period is $1,000,000 (pro-rated for any performance period that is less than 12 months), and with respect to any performance period that is more than 12 months, $2,000,000. During the three months ended March 31, 2021 and 2020, the Company did not issue any Awards under the 2017 Plan.
Employee Benefit Plan
The Company has a 401(K) profit sharing plan that covers substantially all of its employees. The Company matches 100% of the first 3% contributed by the employee and then 50% up to a maximum of 4% contributed by the employee. The contribution is also limited by annual maximum amount determined by the Internal Revenue Service. The Company’s contributions were $102,056 and $105,788, respectively, during the three months ended March 31, 2021 and 2020.
Employment Contracts
As a condition to the B/HI Purchase, Dean Bender, one of the sellers and Shawna Lynch, a key employee of B/HI entered into employment agreements with the Company to continue as employees after the closing of the B/HI Purchase. Mr. Bender’s agreement is for a period of two years through December 31, 2022 and he will serve as Co-President of B/HI during that term. Ms. Lynch’s agreement is for a period of four years and may be renewed on the same terms for two successive tow year terms. Ms. Lynch will serve as Co-President of B/HI during the term of her agreement. Each of the employment agreements of Mr. Bender and Ms. Lynch define base compensation and contains provisions for termination including as a result of death or disability and entitles the employee to vacations and to participate in all employee benefit plans offered by the Company.
30 |
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
As a condition to the Be Social Purchase, Alison Grant, the seller of Be Social entered into an employment agreement with the Company to continue as an employee after the closing of the Be Social Purchase. Ms. Grant’s employment agreement is through December 31, 2023. The employment agreement defines base compensation and salary increases at the discretion of the Company’s CEO. Ms. Grant will serve as Be Social’s President. The employment agreement contains provisions for termination including as a result of death or disability and entitles the employee to vacations and to participate in all employee benefit plans offered by the Company.
As a condition to the Shore Fire Purchase, Marilyn Laverty, the Shore Fire seller, entered into an employment agreement with the Company to continue as an employee after the closing of the Shore Fire Purchase. Ms. Laverty’s employment agreement is through December 31, 2022 and may be renewed by Ms. Laverty for two successive one-year terms. The employment agreement defines base compensation and a salary increase and bonus structure based on Shore Fire achieving certain financial targets. Ms. Laverty will serve as Shore Fire’s President. The employment agreement contains provisions for termination including as a result of death or disability and entitles the employee to vacations and to participate in all employee benefit plans offered by the Company.
As a condition to the acquisition of Viewpoint, David Shilale entered into an employment agreement with the Company to continue as an employee after the closing of the Viewpoint purchase. Mr. Shilale’s employment agreement is for a period of three years, commencing October 31, 2018. The contract defines the base compensation and a commission structure based on Viewpoint achieving certain financial targets. The bonus for Mr. Shilale is determined at the sole discretion of the Company’s Board of Directors and management. The agreement does not provide for guaranteed increases to the base salary. The employment agreement contains provisions for termination including as a result of death or disability and entitles the employee to vacations and to participate in all employee benefit plans offered by the Company.
In connection with the acquisition of The Door, each of the former members of The Door (the “Door Members”) entered into a four-year employment agreement with The Door, commencing July 5, 2018, pursuant to which each Door Member has agreed not to transfer any shares of Common Stock received as consideration for the merger (the “Share Consideration”) in the first year following the closing date of the merger, no more than 1/3 of such Share Consideration in the second year and no more than an additional 1/3 of such Share Consideration in the third year.
Effective April 1, 2020, the Company renewed Leslee Dart’s employment agreement for a period of three years and may automatically be renewed for successive one-year terms by mutual agreement of Ms. Dart and the Company. The employment agreement provides for a base salary and contains provisions for termination including as a result of death or disability. During the term of the employment agreement, Ms. Dart is entitled to participate in all employee benefit plans, practices and programs maintained by the Company as well as is entitled to paid vacation in accordance with the Company’s policy.
Letter of Credit
Pursuant to the lease agreements of the 42West New York and Los Angeles office locations, the Company is required to issue letters of credit to secure the leases. On July 24, 2018, the Company renewed the letter of credit issued by City National Bank for the 42West office space in New York. The letter of credit is for $677,354 and originally expired on August 1, 2018. This letter of credit renews automatically annually unless City National Bank notifies the landlord 60-days prior to the expiration of the bank’s election not to renew the letter of credit. The Company granted City National Bank a security interest in bank account funds totaling $677,354 pledged as collateral for the letter of credit. The letters of credit commit the issuer to pay specified amounts to the holder of the letter of credit under certain conditions. If this were to occur, the Company would be required to reimburse the issuer of the letter of credit. Pursuant to the lease agreement of Viewpoint, Viewpoint issued a letter of credit in the amount of $36,735 to secure the lease. The Viewpoint lease expired on March 31, 2021, and the Company is negotiating the end of lease payment with the landlord and all or a portion of the letter of credit may be used to settle the end of the lease. The Company is not aware of any other claims relating to its outstanding letters of credit as of March 31, 2021.
NOTE 19 – SUBSEQUENT EVENTS
On April 23, 2021 and April 30, 2021, the Company issued three convertible promissory notes in the aggregate amount of $1,050,000. The convertible promissory notes bear interest at a rate of 10% per annum and mature on the second anniversary of their respective issuances. The balance of each convertible promissory note and any accrued interest may be converted at the noteholder’s option at any time at a purchase price based on the 90-day average closing market price per share of the Common Stock.
On May 16, 2021, Leslee Dart resigned from her position as a member of the Board, effective as of such date. Ms. Dart’s decision to resign as a director of the Company was not due to any disagreements with the Company on any matter relating to the Company’s operations, policies or practices. Ms. Dart will remain as an employee of the Company.
On May 17, 2021, the Compensation Committee of the Board approved an annual salary increase of $100,000, from $300,000 to $400,000 for the Company’s Chief Executive Officer and $50,000, from $250,000 to $300,000 for the Company’s Chief Financial Officer. The increases are effective January 1, 2021.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading independent entertainment marketing and premium content production company. We were first incorporated in the State of Nevada on March 7, 1995 and domesticated in the State of Florida on December 4, 2014. Our Common Stock trades on The Nasdaq Capital Market under the symbol “DLPN”.
On January 8, 2021, we acquired all of the issued and outstanding shares of B/HI Communications, Inc, a California corporation, referred to as B/HI, from Dean G Bender and Janice L Bender as co-trustees of the Bender Family Trust dated May 6, 2013, the Seller. The acquisition was effective January 1, 2021. B/HI is an entertainment public relations agency that specializes in corporate and product communications programs for interactive gaming, esports, entertainment content and consumer product organizations. As consideration for the acquisition of the shares of B/HI, we agreed with the Seller to pay, $0.8 million of shares of our common stock based on a 30-day trailing trading average closing price immediately prior to, but not including, the applicable payment date adjusted for working capital, cash targets and the B/HI indebtedness of approximately $0.5 million, net of minimum operating cash as defined in the purchase agreement. We may also pay up to an additional $1.2 million of which 50% will be paid in cash and 50% will be paid in shares of our common stock upon B/HI achieving certain specified financial performance targets during the years ended December 31, 2021 and 2022.
Through our subsidiaries, 42West, The Door, Shore Fire, Viewpoint, Be Social and B/HI, we provide expert strategic marketing and publicity services to many of the top brands, both individual and corporate, in the entertainment, hospitality and music industries. 42West, The Door and Shore Fire are each recognized global leaders in the PR services for the industries they serve. Viewpoint adds full-service creative branding and production capabilities to our marketing group and Be Social provides influencer marketing capabilities through its roster of highly engaged social media influencers. Dolphin’s legacy content production business, founded by our Emmy-nominated Chief Executive Officer, Bill O’Dowd, has produced multiple feature films and award-winning digital series, primarily aimed at family and young adult markets.
We have established an acquisition strategy based on identifying and acquiring companies that complement our existing entertainment publicity and marketing services and content production businesses. We believe that complementary businesses, such as data analytics and digital marketing, can create synergistic opportunities and bolster profits and cash flow. We have identified potential acquisition targets and are in various stages of discussion with such targets. We intend to complete one additional acquisition during 2021, but there is no assurance that we will be successful in doing so, whether in 2021 or at all.
We operate in two reportable segments: our entertainment publicity and marketing segment and our content production segment. The entertainment publicity and marketing segment comprises 42West, The Door, Shore Fire, Viewpoint, Be Social and B/HI and provides clients with diversified services, including public relations, entertainment content marketing, strategic marketing consulting, digital marketing capabilities, creative branding and in-house production of content for marketing. The content production segment comprises Dolphin Films and Dolphin Digital Studios and specializes in the production and distribution of digital content and feature films.
On March 11, 2020, The World Health Organization categorized a novel coronavirus (COVID-19) as a pandemic, and it continues to spread throughout the United States. The outbreak of COVID-19 and public and private sector measures to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place adversely affected our business and demand for certain of our services. One of our subsidiaries operates in the food and hospitality sector that was been negatively impacted by the orders to either suspend or reduce operations of restaurants and hotels. Another subsidiary represents talent, such as actors, directors and producers. The revenues from these clients has been negatively impacted by the suspension of content production. Conversely, the television and streaming consumption around the globe has increased as well as the demand for consumer products. Revenues from the marketing of these shows and products has somewhat offset the decrease in revenue from the sectors discussed above. We have taken steps to align our expenses with our changes in revenue. The steps being taken across the Company include freezes on hiring, staff reductions, salary reductions and cuts in non-essential spending. We continue to believe that our strategic strengths discussed above will continue to assist us as we navigate a rapidly changing marketplace. The effects of COVID-19 pandemic are negatively impacting our results of operations, cash flows and financial position; however, the extent of the impact will vary depending on the duration and severity of the economic and operational impacts of COVID-19.
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Going Concern
In the audit opinion for our financial statements as of and for the year ended December 31, 2020, our registered public accountants included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern based upon our accumulated deficit as of December 31, 2020 and our working capital deficit. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. In addition, we operate in industries that have been adversely affected by COVID-19 (e.g. food, hospitality and talent PR). Management is planning to raise any necessary additional funds through additional sales of our common stock, securities convertible into our common stock, debt securities, as well as available bank and non-bank financing, or a combination of such financing alternatives; however, there can be no assurance that we will be successful in raising any necessary additional capital or securing loans. Any such issuances of additional shares of our common stock or securities convertible into our common stock would dilute the equity interests of our existing shareholders, perhaps substantially. If we are unable to raise additional funds from the sale of common stock, securities convertible into our common stock, debt securities, bank and non-bank financing or any combination of such financing securities, we may not be able to continue as a going concern within one year from the issuance of these condensed consolidated financial statements.
Revenues
For the three months ended March 31, 2021 and 2020, we derived all of our revenues from our entertainment publicity and marketing segment. The entertainment publicity and marketing segment generates its revenues from providing public relations services for celebrities, musicians and brands, entertainment and targeted content marketing for film and television series, strategic communications services for corporations, public relations, marketing services and brand strategies for hotels and restaurants and digital marketing through its roster of social media influencers. Please refer to discussion under Revenues in the Results of Operations section below for further discussion on the revenues from the content production segment. The table below sets forth the percentage of total revenue derived from our two segments for the three months ended March 31, 2021 and 2020:
For the
three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Revenues: | ||||||||
Entertainment publicity | 100.0 | % | 100.0 | % | ||||
Content production | 0.0 | % | 0.0 | % | ||||
Total revenue | 100.0 | % | 100.0 | % |
Entertainment Publicity and Marketing
Our revenue is directly impacted by the retention and spending levels of existing clients and by our ability to win new clients. We believe that we have a stable client base, and we have continued to grow organically through referrals and actively soliciting new business, as well as through acquisition of new businesses within the same industry. We earn revenues primarily from the following sources: (i) celebrity talent services; (ii) content marketing services under multiyear master service agreements in exchange for fixed project-based fees; (iii) individual engagements for entertainment content marketing services for durations of generally between three and six months; (iv) strategic communications services; (v) engagements for marketing of special events such as food and wine festivals; (vi) engagement for marketing of brands; (vii) arranging strategic marketing agreements between brands and social media influencers and (viii) content productions of marketing materials on a project contract basis. For these revenue streams, we collect fees through either fixed fee monthly retainer agreements, fees based on a percentage of contracts or project-based fees.
We earn entertainment publicity and marketing revenues primarily through the following:
● | Talent – We earn fees from creating and implementing strategic communication campaigns for performers and entertainers, including Oscar, Tony and Emmy winning film, theater and television stars, directors, producers, celebrity chefs and Grammy winning recording artists. Our services in this area include ongoing strategic counsel, media relations, studio and/or network liaison work, and event and tour support. |
33 |
● | Entertainment Marketing and Brand Strategy– We earn fees from providing marketing direction, public relations counsel and media strategy for entertainment content (including theatrical films, television programs, DVD and VOD releases, and online series) from all the major studios, as well as content producers ranging from individual filmmakers and creative artists to production companies, film financiers, DVD distributors, and other entities. In addition, we provide entertainment marketing services in connection with film festivals, food and wine festivals, awards campaigns, event publicity and red-carpet management. As part of our services, we offer marketing and publicity services tailored to reach diverse audiences. We also provide marketing direction targeted to the ideal consumer through a creative public relations and creative brand strategy for hotel and restaurant groups. Our clients for this type of service include major studios, streaming services, independent producers and leading hotel and restaurant groups. We expect that increased digital streaming marketing budgets at several large key clients will drive growth of revenue and profit in 42West’s Entertainment Marketing division over the next several years. |
● | Strategic Communications – We earn fees by advising companies looking to create, raise or reposition their public profiles, primarily in the entertainment industry. We believe that growth in Strategic Communications division will be driven by increasing demand for these services by traditional and non-traditional media clients who are expanding their activities in the content production, branding, and consumer products PR sectors. We expect that this growth trend will continue for the next three to five years. We also help studios and filmmakers deal with controversial movies, as well as high-profile individuals address sensitive situations. |
● | Creative Branding and Production – We offer clients creative branding and production services from concept creation to final delivery. Our services include brand strategy, concept and creative development, design and art direction, script and copyrighting, live action production and photography, digital development, video editing and composite, animation, audio mixing and engineering, project management and technical support. We expect that our ability to offer these services to our existing clients in the entertainment and consumer products industries, will be accretive to our revenue. |
● | Digital Media Influencer Marketing Campaigns – We arrange strategic marketing agreements between brands and social media influencers, for both organic and paid campaigns. We also offer services for social media activations at events, as well as editorial work on behalf of brand clients. Our services extend beyond our own captive influencer network, and we manage custom campaigns targeting specific demographics and locations, from ideation to delivery of results reports. We expect that our relationship with social media influencers will provide us the ability to offer these services to our existing clients in the entertainment and consumer products industries and will be accretive to our revenue. |
Content Production
Project Development and Related Services
We have a team that dedicates a portion of its time to identifying scripts, story treatments and novels for acquisition, development and production. The scripts can be for either digital or motion picture productions. We have acquired the rights to certain scripts that we intend to produce and release in the future, subject to obtaining financing. We have not yet determined if these projects would be produced for digital, television or theatrical distribution.
Our pipeline of feature films includes:
● | Youngblood, an updated version of the 1986 hockey classic; |
● | Sisters Before Misters, a comedy about two estranged sisters finding their way back to each other after a misunderstanding causes one of them to have to plan the other’s wedding and. |
● | Out of their League, a romantic comedy pitting husband versus wife in the cut-throat world of fantasy football; |
We have completed development of each of these feature films, which means that we have completed the script and can begin pre-production once financing is obtained. We are planning to fund these projects through third-party financing arrangements, domestic distribution advances, pre-sales, and location-based tax credits, and if necessary, sales of our common stock, securities convertible into our common stock, debt securities or a combination of such financing alternatives; however, there is no assurance that we will be able to obtain the financing necessary to produce any of these feature films.
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Expenses
Our expenses consist primarily of: (1) direct costs; (2) selling, general and administrative expenses; (3) depreciation and amortization expense; (4) legal and professional fees and (5) payroll expenses.
Direct costs include certain cost of services, as well as certain production costs, related to our entertainment publicity and marketing business. Included within direct costs are immaterial impairments for any of our content production projects.
Selling, general and administrative expenses include all overhead costs except for payroll, depreciation and amortization and legal and professional fees that are reported as a separate expense item.
Depreciation and amortization include the depreciation of our property and equipment and amortization of intangible assets and leasehold improvements.
Legal and professional fees include fees paid to our attorneys, fees for investor relations consultants, audit and accounting fees and fees for general business consultants.
Payroll expenses include wages, payroll taxes and employee benefits.
Other Income and Expenses
For the three months ended March 31, 2021 and 2020, other income and expenses consisted primarily of: (1) gain (loss) on extinguishment of debt; (2) acquisition costs; (3) changes in the fair value of put rights; (4) changes in fair value of contingent consideration; (5) changes in fair value of warrants; (6) changes in fair value of convertible notes and derivative liabilities and (7) interest expense. For the three months ended March 31, 2020, we also had a loss on the deconsolidation of our Max Steel variable interest entity.
RESULTS OF OPERATIONS
Three months ended March 31, 2021 as compared to three months ended March 31, 2020
Revenues
For the three months ended March 31, 2021 and 2020 revenues were as follows:
For the three months ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Revenues: | ||||||||
Entertainment publicity and marketing | $ | 7,177,117 | $ | 6,633,800 | ||||
Content production | — | — | ||||||
Total revenue | $ | 7,177,117 | $ | 6,633,800 |
Revenues from entertainment publicity and marketing increased by approximately $0.5 million for the three months ended March 31, 2021, as compared to the same period in the prior year primarily due to the revenues of Be Social and B/HI. These revenues were offset by decreases in revenues from our clients in the food and hospitality industries and the talent division. Government imposed orders to either reduce or completely shut down the in-restaurant service due to COVID-19 caused our clients to either reduce or suspend the services we offer. We did not derive any revenues from the content production segment as we have not produced and distributed any of the projects discussed above and the projects that were produced and distributed in 2013 and 2016 have mostly completed their normal revenue cycles.
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Expenses
For the three months ended March 31, 2021 and 2020, our expenses were as follows:
For the
three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Expenses: | ||||||||
Direct costs | $ | 829,151 | $ | 688,977 | ||||
Selling, general and administrative | 1,482,471 | 1,120,616 | ||||||
Depreciation and amortization | 482,712 | 521,003 | ||||||
Legal and professional | 344,607 | 284,440 | ||||||
Payroll | 5,233,116 | 4,889,623 | ||||||
Total expenses | $ | 8,372,057 | $ | 7,504,659 |
Direct costs increased by approximately $0.1 million for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020. Direct costs for Viewpoint are primarily costs attributable to the production costs of each of their projects. The increase in direct costs is primarily related to an increase in Viewpoint’s revenue.
Selling, general and administrative expenses increased by approximately $0.4 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase is directly related to including the selling, general and administrative costs of Be Social acquired on August 17, 2020 and B/HI acquired on January 1, 2021, for the three months ended March 31, 2021.
Legal and professional fees increased by approximately $0.06 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 due primarily to including legal and professional fees for Be Social acquired August 17, 2020 and B/HI acquired January 1, 2021 in the three months ended March 31, 2021.
Payroll expenses increased by approximately $0.3 million for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020 primarily due to including payroll costs of Be Social acquired on August 17, 2020 and B/HI acquired on January 1, 2021, in the aggregate amount of approximately $0.8 million for the three months ended March 31, 2021, offset by general decreases in payroll costs in other subsidiaries of approximately $0.5 million from personnel changes made as a result of COVID-19.
Other Income and Expenses
For the
three months ended March 31, | ||||||||
2021 | 2020 | |||||||
Other Income and expenses: | ||||||||
(Loss) gain on extinguishment of debt | $ | (57,363 | ) | $ | 3,259,865 | |||
Loss on deconsolidation of Max Steel VIE | — | (1,484,591 | ) | |||||
Change in fair value of convertible notes and derivative liabilities | (871,449 | ) | 147,459 | |||||
Change in fair value of warrants | (2,562,877 | ) | 72,515 | |||||
Change in fair value of put rights | (71,106 | ) | 1,470,740 | |||||
Change in fair value of contingent consideration | (365,000 | ) | 103,000 | |||||
Acquisition costs | (22,907 | ) | — | |||||
Interest expense and debt amortization | (165,194 | ) | (624,282 | ) | ||||
Total other (expense) income, net | $ | (4,115,896 | ) | $ | 2,944,706 |
During the three months ended March 31, 2021, we recorded a loss on extinguishment of debt related to the exchange of certain put rights for shares of our common stock. During the three months ended March 31, 2020, we recorded a gain on extinguishment of debt of $3.3 million primarily related to the Max Steel VIE. On February 20, 2020, the lender of the production service agreement confirmed that the Max Steel VIE did not owe them any debt. We reassessed our status as the primary beneficiary of the Max Steel VIE and concluded that we were no longer the primary beneficiary of the Max Steel VIE. As a result, we deconsolidated the Max Steel VIE and recorded a loss on deconsolidation of approximately $1.5 million during the nine months ended September 30, 2020.
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We elected the fair value option for certain convertible notes issued in 2020. The embedded conversion feature of a convertible note issued in 2019 met the criteria for a derivative. The fair value of these convertible notes and embedded conversion feature are remeasured at every balance sheet date and any changes are recorded on our condensed consolidated statements of operations. For the three months ended March 31, 2021, we recorded a change in the fair value of the convertible notes issued in 2020 in the amount of $(871,449). None of the decrease in the value of the convertible notes was attributable to instrument specific credit risk and as such all of the gain in the change in fair value was recorded within net income.
For the three months ended March 31, 2020, we recorded a change in the fair value of the embedded derivative of the 2019 note in the amount of $147,459. None of the decrease in the value of the convertible notes was attributable to instrument specific credit risk and as such all of the gain in the change in fair value was recorded within net income.
Warrants issued with two convertible notes payable issued on January 3 and March 4, 2020, were initially measured at fair value at the time of issuance and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date, with changes in estimated fair value of each respective warrant liability recognized as other income or expense. On March 24, 2021, one of the warrant holders exercised 146,027 warrants via a cashless exercise formula. The price of our common stock on the exercise date was $19.16 per share and we recorded a change in fair value of the exercised warrants of $2.4 million on our condensed consolidated statement of operations. The fair value of the 2020 warrants that were not exercised increased by approximately $0.2 million and we recorded a change in the fair value of the warrants for that amount on our condensed consolidated statement of operations.
The fair value of put rights related to the 42West acquisition were recorded on our condensed consolidated balance sheet on the date of the acquisition. The fair value of the put rights are measured at every balance sheet date and any changes are recorded on our condensed consolidated statements of operations. The fair value of the put rights increased by approximately $0.1 million for the three months ended March 31, 2021 and decreased by approximately $1.5 million for the three months ended March 31, 2020.
Contingent consideration related to our acquisitions of The Door and Be Social was recorded at fair value on our condensed consolidated balance sheet as of the respective acquisition dates. The fair value of the related contingent consideration is measured at every balance sheet date and any changes recorded on our condensed consolidated statements of operations. The fair value of the contingent consideration increased by approximately $0.4 million for the three months ended March 31, 2021 and decreased by approximately $0.1 million for the three months ended March 31, 2020.
Interest expense and debt amortization expense decreased by approximately $0.5 million for the three months ended March 31, 2021 as compared to the same period in prior year primarily due to convertible notes that converted during the three months ended March 31, 2021 and $0.3 million of debt amortization recorded during the three months ended March 31, 2020, related to beneficial conversion features on certain convertible notes payable converted during that period.
Net Loss
Net loss was approximately $(5.3) million or $(0.73) per share based on 7,267,297 weighted average shares outstanding for basic and fully diluted loss per share for the three months ended March 31, 2021. Net income was approximately $2.1 million or $0.40 per share based on 4,099,713 weighted average shares outstanding for basic earnings per share and $0.3 million or $0.05 per share based on 5,676,996 weighted average shares on a fully diluted basis for the three months ended March 31, 2020. The increase in net loss for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, is related to the factors discussed above.
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LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Three months ended March 31, 2021 as compared to three months ended March 31, 2020
Cash flows used in operating activities for three months ended March 31, 2021 was $0.1 million. Our net loss of approximately $5.3 million contained non-cash items such as loss on extinguishment of debt and changes in the fair value of liabilities in the aggregate net amount of approximately $4.5 million resulting in $0.8 million of cash flows used in operations. This was offset by changes in operating assets and liabilities of approximately $0.7 million, primarily from the increase of accounts receivable, contract liabilities and accrued interest from a related party offset by a decrease in accounts payable. Cash flows used in operating activities for the three months ended March 31, 2020, were $0.4 million. Our net income of approximately $2.1 million was primarily due to non-cash items such as gain on extinguishment of debt and changes in the fair value of liabilities in the aggregate net amount of $2.5 million, resulting in $0.5 million of cash flows used in operations. This was offset by changes in operating assets and liabilities of approximately $0.1 million, primarily from the decrease of other current liabilities.
Cash flows used in investing activities for the three months ended March 31, 2021 were $0.5 million entirely related to the acquisition of B/HI, net of cash acquired. Cash flows used in investing activities for the three months ended March 31, 2020, were $0.3 million primarily due to the acquisition of Shore Fire.
Cash flows used for financing activities for the three months ended March 31, 2021 were approximately $0.2 million as compared to $0.3 million provided by financing activities for the three months ended March 31, 2020. Cash flows used in financing activities during the three months ended March 31, 2021 consisted primarily (i) $0.1 million used for repayment of the Bank United term loan and (ii) $0.3 million used to purchase our common stock pursuant to Put Rights exercised offset by $0.2 million received in exchange for a convertible note payable. Cash flows provided by financing activities for the three months ended March 31, 2020 consisted primarily of (i) $0.5 million repayment of line of credit with Bank United; (ii) $2.4 million provided by the sale of convertible promissory notes; (iii) $1.2 repayment of a convertible promissory note upon its maturity and (iv) $0.4 million used to buy back our Common Stock pursuant to Put Rights that were exercised.
As of March 31, 2021 and 2020, we had cash available for working capital of approximately $7.1 million, not including $0.7 million pledged as collateral for the standby letter of credit for the New York office and security deposit in the Newton MA office, and $1.9 million, not including $0.7 million pledged as collateral for the standby letter of credit for the New York and Newton, MA offices, respectively, and a working capital deficit of approximately $4.0 million and $10.7 million, respectively.
These factors, along with an accumulated deficit of $103.2 million as of March 31, 2021, raise substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q 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 additional issuances of our common stock, securities convertible into our common stock, debt securities, as well as available bank and non-bank financing, or a combination of such financing alternatives. There is no assurance that we will be successful in raising additional capital. Such issuances of additional shares of our common stock or securities convertible into our common stock would further dilute the equity interests of our existing shareholders, perhaps substantially.
Our subsidiaries operate in industries that were adversely affected by the government mandated shelter-in-place, stay-at-home and work-from-home orders as a result of the novel coronavirus COVID-19. Between April 19, 2020 and April 23, 2020, we entered into five separate loan agreements and received an aggregate amount of approximately $2.8 million under the Paycheck Protection Program which was established under the Coronavirus Aid, Relief and Economic Security Act (CARES Act). Be Social, which the Company acquired on August 17, 2020, received a PPP Loan in the amount of $304,169 prior to the acquisition. The loans are unsecured and all or a portion of the loans may be forgiven upon application to the lender for certain expenditure amounts made, including payroll costs, in accordance with the requirements under the Paycheck Protection Program. There is no assurance that our obligation under these loans will be forgiven.
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In addition, we have a substantial amount of debt. We do not currently have sufficient assets to repay such debt in full when due, and our available cash flow may not be adequate to maintain our current operations if we are unable to repay, extend or refinance such indebtedness. As of March 31, 2021, our total debt was approximately $5.6 million, not including the funds received from the Paycheck Protection Program that we expect will be forgiven, and our total stockholders’ equity was approximately $20.5 million.
If we are not able to generate sufficient cash to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying digital or film productions, selling assets, restructuring or refinancing our indebtedness or seeking additional debt or equity capital or bankruptcy protection. We may not be able to execute any of these remedies on satisfactory terms or at all and our indebtedness may affect our ability to continue to operate as a going concern.
Put Rights
In connection with the 42West acquisition, pursuant to put agreements, we granted the sellers and certain 42West employees put rights to require us to purchase up to an aggregate of 265,397 shares of our common stock that they received as consideration (including shares from the earn out consideration which was achieved for the year ended December 31, 2017) for a purchase price of $46.10 per share during certain specified exercise periods up until March 2021. During the three months ended March 31, 2021, put right holders exercised put rights for 22,867 shares of our common stock in accordance with the put agreements.
During the three months ended March 31, 2021, we made payments in the amount of $260,900 and exchanged 6,507 put rights for 77,519 shares of our common stock, related to put rights that had been exercised in 2020. As of March 31, 2021, we owed $1,054,235 related to the exercise of these put rights. As of March 31, 2021, all put rights available to the holders have been exercised.
Financing Arrangements
Production Service Agreement
On February 20, 2020, we received notification from the lender of the Production Service Agreement that the Max Steel VIE did not owe any debt to the lender. As a result, we recorded a gain on extinguishment of debt in the amount of approximately $3.3 million during the three months ended March 31, 2020.
Term Loan
On March 31, 2020, 42West and The Door, as co-borrowers, entered into a business loan agreement with Bank United, N.A. to convert the balance of a 42West line of credit of $1,200,390 into a three-year term loan (the “Term Loan”). The Term Loan bears interest at a rate of 0.75% points over the Lender’s Prime Rate and matures on March 15, 2023. As of March 31, 2021, the outstanding balance on the Term Loan was $800,260.
The Term Loan contains customary affirmative covenants, including covenants regarding maintenance of a maximum debt to total net worth ratio of at least 4.0:1.0 and a minimum fixed charge coverage of 1.06x based on fiscal year-end audit to be calculated as provided in the Term Loan. Further, the Term Loan contains customary negative covenants, including those that, subject to certain exceptions, restrict the ability of 42West and The Door to incur additional indebtedness, grant liens, make loans, investments or certain acquisitions, or enter into certain types of agreements. Upon the occurrence of an event of default, the bank may accelerate the maturity of the loan and declare the unpaid principal balance and accrued but unpaid interest immediately due and payable. In the event of 42West and The Door’s insolvency, such outstanding amounts will automatically become due and payable. 42West and The Door may prepay any amounts outstanding under the Term Loan without penalty. The bank tests for compliance with debt covenants on an annual basis based on the financial statements of 42West and The Door as of and for the year ended December 31. Based on current economic factors and uncertainties due to COVID-19, we believe we are out of compliance with certain debt covenants as of and for the three months ended March 31, 2021. As such, we have classified the entire balance of $800,260 of the Term Loan in current liabilities on our condensed consolidated balance sheet.
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Promissory Notes
Convertible Notes Payable
On March 30, 2021, December 1, 2020, October 26, 2020, September 11, 2020 and March 18, 2020, we issued convertible promissory notes in the aggregate amount of $1,445,000. The convertible promissory notes bear interest at a rate of 10% per annum and have maturity dates on second anniversary of their respective issuances. The balance of each convertible promissory note and any accrued interest can be converted at the noteholder’s option at any time at a purchase price based on either a 30-day or 90-day average closing market price per share of our common stock. During the three months ended March 31, 2021, the holders of five of the convertible notes converted the notes into 381,601 shares of our common stock at conversion prices ranging between $3.69 and $3.96 per share. During the three months ended March 31, 2021 and 2020, we recorded interest expense of $27,538 and $704, respectively related to these convertible notes payable. As of March 31, 2021 and December 31, 2020, the principal balance of the convertible promissory notes of $150,000 and $1,445,000, respectively was recorded in noncurrent liabilities under the caption convertible promissory notes on our condensed consolidated balance sheets.
Convertible Notes Payable at fair value
On January 3, 2020, March 4, 2020 and March 25, 2020, we entered into three separate securities purchase agreements and issued three convertible promissory notes with aggregate principal amounts of $2,360,000 at a purchase price of $2,200,000, (the “January 3rd Note”, the “March 4, Note” and the “March 25th Note”, respectively). The January 3rd Note matures on January 3, 2022, the March 4th Note 4 matures on March 4, 2030 and the March 25th Note matures on March 25, 2021. The January 3rd Note and March 4th Note were issued with warrants (‘Warrants E, F, G, H and I”) to purchase up to 186,072 shares of our common stock at a purchase price of $3.91 per share. The January 3rd Note may be converted at any time into shares of our common stock at a conversion price equal to the lower of (A) $5.25 per share and (B) the lower of (i) the lowest intraday sales price of our common stock on the applicable conversion date and (ii) the average of the three lowest closing sales prices of our common stock during the twelve consecutive trading days including the trading day immediately preceding the conversion date but under no circumstances lower than $3.91 per share. The March 4th Note is convertible at fixed conversion prices of $3.91 and the March 25th Note is convertible at a fixed conversion price of $3.90 per share. The March 4th Notewith a principal amount of $500,000 bears interest at a rate of 8% per annum, payable monthly. We elected the fair value option to account for these convertible promissory notes. As such, we initially recorded the fair value of each of the notes on their respective issue dates. On each balance sheet date, we record the fair value of the convertible promissory notes with any changes in the fair value recorded in the condensed consolidated statement of operation.
On July 14, 2020, August 17, 2020, January 13 2021 and January 27, 2021, the January 3rd Note and March 25th Note with an aggregate principal balance of $1,860,000 were converted into 453,735 shares of our common stock at purchase prices ranging between $3.90 and $4.45 per share. As of March 31, 2021, we had a balance of $1,298,740 in noncurrent liabilities recorded on our condensed consolidated balance sheets related to these convertible promissory notes at fair value. For the three months ended March 31, 2021 and 2020, we recorded a loss from the change in fair value of $(871,449) and a gain from the change in fair value of $147,459, respectively, on our condensed consolidated statements of operations.
Nonconvertible Promissory Notes
On November 5, 2019, November 30, 2017 and June 14 2017, we issued unsecured promissory notes in the aggregate amount of $950,000. The promissory notes bear interest at a rate of 10% per annum and had initial maturity dates ranging between one and two years of the initial issuance date. The maturity dates have been extended and the promissory notes now have maturity dates ranging between November 5, 2021 and November 30, 2022.
On December 10, 2018, we agreed to exchange a promissory note in the amount of $300,000, including accrued interest of $192,233 for a new unsecured promissory note in the amount of $492,233 that matures on December 10, 2023. This promissory note bears interest of 10% per annum and can be prepaid without a penalty at any time prior to its maturity. The note requires monthly repayments of principal and interest in the amount of $10,459 throughout the life of the note.
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As of March 31, 2021 and December 30, 2020, we had a balance of $1,049,935 and $846,749, respectively, recorded as current liabilities and $200,721 and $426,645, respectively in noncurrent liabilities on our condensed consolidated balance sheets related to these nonconvertible promissory notes. We recorded interest expense of $31,659 and $33,759 for the three months ended March 31, 2021 and 2020 related to these nonconvertible promissory notes. We made interest payments of $67,948 during the three months ended March 31, 2021 related to the convertible and nonconvertible promissory notes.
Critical Accounting Policies, Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or “GAAP”. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Please refer to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 and Note 3 Summary of Significant Accounting Policies, to our Consolidated Financial Statements for a complete description of our significant accounting policies.
Income Taxes
We recorded an income tax benefit of $38,851 for the three months ending March 31, 2021. There was no income tax expense or benefit for the three ending March 31, 2020. The income tax benefit of $38,851 is due to a reduction of the valuation allowance against the deferred tax liability recorded as a result of the B/HI acquisition.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, see Note 1 (General) to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
As of March 31, 2021 and 2020, we did not have any material off-balance sheet arrangements.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, as well as statements, other than historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. These statements are often characterized by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” ‘intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “goal” or “continue” or the negative of these terms or other similar expressions.
Forward-looking statements are based on assumptions and assessments made in light of our experience and perception of historical trends, current conditions, expected and future developments and other factors believed to be appropriate. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of our control. You should not place undue reliance on these forward-looking statements, which reflect our views only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update these forward-looking statements in the future, except as required by applicable law.
Risks that could cause actual results to differ materially from those indicated by the forward-looking statements include those described as “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as updated by our subsequently filed Quarterly Reports on Forms 10-Q and Current Reports on Forms 8-K.
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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 improve 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 SEC’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, 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 March 31, 2021. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to material weaknesses disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on April 15, 2021, which have not been remediated as of the date of the filing of this report.
Remediation of Material Weaknesses in Internal Control over Financial Reporting
In order to remediate the material weaknesses in internal control over financial reporting, we intend to implement improvements during fiscal year 2021, under the direction of our board of directors, as follows:
● | Our board of directors intends to review the COSO “Internal Control over Financial Reporting - Guidance for Smaller Public Companies” that was published in 2006 and updated in 2013, including the control environment, risk assessment, control activities, information and communication and monitoring. Based on this framework, the board of directors plans to implement controls as needed assuming a cost benefit relationship. In addition, our board of directors plans to evaluate the key concepts of the updated 2013 COSO “Internal Control – Integrated Framework” as it provides a means to apply internal control to any type of entity. |
● | Perform a comprehensive review of current procedures to ensure compliance with our newly documented accounting policies and procedures; |
● | Review and enhance segregation of duties; |
● | Review and document the period end procedures for analyzing complex transactions. |
Changes in Internal Control over Financial Reporting
During the quarter ended March 31, 2021, we hired an accounting firm to assist in the review of accounting of complex transactions. There has otherwise been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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There have been no material changes to the risk factors disclosed in Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on April 15, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Recent Sales of Unregistered Securities
On March 30, 2021, the Company entered into a convertible promissory note in the principal amount of $150,000. The convertible promissory note bears interest at a rate of 10% per annum and matures on March 20. 2023. The noteholder may convert the principal balance and any accrued interest at any time before the maturity date of the convertible promissory note using the 90-day trailing trading average price of the Company’s Common Stock.
The securities referred to above were issued, and any shares of Common Stock to be issued upon conversion thereof will be issued, by the Company in reliance upon the exemption from registration provided by Section 4(a)2 of the Securities Act.
(c) Company Purchases of Equity Securities
The following table presents information related to our repurchases of our shares of Common Stock during the quarter ended March 31, 2021:
Period | Total Number of Shares Purchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||||||
1/1/2021 – 1/31/2021 | — | $ | — | — | — | ||||||||||||
2/1/2021 – 2/28/2021 | — | — | — | — | |||||||||||||
3/1/2021 – 3/31/2021 | 22,867 | 46.10 | — | — | |||||||||||||
Total | 22,867 | $ | 46.10 | — | — |
———————
(1) | Pursuant to the terms and subject to the conditions set forth in the put agreements, the 42West sellers and certain 42West employees exercised their put rights for an aggregate of 22,867 shares of common stock. |
Item 5.02 – Compensatory Arrangements of Certain Officers
On May 17, 2021, the Compensation Committee of the Board of Directors of the Company approved an increase in the base salary of William O’Dowd, the Company’s Chief Executive Officer, from $300,000 to $400,000 per year and an increase in the base salary of Mirta Negrini, the Company’s Chief Financial Officer, from $250,000 to $300,000 per year. The increases are effective January 1, 2021.
Item 5.02 – Departure of Directors
On May 16, 2021, Leslee Dart resigned from her position as a member of the Board of Directors (the "Board") of the Company, effective as of such date. Ms. Dart’s decision to resign as a director of the Company was not due to any disagreements with the Company on any matter relating to the Company’s operations, policies or practices. Ms. Dart will remain as an employee of the Company.
Exhibit No. | Description | |
31.1 | Certification of Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Chief Executive Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | XBRL Taxonomy Extension Definition | |
101.LAB | XBRL Taxonomy Extension Label Linkbase | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
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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 May 18, 2021.
Dolphin Entertainment, Inc. | ||
By: | /s/ William O’Dowd IV | |
Name: William O’Dowd IV | ||
Chief Executive Officer |
By: | /s/ Mirta A Negrini | |
Name: Mirta A Negrini | ||
Chief Financial Officer |
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Exhibit 31.1
CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO SECTION 302
I, William ODowd IV, Chief Executive Officer of Dolphin Entertainment Inc. (the Registrant), certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of the Registrant; | |
2. | Based on my knowledge, this 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. | |
3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report; | |
4. | The Registrants other certifying officer and I are 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 Registrant 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 Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our 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 Registrants 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 Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and |
5. | The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
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Date: May 18, 2021 | /s/ William ODowd IV |
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| William ODowd IV |
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| Chief Executive Officer
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Exhibit 31.2
PRINCIPAL FINANCIAL OFFICER
CERTIFICATION PURSUANT TO SECTION 302
I, Mirta A Negrini, Chief Financial Officer of Dolphin Entertainment Inc. (the Registrant), certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of the Registrant; | |
2. | Based on my knowledge, this 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. | |
3. | Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report; | |
4. | The Registrants other certifying officer and I are 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 Registrant 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 Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our 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 Registrants 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 Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal quarter (the Registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrants internal control over financial reporting; and |
5. | The Registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrants auditors and the audit committee of the Registrants board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrants ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrants internal control over financial reporting. |
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Date: May 18, 2021 | /s/ Mirta A Negrini |
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| Mirta A Negrini |
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| Chief Financial Officer |
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Exhibit 32.1
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 accompanying Quarterly Report of Dolphin Entertainment, Inc. (the Company) on Form 10-Q for the quarter ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, William ODowd IV, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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 results of operations of the Company.
Date: May 18, 2021 | By: | /s/ William ODowd IV |
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| William ODowd IV |
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| Chief Executive Officer |
|
Exhibit 32.2
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 accompanying Quarterly Report of Dolphin Entertainment, Inc. (the Company) on Form 10-Q for the quarter ended March 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Mirta A Negrini, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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 results of operations of the Company.
Date: May 18, 2021 | By: | /s/ Mirta A Negrini |
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|
| Mirta A Negrini |
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|
| Chief Financial Officer |
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Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
May 14, 2021 |
|
Document And Entity Information | ||
Entity Registrant Name | Dolphin Entertainment, Inc. | |
Entity Central Index Key | 0001282224 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2021 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Shell Company | false | |
Entity Emerging Growth Company | false | |
Entity Common Stock, Shares Outstanding | 7,600,306 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2021 | |
Entity File Number | 001-38331 | |
Entity Incorporation State Code | FL |
Consolidated Balance Sheets (Parenthetical) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Intangible assets, accumulated amortization | $ 6,142,939 | $ 5,747,941 |
Stockholders' Equity | ||
Preferred stock, authorized shares | 10,000,000 | |
Common stock, par value | $ 0.015 | $ 0.015 |
Common stock, authorized | 40,000,000 | 40,000,000 |
Common stock, issued | 7,605,477 | 6,618,785 |
Common stock, Outstanding | 7,605,477 | 6,618,785 |
Series C Preferred Stock [Member] | ||
Stockholders' Equity | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, authorized shares | 50,000 | 50,000 |
Preferred stock, issued shares | 0 | 0 |
Preferred stock, outstanding shares | 0 | 0 |
Consolidated Statements of Cash Flows (Parenthetical) - USD ($) |
Mar. 31, 2021 |
Mar. 31, 2020 |
---|---|---|
Reconciliation of cash, cash equivalents and restricted cash | ||
Cash and cash equivalents | $ 7,111,717 | $ 1,880,744 |
Restricted cash | 714,096 | 714,089 |
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows | $ 7,825,813 | $ 2,594,833 |
GENERAL |
3 Months Ended | |||
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Mar. 31, 2021 | ||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
GENERAL | NOTE 1 – GENERAL
Dolphin Entertainment, Inc., a Florida corporation (the “Company,” “Dolphin,” “we,” “us” or “our”), is a leading independent entertainment marketing and premium content development company. Through its acquisitions of 42West LLC (“42West”), The Door Marketing Group, LLC (“The Door”), Shore Fire Media, Ltd (“Shore Fire”), Viewpoint Computer Animation Incorporated (“Viewpoint”), Be Social Public Relations, LLC (“Be Social”) and B/HI Communications, Inc.(“B/HI”), the Company provides expert strategic marketing and publicity services to all of the major film studios, and many of the leading independent and digital content providers, A-list celebrity talent, including actors, directors, producers, celebrity chefs, social media influencers and recording artists. The Company also provides strategic marketing publicity services and creative brand strategies for prime hotel and restaurant groups and consumer brands. The strategic acquisitions of 42West, The Door, Shore Fire, Viewpoint, Be Social and B/HI bring together premium marketing services, including digital and social media marketing capabilities, with premium content production, creating significant opportunities to serve respective constituents more strategically and to grow and diversify the Company’s business. Dolphin’s content production business is a long established, leading independent producer, committed to distributing premium, best-in-class film and digital entertainment. Dolphin produces original feature films and digital programming primarily aimed at family and young adult markets. Impact of COVID-19
On March 11, 2020, the World Health Organization categorized a novel coronavirus (COVID-19) as a pandemic, and it has spread throughout the United States. The outbreak of COVID-19 and public and private sector measures to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place have adversely affected the demand for certain of the services the Company offers resulting in decreased revenues and cash flows. One of our subsidiaries operates in the food and hospitality sector and has been negatively impacted by the orders to either suspend or reduce operations of restaurants and hotels. Another subsidiary represents talent, such as actors, directors and producers. The revenues from these clients has been negatively impacted by the suspension of content production. Conversely, the television and streaming consumption around the globe has increased as well as the demand for consumer products. Revenues from the marketing of these shows and products has somewhat offset the decrease in revenue from the sectors discussed above. The Company has taken steps such as freezes on hiring, staff reductions, salary reductions and cuts in non-essential spending to mitigate the effects of COVID-19 on the Company’s financial results.
Between April 19, 2020 and April 23, 2020, the Company and its subsidiaries received five separate unsecured loans for an aggregate amount of $2.8 million (the “PPP Loans”) under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). Through our acquisition of Be Social, the Company assumed a PPP Loan of $304,169. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments and covered utilities during the measurement period beginning on the date of first disbursement of the PPP Loans. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40% of the forgiven amount can be attributable to non-payroll costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the PPP Loans and qualifying for the forgiveness of the PPP Loans based on its adherence to the forgiveness criteria. The Company has not yet applied for forgiveness.
Depending on the extent and duration of the pandemic and the related economic impacts, COVID-19 may continue to impact our business and financial results, as well as significant judgements and estimates, including those related to goodwill and other asset impairments and allowances for doubtful accounts.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Dolphin, and all of its wholly owned subsidiaries, comprising Dolphin Films, Inc. (“Dolphin Films”), Dolphin SB Productions LLC, Dolphin Max Steel Holdings, LLC (“Max Steel Holdings”), Dolphin JB Believe Financing, LLC, Dolphin JOAT Productions, LLC, 42West, The Door, Viewpoint, Shore Fire, Be Social and B/HI.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The Company enters into relationships or investments with other entities, and in certain instances, the entity in which the Company has a relationship or investment may qualify as a variable interest entity (“VIE”). A VIE is consolidated in the financial statements if the Company is deemed to be the primary beneficiary of the VIE. The primary beneficiary is the party that has the power to direct activities that most significantly impact the activities of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE. The Company has included JB Believe, LLC formed on December 4, 2012 in the State of Florida in its condensed consolidated financial statements for the three months ended March 31, 2021 and 2020 as a VIE.
The unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Reclassifications
Reclassifications have been made to our unaudited condensed consolidated financial statements for the prior period to conform to classifications used in 2021.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates made by management in the preparation of the financial statements relate to the expected revenue and costs for investments in digital and feature film projects, estimates of sales returns and other allowances, provisions for doubtful accounts and impairment assessments for investment in feature film projects, goodwill and intangible assets. Actual results could differ materially from such estimates.
Additionally, the full impact of the COVID-19 outbreak is unknown and cannot be reasonably estimated. However, management has made appropriate accounting estimates on certain accounting matters, which include the allowance for doubtful accounts, carrying value of the goodwill and other intangible assets, carrying amount of certain convertible notes payable and embedded derivatives and warrant liabilities, based on the facts and circumstances available as of the reporting date. The Company’s future assessment of the magnitude and duration of the COVID-19 outbreak, as well as other factors, could result in material impacts to the Company’s financial statements in future reporting periods.
Update to Significant Accounting Policies
The Company’s significant accounting policies are detailed in "Note 3: Summary of Significant Accounting Policies" within Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. Significant changes to our accounting policies as a result of adopting ASU 2020-06 during the three months ended March 31, 2021 is discussed below:
Convertible Notes
On January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2020-06 that simplifies the accounting for convertible instruments. ASU 2020-06 (i) reduced the number of accounting models for convertible instruments, by eliminating the models that require separation of cash conversion or beneficial conversion features from the host and (ii) revised derivative scope exception and (iii) provided targeted improvements for EPS. The adoption of ASU 2020-06 did not have a material impact on the Company’s outstanding convertible debt instruments as of March 31, 2021.
Income Tax
The Company recorded an income tax benefit of $38,851 for the three months ended March 31, 2021. There was no income tax expense or benefit for the three ended March 31, 2020. The income tax benefit of $38,851 is due to a reduction of the valuation allowance against the deferred tax liability recorded as a result of the B/HI acquisition.
Recent Accounting Pronouncements
Accounting Guidance Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. The guidance simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this new guidance on January 1, 2021 using the modified retrospective approach without a material impact on its condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12 to simplify the accounting for income taxes by removing certain exceptions and amending certain exceptions related to the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This ASU also clarifies and simplifies other aspects of the accounting for income taxes. This amended guidance was effective for the Company beginning January 1, 2021. The Company adopted this new guidance on January 1, 2021 without a material impact on its condensed consolidated financial statements
Accounting Guidance Not yet Adopted
In June 2016, the FASB issued new guidance on measurement of credit losses (ASU 2016-13, Measurement of Credit Losses on Financial Instruments) with subsequent amendments issued in November 2018 (ASU 2018-19) and April 2019 (ASU 2019-04). This update changes the accounting for credit losses on loans and held-to-maturity debt securities and requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. It is applicable to trade accounts receivable. The guidance is effective for fiscal years beginning after December 15, 2022 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted. The Company is in the process of evaluating the impact of the adoption of ASU 2016-13 on the Company's consolidated financial statements and disclosures. |
GOING CONCERN |
3 Months Ended |
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Mar. 31, 2021 | |
Going Concern | |
GOING CONCERN | NOTE 2 — GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP and contemplate the continuation of the Company as a going concern. The Company has suffered recurring losses, including a net loss of $5,271,985, for the three months ended March 31, 2021, and had an accumulated deficit of $103,244,026 as of March 31, 2021. As of March 31, 2021, the Company had a working capital deficit of $4,029,249 and therefore does not have adequate capital to fund its obligations as they come due or to maintain or grow its operations. In addition, several of our subsidiaries operate in industries that have been adversely affected by the government mandated work-from-home, stay-at-home and shelter-in-place orders as a result of the novel coronavirus COVID-19. As a result, the Company’s revenues have been negatively impacted by a reduction in the services we provide to clients operating in these industries. The Company has taken measures such as a freeze on hiring, salary reductions, staff reductions and cuts in non-essential spending to mitigate the reduction in revenues. The Company is dependent upon funds from the issuance of debt securities, securities convertible into shares of its common stock, par value $0.015, (“Common Stock”), sales of shares of Common Stock and financial support of certain shareholders. The continued spread of COVID-19 and uncertain market conditions may limit the Company’s ability to access capital. If the Company is unable to obtain funding from these sources within the next 12 months, it could be forced to curtail its business operations or liquidate. These factors raise substantial doubt about the ability of the Company to continue as a going concern within one year after these condensed consolidated financial statements are issued. The condensed consolidated financial statements, of which these notes form a part, do not include any adjustments that might result from the outcome of these uncertainties. The Company’s management currently plans to raise any necessary additional funds through additional issuances of its Common Stock, securities convertible into its Common Stock and/or debt securities, as well as available bank and non-bank financing, or a combination of such financing alternatives. There is no assurance that the Company will be successful in raising additional capital. Any issuance of shares of Common Stock or securities convertible into Common Stock would dilute the equity interests of our existing shareholders, perhaps substantially. The Company currently has the rights to several scripts, including one currently in development for which it intends to obtain financing to produce and release following which it expects to earn a producer and overhead fee. There can be no assurances that such production, together with any other productions, will be commenced or released or that fees will be realized in future periods or at all. The Company is currently exploring opportunities to expand the services currently being offered by 42West, The Door, Viewpoint, Shore Fire, Be Social and B/HI while reducing expenses of their respective operations through synergies with the Company. There can be no assurance that the Company will be successful in expanding such services or reducing expenses. |
GOODWILL AND INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND INTANGIBLE ASSETS | NOTE 3 — GOODWILL AND INTANGIBLE ASSETS
As of March 31, 2021, in connection with its acquisitions of 42West, The Door, Viewpoint, Shore Fire, Be Social and B/HI, the Company has a balance of $20,098,451 of goodwill on its condensed consolidated balance sheet which management has assigned to the entertainment publicity and marketing segment. The Company accounts for goodwill in accordance with FASB ASC No. 350, Intangibles—Goodwill and Other (“ASC 350”). ASC 350 requires goodwill to be reviewed for impairment annually, or more frequently if circumstances indicate a possible impairment. The Company evaluates goodwill in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator.
The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its’ carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of the reporting unit is less than its’ carrying amount, management conducts a quantitative goodwill impairment test. This impairment test involves comparing the fair value of the reporting unit with its’ carrying value (including goodwill). The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows approach and the market approach, which utilizes comparable companies’ data. If the estimated fair value of the reporting unit is less than its carrying value, a goodwill impairment exists for the reporting unit and an impairment loss is recorded.
Goodwill
All of the Company’s goodwill is related to the entertainment, publicity and marketing segment. Changes in the carrying value of goodwill were as follows:
———————
Intangible Assets
Intangible assets consisted of the following as of March 31, 2021 and December 31,2020:
Amortization expense associated with the Company’s intangible assets for the three months ended March 31, 2021 and 2020 was $394,998 and $430,912, respectively. Amortization expense remaining relating to intangible assets for each of the years ended December 31, 2021 through 2025 is estimated at approximately $1.5 million, $1.3 million, $1.1 million, $1.0 million and $1.0 million, respectively. |
MERGERS AND ACQUISITIONS |
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Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MERGERS AND ACQUISITIONS | NOTE 4 — MERGERS AND ACQUISITIONS
B/HI Communications, Inc.
On January 8, 2021, but made effective January 1, 2021, the Company acquired all of the issued and outstanding shares of B/HI, a California corporation, (the “B/HI Purchase”) pursuant to a share purchase agreement (the “B/HI Share Purchase Agreement”) between the Company and Dean G. Bender and Janice L. Bender, as co-trustees of the Bender Family Trust dated May 6, 2013 (collectively, the “B/HI Sellers). B/HI is an entertainment public relations agency that specializes in corporate and product communications programs for interactive gaming, esports, entertainment content and consumer product organizations.
The total consideration paid to the B/HI Seller in respect to the B/HI Purchase is $0.8 million of shares of Common Stock based on a 30-day trailing trading average closing price immediately prior to, but not including, the applicable payment date adjusted for working capital, cash targets and the B/HI indebtedness as defined in the B/HI Share Purchase Agreement. The shares of Common Stock will be issued upon the B/HI Sellers review of the working capital adjustment and final indebtedness calculation. The B/HI Sellers may also earn up to an additional $1.2 million of which 50% will be paid in cash and 50% will be paid in Common Stock upon achieving certain specified financial performance targets during the years ended December 31, 2021 and 2022. The B/HI Share Purchase Agreement contains customary representations, warranties, and covenants of the parties thereto. The Common Stock that will be issued as part of the consideration has not been registered under the Securities Act of 1933, as amended (the “Securities Act”).
The following table summarizes the provisional fair value of the consideration transferred:
As a condition to the B/HI Purchase, Dean Bender, one of the sellers and Shawna Lynch, a key employee of B/HI entered into employment agreements with the Company to continue as employees after the closing of the B/HI Purchase. Mr. Bender’s agreement is for a period of two years through December 31, 2022 and he will serve as Co-President of B/HI during that term. Ms. Lynch’s agreement is for a period of four years and may be renewed on the same terms for two successive two-year terms. Ms. Lynch will serve as Co-President of B/HI during the term of her agreement. Each of the employment agreements of Mr. Bender and Ms. Lynch define base compensation and contains provisions for termination including as a result of death or disability and entitles the employee to vacations and to participate in all employee benefit plans offered by the Company.
The following table summarizes the provisional fair values of the assets acquired and liabilities assumed by the B/HI Purchase. Amounts in the table are estimates that may change, as described below.
Unaudited Pro Forma Consolidated Statements of Operations
For the three months ended March 31, 2021, the Company’s statement of operations includes revenue of $608,432 and net income of $18,908. The following represents the Company’s unaudited pro forma consolidated operations after giving effect to the Be Social and B/HI acquisitions for the three months ended March 31, 2020 as if the Company had completed both acquisitions on January 1, 2020 and its results had been included in the consolidated results of the Company for the three months ending March 31, 2020.
These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of the acquisitions to reflect the amortization that would have been charged, assuming the intangible assets had been recorded on January 1, 2020.
The impact of the acquisition of Be Social and B/HI on the Company’s actual results for periods following the acquisition may differ significantly from that reflected in this unaudited pro forma information for a number of reasons. As a result, this unaudited pro forma information is not necessarily indicative of what the combined company’s financial condition or results of operations would have been had the acquisitions been completed on January 1, 2020, as provided in this pro forma financial information. In addition, the pro forma financial information does not purport to project the future financial condition and results of operations of the combined company. |
CAPITALIZED PRODUCTION COSTS, ACCOUNTS RECEIVABLES AND OTHER CURRENT ASSETS |
3 Months Ended |
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Mar. 31, 2021 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
CAPITALIZED PRODUCTION COSTS, ACCOUNTS RECEIVABLES AND OTHER CURRENT ASSETS | NOTE 5 — CAPITALIZED PRODUCTION COSTS, ACCOUNTS RECEIVABLES AND OTHER CURRENT ASSETS
Capitalized Production Costs
Capitalized production costs include costs of scripts, fees for casting agents and other development costs for projects that are in development but have not been produced. Capitalized production costs are stated on the Company’s condensed consolidated balance sheets at the lower of unamortized costs or net realizable value. The Company has a balance of $325,866 and $271,139 in capitalized production costs associated with these scripts and development costs as of March 31, 2021 and December 31, 2020, respectively. The Company has assessed events and changes in circumstances that would indicate whether the Company should assess if the fair value of the productions is less than the unamortized costs capitalized and did not identify indicators of impairment.
The Company did not generate any revenue from its content production segment during the three months ended March 31, 2021 and 2020.
Accounts Receivables
The Company’s trade accounts receivables related to its entertainment publicity and marketing business are recorded at amounts billed to customers, and presented on the balance sheet, net of the allowance for doubtful accounts. The allowance is determined by various factors, including the age of the receivables, current economic conditions, historical losses and other information management obtains regarding the financial condition of customers. As of March 31, 2021 and December 31, 2020, the Company had accounts receivable balances of $4,708,359 and $5,027,101, respectively, net of allowance for doubtful accounts of $621,104 and $653,272, respectively, related to its entertainment publicity and marketing segment. Other Current Assets
The Company had a balance of $323,020 and $231,890 in other current assets on its condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021 and December 31, 2020, these amounts were primarily composed of the following: Prepaid expenses – The Company records in other assets on its condensed consolidated balance sheets amounts prepaid for insurance premiums. The amounts are amortized on a monthly basis over the life of the policies.
Income tax receivable – The Company is owed an overpayment from certain taxes paid for 2020. As of March 31, 2021 and December 31, 2020, the Company had a balance of $37,200 from income tax receivable. |
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS |
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Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS | NOTE 6 — PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvement consists of:
The Company depreciates furniture and fixtures over a useful life of between five and seven years, computer and equipment over a useful life of between three and five years and leasehold improvements are amortized over the remaining term of the related leases. The Company recorded depreciation and amortization expense of $87,714 and $90,091 for the three months ended March 31, 2021 and 2020, respectively. |
DEBT |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT | NOTE 7 — DEBT
Total debt of the Company was as follows as of March 31, 2021 and December 31, 2020:
The table below details the maturity dates for the Company’s debt as of March 31, 2021:
Production Service Agreement
On February 20, 2020, the Company received notification from the lender of the Production Service Agreement that the Max Steel VIE did not owe any debt to the lender. As a result, the Company recorded a gain on extinguishment of debt in the amount of approximately $3.3 million during the three months ended March 31, 2020.
Convertible Notes Payable
On March 30, 2021, December 1, 2020, October 26, 2020, September 11, 2020 and March 18, 2020, the Company issued convertible promissory notes in the aggregate amount of $1,595,000. The convertible promissory notes bear interest at a rate of 10% per annum and mature on the second anniversary of their respective issuances. The balance of each convertible promissory note and any accrued interest may be converted at the noteholder’s option at any time at a purchase price based on either a 30-day or 90-day average closing market price per share of the Common Stock. During the three months ended March 31, 2021, the holders of five of the convertible notes converted the principal balance of $1,445,000 plus accrued interest of $8,611 into 381,601 shares of Common Stock at conversion prices ranging between $3.69 and $3.96 per share. During the three months ended March 31, 2021 and 2020, the Company recorded interest expense of $27,538 and $704, respectively, related to these convertible notes payable. The Company made interest payments of $17,815 during the three months ended March 31, 2021 related to the nonconvertible promissory notes. As of March 31, 2021 and December 31, 2020, the principal balance of the convertible promissory notes of $150,000 and $1,445,000, respectively, was recorded in noncurrent liabilities under the caption convertible promissory notes on the Company’s condensed consolidated balance sheets.
Convertible Notes Payable at fair value
On January 3, 2020, March 4, 2020 and March 25, 2020, the Company entered into three separate securities purchase agreements and issued three convertible promissory notes with aggregate principal amounts of $2,360,000 at a purchase price of $2,200,000 (the “January 3rd Note”, the “March 4th Note” and the “March 25th Note”, respectively). The January 3rd Note contains an original issue discount of $100,000 and the March 24th Note contains an original issue discount of $50,000 and transaction fees of $10,000 were deducted from the proceeds of the convertible note. The January 3rd Note matures on January 3, 2022, the March 4th Note matures on March 4, 2030 and the March 25th Note matures on March 25, 2021. The January 3rd Note and March 4th Note were issued with warrants (“Warrants E, F, G, H and I”) to purchase up to 186,072 shares of Common Stock at a purchase price of $3.91 per share. See Note 14 for further discussion on the warrants. The January 3rd Note may be converted at any time into shares of Common Stock at a conversion price equal to the lower of (A) $5.25 per share and (B) the lower of (i) the lowest intraday sales price of Common Stock on the applicable conversion date and (ii) the average of the three lowest closing sales prices of Common Stock during the twelve consecutive trading days including the trading day immediately preceding the conversion date but under no circumstances lower than $3.91 per share. The March 4th Note is convertible at a fixed conversion price of $3.91 per share and the March 4th Note is convertible at fixed conversion price of $3.90 per share. The March 4, 2020 convertible promissory note with a principal amount of $500,000 bears interest at a rate of 8% per annum, payable monthly. The Company recorded interest expense of $9,863 in its condensed consolidated statement of operations and made interest payments of $9,863 during the three months ended March 31, 2021, related to the March 4th Note. The Company elected the fair value option to account for these convertible promissory notes. As such, the estimated fair value of each note was recorded on their respective issue dates. At each balance sheet date the Company records the fair value of the convertible promissory notes with any changes in the fair value recorded in the condensed consolidated statement of operations.
On each of July 14, 2020 and August 17, 2020, the January 3rd Note converted an aggregate principal amount of $760,000 into 172,181 shares using a conversion prices ranging between $4.38 and $4.45 per share. On each of January 13, 2021, and January 27, 2021, The January 3rd Note and the March 25th Note, with an aggregate principal balance of $1,100,000 were converted into 281,554 shares of Common Stock at purchase prices ranging between $3.90 and $3.91 per share. As of March 31, 2021, the Company had a balance of $1,298,740 in noncurrent liabilities recorded on its condensed consolidated balance sheets related to the fair value of the March 4th Note. As of March 31, 2021, the January 3rd Note and the March 25th Note had been fully converted into shares of Common Stock. As of December 31, 2020, the Company had a balance of $580,000 in current liabilities and $947,293 in noncurrent liabilities on its condensed consolidated balance sheet related to these convertible notes at fair value. For the three months ended March 31, 2021 and 2020, the Company recorded a loss in fair value of $(871,449) and a gain in fair value of $147,459, respectively, on its condensed consolidated statement of operations.
Nonconvertible Promissory Notes
On November 5, 2019, November 30, 2017 and June 14, 2017, the Company issued unsecured promissory notes in the aggregate amount of $950,000. The promissory notes bear interest at a rate of 10% per annum and had initial maturity dates ranging between one and two years of the initial issuance date. The maturity dates have been extended and the promissory notes now have maturity dates ranging between November 5, 2021 and November 30, 2022.
On December 10, 2018, the Company agreed to exchange a promissory note in the amount of $300,000, including accrued interest of $192,233 for a new unsecured promissory note in the amount of $492,233 that matures on December 10, 2023. This promissory note bears interest of 10% per annum and can be prepaid without a penalty at any time prior to its maturity. The note requires monthly repayments of principal and interest in the amount of $10,459 throughout the life of the note. As of March 31, 2021 and December 30, 2020, the Company had a balance of $1,049,935 and $846,749, respectively, recorded as current liabilities and $200,721 and $426,645, respectively in noncurrent liabilities on its condensed consolidated balance sheets related to these nonconvertible promissory notes. The Company recorded interest expense of $31,659 and $33,759 for the three months ended March 31, 2021 and 2020 related to these nonconvertible promissory notes. The Company made interest payments of $31,659 during the three months ended March 31, 2021 related to the nonconvertible promissory notes.
Term Loan
On March 31, 2020, 42West and The Door, as co-borrowers, entered into a business loan agreement with Bank United, N.A. to convert the balance of a 42West line of credit of $1,200,390 into a three-year term loan (the “Term Loan”). The Term Loan bears interest at a rate of 0.75% points over the Lender’s Prime Rate and matures on March 15, 2023. As of March 31, 2021, the outstanding balance on the Term Loan was $800,260. The Company made interest payments in the amount of $8,681 related to the term loan during the three months ended March 31, 2021.
The Term Loan contains customary affirmative covenants, including covenants regarding maintenance of a maximum debt to total net worth ratio of at least 4.0:1.0 and a minimum fixed charge coverage of 1.06x based on fiscal year-end audit to be calculated as provided in the Term Loan. Further, the Term Loan contains customary negative covenants, including those that, subject to certain exceptions, restrict the ability of 42West and The Door to incur additional indebtedness, grant liens, make loans, investments or certain acquisitions, or enter into certain types of agreements. Upon the occurrence of an event of default, the bank may accelerate the maturity of the loan and declare the unpaid principal balance and accrued but unpaid interest immediately due and payable. In the event of 42West and The Door’s insolvency, such outstanding amounts will automatically become due and payable. 42West and The Door may prepay any amounts outstanding under the Term Loan without penalty. The bank tests for compliance with debt covenants on an annual basis based on the financial statements of 42West and The Door as of and for the year ended December 31. Based on current economic factors and uncertainties due to COVID-19, the Company believes it is out of compliance with certain debt covenants as of and for the three months ended March 31, 2021. As such, the Company classified the entire balance of $800,260 of the Term Loan in current liabilities on its condensed consolidated balance sheet.
Payroll Protection Program Loan
Between April 19, 2020 and April 23, 2020, the Company and four of its subsidiaries executed notes and received an aggregate amount of $2,795,700 from five PPP Loans from BankUnited, N.A., under the PPP which was established under the CARES Act and is administered by the U.S. Small Business Administration. Be Social, which the Company acquired on August 17, 2020, received a PPP Loan in the amount of $304,169 prior to the acquisition. Loans obtained through the PPP are eligible to be forgiven as long as the proceeds are used for qualifying purposes and certain other conditions are met. The receipt of these funds, and the forgiveness of the loan is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its adherence to the forgiveness criteria. In June 2020, Congress passed the Payroll Protection Program Flexibility Act that made several significant changes to PPP loan provisions, including providing greater flexibility for loan forgiveness. The Company used the proceeds from the PPP Loans to fund payroll costs in accordance with the relevant terms and conditions of the CARES Act. The Company is following the government guidelines and tracking costs to insure 100% forgiveness of the loan. To the extent it is not forgiven, the Company would be required to repay that portion at an interest rate of 1% over a period of two years.
As of March 31, 2021, the current and noncurrent portion of the loan were $582,438 and $2,517,431, respectively. |
LOANS FROM RELATED PARTY |
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Mar. 31, 2021 | |
Due to Related Parties [Abstract] | |
LOANS FROM RELATED PARTY | NOTE 8 — LOANS FROM RELATED PARTY
Dolphin Entertainment, LLC (“DE LLC”), an entity wholly owned by the Company’s CEO, William O’Dowd, previously advanced funds for working capital to Dolphin Films. During 2016, Dolphin Films entered into a promissory note with DE LLC (the “DE LLC Note”) in the principal amount of $1,009,624. Under the terms of the DE LLC Note, the CEO may make additional advancements to the Company, as needed, and may be repaid a portion of the loan, which is payable on demand and bears interest at 10% per annum. Included in the balance of the DE LLC Note are certain script costs and other payables totaling $594,315 that were owed to DE LLC.
For the three months ended March 31, 2021, the Company did not repay any principal balance of the DE LLC Note. For the three months ended March 31, 2021 and 2020, the Company recorded interest expense of $27,317 and $27,621, respectively, related to the DE LLC Note. As of March 31, 2021 and December 31, 2020, the Company had a principal balance of $1,107,873 and accrued interest of $54,000 and $27,317, respectively, relating to the DE LLC Note on its condensed consolidated balance sheets. |
FAIR VALUE MEASUREMENTS |
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FAIR VALUE MEASUREMENTS | NOTE 9 — FAIR VALUE MEASUREMENTS
Put Rights
In connection with the 42West acquisition on March 30, 2017, the Company entered into put agreements, pursuant to which it granted Put Rights to the sellers and certain 42West employees. During the three months ended March 31, 2021, the sellers and certain employees exercised their Put Rights for an aggregate amount of 22,867 shares of Common Stock and were paid $260,900 for Put Rights that were exercised during 2020. An additional $300,000 of put rights exercised in 2020 were converted into 77,519 shares of Common Stock during the three months ended March 31, 2021. During the three months ended March 31, 2020, the sellers exercised their Put Rights, for an aggregate amount of 35,504 shares of Common Stock. During the three months ended March 31, 2020, the Company paid $375,000 related to Put Rights that were exercised of which $275,000 were exercised in December 2019. As of March 31, 2021, $1,054,237 was due to the sellers of 42West and certain 42West employees from the exercise of these Put Rights.
The Company records the fair value of the liability in the condensed consolidated balance sheets under the caption “Put Rights” and records changes to the liability against earnings or loss under the caption “Changes in fair value of put rights” in the condensed consolidated statements of operations. The carrying amount at fair value of the aggregate liability for the Put Rights recorded on the condensed consolidated balance sheets at March 31, 2021 and December 31, 2020 was $1,054,237 and $1,544,029, respectively. Due to the change in the fair value of the Put Rights for the period in which the Put Rights were outstanding for the three months ending March 31, 2021 and 2020, the Company recorded a loss of $71,106 and a gain of $1,470,740, respectively, in the condensed consolidated statement of operations. The Company utilized the Black-Scholes Option Pricing Model, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the Put Rights reflect management’s own assumptions about the assumptions that market participants would use in valuing the Put Rights as of December 31, 2020.
The following is a reconciliation of the fair value of the Put Rights from December 31, 2020 to March 31, 2021:
Contingent Consideration
Contingent Consideration - The Door
In connection with the Company’s acquisition of The Door, the Door Members have the potential to earn the contingent consideration, comprising up to 1,538,462 shares of Common Stock, based on a purchase price of $3.25, and up $2,000,000 in cash on achievement of adjusted net income targets based on the operations of The Door over the four-year period beginning January 1, 2018.
The Company records the fair value of the liability in the condensed consolidated balance sheets under the caption “Contingent Consideration” and records changes to the liability against earnings or loss under the caption “Changes in fair value of contingent consideration” in the condensed consolidated statements of operations. The fair value of the contingent consideration on the date of the acquisition of The Door was $1,620,000. The carrying amount at fair value of The Door liability for the contingent consideration recorded on the condensed consolidated balance sheet at March 31, 2021 and December 31, 2020 is $740,000 and $370,000, respectively. Due to the change in the fair value of the contingent consideration for the period in which the contingent consideration was outstanding during the three months ended March 31, 2021 and 2020, the Company recorded a loss on the contingent consideration of $370,000 and a gain of $103,000, respectively, in the condensed consolidated statement of operations.
The Company utilized a Monte Carlo Simulation model, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the contingent consideration reflect management’s own assumptions about the assumptions that market participants would use in valuing the contingent consideration as of the acquisition date.
The Company determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:
For the contingent consideration, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
Contingent Consideration - Be Social
In connection with the Company’s acquisition of Be Social, the seller of Be Social has the potential to earn up to $800,000 of contingent consideration, of which 62.5% is payable in cash, and 37.5% in shares of Common Stock, upon achievement of adjusted net income targets based on the operations of Be Social over the fiscal years ending December 31, 2022 and 2023.
The Company records the fair value of the liability in the condensed consolidated balance sheets under the caption “Contingent Consideration” and records changes to the liability against earnings or loss under the caption “Changes in fair value of contingent consideration” in the condensed consolidated statements of operations. The fair value of the contingent consideration on the Be Social Closing Date was $145,000. The carrying amount at fair value of contingent consideration related to Be Social recorded on the condensed consolidated balance sheet at March 31, 2021 and December 31, 2020 was $155,000 and $160,000, respectively. Due to the change in the fair value of the contingent consideration for the period in which the contingent consideration was outstanding during the three months ended March 31, 2021, the Company recorded a gain on the contingent consideration of $5,000 in the condensed consolidated statement of operations.
The Company utilized a Monte Carlo Simulation model, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the contingent consideration reflect management’s own assumptions about the assumptions that market participants would use in valuing the contingent consideration as of the acquisition date.
The Company determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:
For the contingent consideration, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
Contingent Consideration – B/HI
In connection with the Company’s acquisition of B/HI, the seller of B/HI has the potential to earn up to $1,200,000 of contingent consideration, of which 50% is payable in cash, and 50% in shares of Common Stock, upon achievement of adjusted net income targets based on the operations of B/HI over the fiscal years ending December 31, 2021 and 2022. Management estimated the fair value of the contingent consideration to be a di minimis amount as of March 31, 2021.
Fair Value Option Election – Convertible notes payable and freestanding warrants
2020 convertible notes payable
The Company issued the January 3rd Note with a principal amount of $1.3 million at a purchase price of $1.2 million. This January 3rd Note is accounted for under the ASC 825-10-15-4 FVO election. Under the FVO election the financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. As provided for by ASC 825-10-50-30(b), the estimated fair value adjustment is presented as a single line item within other income (expense) in the accompanying condensed consolidated statement of operations under the caption “change in fair value of convertible notes and derivative liabilities”.
For the January 3rd Note, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
The estimated fair value of the January 3rd Note as of December 31, 2020, was computed using a Monte Carlo simulation, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the note reflects management’s own assumptions about the assumptions that market participants would use in valuing the note as of the acquisition date and subsequent reporting periods.
The variable conversion price is the lower of (A) $5.25 per share and (B) the lower of (i) the lowest intraday sales price of Common Stock on the applicable conversion date and (ii) the average of the three lowest closing sales prices of Common Stock during the twelve consecutive trading days including the trading day immediately preceding the conversion date but under no circumstances lower than $3.91 per share.
In addition to this note, the Company issued two other convertible notes during the year ending December 31, 2020 for which it elected FVO. The March 4th Note was issued for a face value of $500,000 and the March 25th Note was issued for a face value of $560,000. Under the FVO election the financial instrument is initially measured at its issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. As provided for by ASC 825-10-50-30(b), the estimated fair value adjustment is presented as a single line item within other income (expense) in the accompanying condensed consolidated statement of operations under the caption “change in fair value of convertible notes and derivative liabilities”.
For the March 4th Note, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
The estimated fair value of the March 4th Note as of December 31, 2020 and as of March 31, 2021, was computed using a Black-Scholes simulation of the present value of its cash flows using a synthetic credit rating analysis and a required rate of return, using the following assumptions:
For the March 25th Note, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
The estimated fair value of the March 25th Note was computed using a Monte Carlo simulation, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the March 25th Note reflects management’s own assumptions about the assumptions that market participants would use in valuing the note as of the acquisition date and subsequent reporting periods.
Warrants
In connection with the January 3rd Note, the Company issued warrants to purchase up to 41,518 shares of its Common Stock on January 3, 2020, as well as on each of the second, fourth, and six month anniversaries of the January 3rd Note issuance date (collectively “Series E, F, G, and H Warrants”). During the three months ended March 31, 2021, the Series E, F, G, and H Warrants were all converted into 146,027 shares via a cashless exercise formula pursuant to the warrant agreement.
For the warrants, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
In connection with the March 4th Note issued, the Company issued a Series “I” Warrant to purchase up to 100,000 shares of Common Stock at a purchase price of $3.91 per share.
For the Series “I” Warrant, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
The estimated fair value of the Series “I” Warrants was computed using a Black-Scholes valuation model, using the following assumptions:
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CONTRACT LIABILITIES |
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Mar. 31, 2021 | |
Revenue from Contract with Customer [Abstract] | |
CONTRACT LIABILITIES | NOTE 10 — CONTRACT LIABILITIES
The Company receives advance payments from customers for public relations projects or as deposits for promotional or brand-support video projects, that it records as contract liabilities. Once the work is performed or the projects are delivered to the customer, the contract liabilities are deemed earned and recorded as revenue. Advance payments received are generally for short duration and are recognized once the performance obligation of the contract is met. As of March 31, 2021 and December 31, 2020, the Company had balances of $2,928,797 and $1,855,209, respectively, in contract liabilities in its condensed consolidated balance sheets. |
VARIABLE INTEREST ENTITIES |
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Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
VARIABLE INTEREST ENTITIES | NOTE 11 —VARIABLE INTEREST ENTITIES
VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses or the right to receive the residual returns of the entity. The most common type of VIE is a special-purpose entity (“SPE”). SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. The legal documents that govern the transaction specify how the cash earned on the assets must be allocated to the SPE’s investors and other parties that have rights to those cash flows. SPEs are generally structured to insulate investors from claims on the SPE’s assets by creditors of other entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (1) the power to direct the activities of an entity that most significantly impact the VIE’s economic performance; and (2) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Company considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities.
To assess whether the Company has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity investments, servicing fees, and derivative or other arrangements deemed to be variable interests in the VIE. This assessment requires that the Company apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.
The Company evaluated the entities in which it did not have a majority voting interest and determined that it had (1) the power to direct the activities of the entities that most significantly impact their economic performance and (2) had the obligation to absorb losses or the right to receive benefits from these entities. As such the financial statements of JB Believe, LLC are consolidated in the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, and in the condensed consolidated statements of operations and statements of cash flows presented herein for the three months ended March 31, 2021 and 2020. This entity was previously under common control and has been accounted for at historical costs for all periods presented.
The Company performs ongoing reassessments of (1) whether entities previously evaluated under the majority voting-interest framework have become VIEs, based on certain triggering events, and therefore would be subject to the VIE consolidation framework, and (2) whether changes in the facts and circumstances regarding the Company’s involvement with a VIE cause the Company’s consolidation conclusion to change. The consolidation status of the VIEs with which the Company is involved may change as a result of such reassessments. Changes in consolidation status are applied prospectively with assets and liabilities of a newly consolidated VIE initially recorded at fair value unless the VIE is an entity which was previously under common control, which in that case is consolidated based on historical cost. A gain or loss may be recognized upon deconsolidation of a VIE depending on the amounts of deconsolidated assets and liabilities compared to the fair value of retained interests and ongoing contractual arrangements.
JB Believe LLC, an entity owned by Believe Film Partners LLC, of which the Company owns a 25% membership interest, was formed for the purpose of recording the production costs of the motion picture “Believe”. The Company was given unanimous consent by the members to enter into domestic and international distribution agreements for the licensing rights of the motion picture, Believe, until such time as the Company had been repaid $3,200,000 for the investment in the production of the film and $5,000,000 for the P&A to market and release the film in the US. The Company has not been repaid these amounts and as such is still in control of the distribution of the film. For the three months ended March 31, 2021 and 2020, the Company did not record any revenues related to the distribution of Believe. The capitalized production costs related to Believe were either amortized or impaired in previous years. JB Believe LLC’s primary liability is to the Company which it owes $6,301,314, which eliminates in consolidation. |
STOCKHOLDERS' EQUITY |
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Mar. 31, 2021 | |||||||
Stockholders' Equity Note [Abstract] | |||||||
STOCKHOLDERS' EQUITY | NOTE 12 — STOCKHOLDERS’ EQUITY
The Company’s Amended and Restated Articles of Incorporation authorize the issuance of 10,000,000 shares of 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.
On July 6, 2017, the Company amended its Articles of Incorporation to designate 50,000 preferred shares as Series C with a $0.001 par value which may be issued only to an “Eligible Series C Preferred Stock Holder”. Pursuant to the Certificate of Designation of the Series C, each share of Series C will be convertible into one share of Common Stock, subject to adjustment for each issuance of Common Stock (but not upon issuance of common stock equivalents) that occurred, or occurs, from the date of issuance of the Series C (the “issue date”) until the fifth (5th) anniversary of the issue date (i) upon the conversion or exercise of any instrument issued on the issued date or thereafter issued (but not upon the conversion of the Series C), (ii) upon the exchange of debt for shares of Common Stock, or (iii) in a private placement, such that the total number of shares of Common Stock held by an “Eligible Class C Preferred Stock Holder” (based on the number of shares of Common Stock held as of the date of issuance) will be preserved at the same percentage of shares of Common Stock outstanding held by such Eligible Class C Preferred Stock Holder on such date. An Eligible Class C Preferred Stock Holder means any of (i) DE LLC for so long as Mr. O’Dowd continues to beneficially own at least 90% and serves on the board of directors or other governing entity, (ii) any other entity in which Mr. O’Dowd beneficially owns more than 90%, or a trust for the benefit of others, for which Mr. O’Dowd serves as trustee and (iii) Mr. O’Dowd individually. Series C became convertible by the Eligible Class C Preferred Stock Holder upon the Company satisfying one of the “optional conversion thresholds”: (i) EBITDA of more than $3.0 million in any calendar year, (ii) production of two feature films, (iii) production and distribution of at least three web series, (iv) theatrical distribution in the United States of one feature film, or (v) any combination thereof that is subsequently approved by a majority of the independent directors of the Board based on the strategic plan approved by the Board. At a meeting of the Board on November 12, 2020, a majority of the independent directors of the Board determined that the “optional conversion threshold” had been met. As a result, the Series C became immediately convertible and as of March 31, 2021 is convertible into 4,738,940 shares of Common Stock, subject to the restriction discussed below. Additionally, DE LLC, as the holder of the Series C is entitled to 14,216,819 votes, which are equal to approximately 65% of the voting securities of the Company.
At the meeting of the Board on November 12, 2020, the Board and Mr. O’Dowd agreed to restrict the conversion of the Series C until the Board approved its conversion. Therefore, on November 16, 2020, the Company and DE, LLC entered into a Stock Restriction Agreement pursuant to which the conversion of the Series C is prohibited until such time as a majority of the independent directors of the Board approves the removal of the prohibition. The Stock Restriction Agreement also prohibits the sale or other transfer of the Series C until such transfer is approved by a majority of the independent directors of the Board. The Stock Restriction Agreement shall terminate upon a Change of Control (as such term is defined in the Stock Restriction Agreement) of the Company.
The Certificate of Designation also provides for a liquidation value of $0.001 per share and dividend rights of the Series C on parity with the Company’s Common Stock.
As of March 31, 2021 and December 31, 2020, the Company had 7,605,477 and 6,618,785 shares of Common Stock issued and outstanding, respectively. During the three months ended March 31, 2021, the Company issued (i) 663,155 shares of Common Stock related to conversion of convertible notes payable; (ii) 103,245 shares related to the acquisition of Be Social; (iii) 77,519 shares exchanged for 6,507 Put Rights; (iv) 146,027 shares related to the cashless exercise of warrants and (v) 3,254 shares purchased in exchange for Put Rights. |
(LOSS) EARNINGS PER SHARE |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(LOSS) EARNINGS PER SHARE | NOTE 13 — (LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss) earnings per share:
Basic (loss) earnings per share is computed by dividing (loss) income attributable to the shareholders of Common Stock (the numerator) by the weighted-average number of shares of Common Stock outstanding (the denominator) for the period. Diluted (loss) income per share assumes that any dilutive equity instruments, such as put rights and convertible notes payable were exercised and outstanding Common Stock adjusted accordingly.
Certain of the Company’s convertible notes payable and the Series C Preferred Stock have clauses that entitle the holder to participate if dividends are declared to the common stockholders as if the instruments had been converted into shares of Common Stock. As such, the Company uses the two-class method to compute earnings per share and attribute a portion of the Company’s net income to these participating securities. For the three months ended March 31, 2021, the Company had a net loss and as such the two-class method is not presented. For the three months ended March 31, 2020, the Company attributed $369,557 of the Company’s net income to these participating securities and reduced the net income available to common shareholders by that amount when calculating earnings per share.
In periods when the Put Rights are assumed to have been settled at the beginning of the period in calculating the denominator for diluted (loss) earnings per share, the related change in the fair value of Put Right liability recognized in the condensed consolidated statements of operations for the period, is added back or subtracted from net income during the period. The denominator for calculating diluted income per share for the three months ended March 31, 2020 assumes the Put Rights had been settled at the beginning of the period, and therefore, the related income due to the decrease in the fair value of the Put Right liability during the three months ended March 31, 2020 is subtracted from net income. The number of shares added to the denominator for the Put Rights is calculated using the reverse treasury stock method that assumes the Company issues and sells sufficient shares at the average period trading price to satisfy the Put Right contracts. For the three months ended March 31, 2021, the Company did not take the Put Rights into consideration because inclusion is considered to be anti-dilutive.
For the three months ended March 31, 2020, convertible promissory notes that were not considered participating securities, were included in the calculation of fully diluted earnings per share using the if-converted method that assumes the convertible promissory notes are converted at the beginning of the reporting period using the average market price for the three months ended March 31, 2020 of the Common Stock. For the three months ended March 31, 2021, the convertible promissory notes were not included in diluted loss per share because inclusion was considered to be anti-dilutive. |
WARRANTS |
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WARRANTS | NOTE 14 — WARRANTS
A summary of warrants outstanding at December 31, 2020 and issued, exercised and expired during the three months ended March 31, 2021 is as follows:
On January 22, 2018, the underwriters of our 2017 public offering exercised their over-allotment option with respect to 35,150 warrants to purchase Common Stock at a purchase price of $23.70 per share. In connection with the exercise of the over-allotment option, the Company issued to the underwriters warrants to purchase an aggregate of 291 shares of Common Stock at a purchase price of $23.70 per share. The Company determined that each of these warrants should be classified as equity and recorded the fair value of the warrants in additional paid in capital. These warrants were not exercised and expired on January 24, 2021.
On each of January 3, March 4, May 4, 2020, and July 3, 2020, in relation to the January 3rd Note, the Company issued the warrants to purchase up to 41,518 shares of Common Stock (166,072 total) at a purchase price of $3.91 per share. The warrants become exercisable on the six-month anniversary of issuance and for a period of five years thereafter. If a resale registration statement covering the shares of Common Stock underlying the warrants is not effective and available at the time of exercise, the warrants may be exercised by means of a “cashless” exercise formula. The Company determined that the warrants should be classified as freestanding financial instruments that meet the criteria to be accounted for as derivative liabilities and recorded a fair value at issuance with changes to the fair value recorded in the statement of operations on each balance sheet date. On March 24, 2021, the warrant holder exercised all of the warrants by means of a cashless exercise formula and the Company issued 146,027 shares of Common Stock. The Company recorded expense of $2,397,877 due to change in fair value during the period between December 31, 2020 and the exercise date of March 24, 2021.
On March 4, 2020, in connection with the March 4th Note, the Company issued Series “I” Warrant to purchase up to 20,000 shares of Common Stock at a purchase price of $3.91 per share. The warrants become exercisable on the six-month anniversary and for a period of five years thereafter. If a resale registration statement covering the shares of Common Stock underlying the warrants is not effective and available at the time of exercise, the warrants may be exercised by means of a “cashless” exercise formula. The Company determined that the Series “I” Warrant should be classified as a freestanding financial instrument that meets the criteria to be accounted for as a derivative liability and recorded a fair value at issuance of $40,000. The Company recorded expense of $165,000 in its condensed consolidated statement of operations due to change in fair value for the three months ending March 31, 2021. The fair value recorded on the Company’s condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020 was $215,000 and $50,000, respectively. |
RELATED PARTY TRANSACTIONS |
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Mar. 31, 2021 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | NOTE 15 — RELATED PARTY TRANSACTIONS
On December 31, 2014, the Company and its CEO renewed his employment agreement for a period of two years commencing January 1, 2015. The agreement stated that the CEO was to receive annual compensation of $250,000. In addition, the CEO was entitled to an annual discretionary bonus as determined by the Board. As part of his agreement, he received a $1,000,000 signing bonus in 2012 that is recorded in accrued compensation on the condensed consolidated balance sheets. Any unpaid and accrued compensation due to the CEO under this agreement will accrue interest on the principal amount at a rate of 10% per annum from the date of this agreement until it is paid. Even though the employment agreement expired and has not been renewed, the Company has an obligation under the agreement to continue to accrue interest on the unpaid balance. As of March 31, 2021 and December 31, 2020, the Company had accrued $2,625,000 of compensation as accrued compensation and has balances of $1,821,164 and $1,756,438 respectively, in accrued interest in current liabilities on its condensed consolidated balance sheet, related to Mr. O’Dowd’s employment. Amounts owing under this arrangement are payable on demand. The Company recorded interest expense related to the accrued compensation of $64,726 and $65,445, respectively for the three months ended March 31, 2021 and 2020 on the condensed consolidated statements of operations.
On March 30, 2017, in connection with the acquisition of 42West, the Company and Mr. O’Dowd, as personal guarantor, entered into the Put Agreements with each of the sellers of 42West, pursuant to which the Company granted the Put Rights. During the three months ended March 31, 2021, the Company made payments in the amount of $100,000 to Ms. Leslee Dart, a member of the Board, related to the Put Rights that had been exercised in 2020. Pursuant to the terms of one such Put Agreement, Ms. Dart exercised 6,507 Put Rights at a purchase price of $46.10 per share during the three months ended March 31, 2021. As of March 31, 2021, the Company owes Ms. Dart $300,000 related to the exercise of these Put Rights.
During the three months ended March 31, 2020, Allan Mayer, a holder of Put Rights, and a member of the Board at the time, exercised 10,848 Put Rights. As of March 31, 2020, the Company owed Mr. Mayer $500,000 related to the Put Rights that were exercised during the three months ended March 31, 2020. Mr. Mayer was subsequently paid $200,000 in cash and exchanged the remaining $300,000 for 77,519 shares of Common Stock. |
SEGMENT INFORMATION |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION | NOTE 16 — SEGMENT INFORMATION
The Company operates in two reportable segments, Entertainment Publicity and Marketing Segment and Content Production Segment. The Entertainment Publicity and Marketing segment is composed of 42West, The Door, Viewpoint, Shore Fire, Be Social, and B/HI, and provides clients with diversified services, including public relations, entertainment and hospitality content marketing and strategic marketing consulting. The Content Production segment is composed of Dolphin Entertainment and Dolphin Films and engages in the production and distribution of digital content and feature films.
The profitability measure employed by our chief operating decision maker for allocating resources to operating segments and assessing operating segment performance is operating income (loss) which is the same as Loss before other income (expenses) on the Company’s condensed consolidated statement of operations for the three months ended March 31, 2021. Salaries and related expenses include salaries, bonuses, commissions and other incentive related expenses. Legal and professional expenses primarily include professional fees related to financial statement audits, legal, investor relations and other consulting services, which are engaged and managed by each of the segments. In addition, general and administrative expenses include rental expense and depreciation of property, equipment and leasehold improvements for properties occupied by corporate office employees.
In connection with the acquisitions of 42West, The Door, Viewpoint, Shore Fire, Be Social, and B/HI, the Company assigned $7,327,061 of intangible assets, net of accumulated amortization of $6,142,939, and goodwill of $20,098,451 as of March 31, 2021 to the Entertainment Publicity and Marketing segment. The balances reflected as of March 31, 2020 for Entertainment Publicity and Marketing segment comprise 42West, The Door, Viewpoint, and Shore Fire.
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LEASES |
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LEASES | NOTE 17 — LEASES
Viewpoint is obligated under an operating lease agreement for office space in Newton, Massachusetts, expiring in March 31, 2021. The lease is secured by a certificate of deposit held by the Company and included in restricted cash in the amounts of $36,735 as of March 31, 2021. The lease provides for increases in rent for real estate taxes and operating expenses and contains a renewal option for an additional five years. Viewpoint did not renew the lease.
The Door occupies space in New York and signed a three-year renewal of its lease on August 23, 2020. The lease is secured by a cash security deposit of approximately $29,000. Monthly lease payments are $20,833 and contain increases of 3% annually.
42West is obligated under an operating lease agreement for office space in New York, expiring in December 2026. The lease is secured by a standby letter of credit in the amount of $677,354 and provides for increases in rent for real estate taxes and building operating costs. The lease also contains a renewal option for an additional five years.
42West is obligated under an operating lease agreement for office space in California, expiring in December 2021. The lease is secured by a cash security deposit of $44,788 and a standby letter of credit in the amount of $50,000. The lease also provides for increases in rent for real estate taxes and operating expenses and contains a renewal option for an additional five years.
On February 19, 2019, the Company entered into an agreement to lease 3,024 square feet of office space in Coral Gables, Florida. The lease is for a period of 62 months from the commencement date, at a monthly lease rate of $9,954 with annual increases of 3%. The rent payments are abated for the first four months of the lease after the commencement date, which was October 1, 2019. The lease is secured by a cash deposit of $19,908.
B/HI is obligated under an operating lease for office space in Los Angeles, CA expiring December 31, 2024. The monthly lease payments are $20,168 per month with annual increases of 3%. The lease is secured by a cash deposit of $20,883. B/HI is obligated under an operating lease for office space in New York, NY expiring June 30, 2022. The monthly lease payments are $9,806 per month with annual increases of 2%. The lease is secured by a cash deposit of $16,400.
Shore Fire Media is obligated under an operating lease agreement for office space in Brooklyn, New York, expiring in February 2026. The lease is secured by a cash deposit of $34,490.
Be Social is obligated under an operating lease for approximately 4,505 square feet of office space in Los Angeles, California expiring December 2024. The lease is secured by a cash deposit of $47,978.
The amortizable life of the right-of-use asset is limited by the expected lease term. Although certain leases include options to extend the Company did not include these in the right-of-use asset or lease liability calculations because it is not reasonably certain that the options will be executed.
The table below shows the lease income and expenses recorded in the condensed consolidated statement of operations incurred during the three months ended March 31, 2021 and 2020.
Lease Payments
For the three months ended March 31, 2021, the Company made payments in cash related to its operating leases in the amount of $737,358.
Future maturities lease payments for operating leases in effect at March 31, 2021, were as follows:
As of March 31, 2021, the Company’s weighted average remaining lease terms on its operating lease is 4.6 years and the Company’s weighted average discount rate is 7.81% related to its operating leases.
The Company used its incremental borrowing rate of approximately (i) 7.88% to calculate the present value of the lease liabilities and right-of-use asset for BHI and (ii) 5.79% to calculate the present value of the lease liabilities and right-of-use asset for leases entered into in 2020 for The Door and Be Social. The Company used its incremental borrowing rate on January 1, 2019, deemed to be 8% to calculate the present value of the lease liabilities for the rest of its leases, existing at the time of the ASC 842 adoption. |
COMMITMENTS AND CONTINGENCIES |
3 Months Ended |
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Mar. 31, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | NOTE 18 — COMMITMENTS AND CONTINGENCIES
Litigation
The Company may be subject to legal proceedings, claims, and liabilities that arise in the ordinary course of business. In the opinion of management and based upon the advice of its outside counsels, the liability, if any, from any pending litigation is not expected to have a material effect in the Company’s financial position, results of operations and cash flows. The Company is not aware of any pending litigation as of the date of this report.
Incentive Compensation Plan
On June 29, 2017, the shareholders of the Company approved the Dolphin Digital Media, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan was adopted as a flexible incentive compensation plan that would allow us to use different forms of compensation awards to attract new employees, executives and directors, to further the goal of retaining and motivating existing personnel and directors and to further align such individuals’ interests with those of the Company’s shareholders. Under the 2017 Plan, the total number of shares of Common Stock reserved and available for delivery under the 2017 Plan (the “Awards”), at any time during the term of the 2017 Plan, will be 200,000 shares of Common Stock. The 2017 Plan imposes individual limitations on the amount of certain Awards, in part with the intention to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Under these limitations, in any fiscal year of the Company during any part of which the 2017 Plan is in effect, no participant may be granted (i) stock options or stock appreciation rights with respect to more than 60,000 shares, or (ii) performance shares (including shares of restricted stock, restricted stock units, and other stock based-awards that are subject to satisfaction of performance goals) that the Compensation Committee intends to be exempt from the deduction limitations under Section 162(m) of the Code, with respect to more than 600,000 shares, in each case, subject to adjustment in certain circumstances. The maximum amount that may be paid out to any one participant as performance units that the Compensation Committee intends to be exempt from the deduction limitations under Section 162(m) of the Code, with respect to any 12-month performance period is $1,000,000 (pro-rated for any performance period that is less than 12 months), and with respect to any performance period that is more than 12 months, $2,000,000. During the three months ended March 31, 2021 and 2020, the Company did not issue any Awards under the 2017 Plan.
Employee Benefit Plan
The Company has a 401(K) profit sharing plan that covers substantially all of its employees. The Company matches 100% of the first 3% contributed by the employee and then 50% up to a maximum of 4% contributed by the employee. The contribution is also limited by annual maximum amount determined by the Internal Revenue Service. The Company’s contributions were $102,056 and $105,788, respectively, during the three months ended March 31, 2021 and 2020.
Employment Contracts
As a condition to the B/HI Purchase, Dean Bender, one of the sellers and Shawna Lynch, a key employee of B/HI entered into employment agreements with the Company to continue as employees after the closing of the B/HI Purchase. Mr. Bender’s agreement is for a period of two years through December 31, 2022 and he will serve as Co-President of B/HI during that term. Ms. Lynch’s agreement is for a period of four years and may be renewed on the same terms for two successive tow year terms. Ms. Lynch will serve as Co-President of B/HI during the term of her agreement. Each of the employment agreements of Mr. Bender and Ms. Lynch define base compensation and contains provisions for termination including as a result of death or disability and entitles the employee to vacations and to participate in all employee benefit plans offered by the Company.
As a condition to the Be Social Purchase, Alison Grant, the seller of Be Social entered into an employment agreement with the Company to continue as an employee after the closing of the Be Social Purchase. Ms. Grant’s employment agreement is through December 31, 2023. The employment agreement defines base compensation and salary increases at the discretion of the Company’s CEO. Ms. Grant will serve as Be Social’s President. The employment agreement contains provisions for termination including as a result of death or disability and entitles the employee to vacations and to participate in all employee benefit plans offered by the Company.
As a condition to the Shore Fire Purchase, Marilyn Laverty, the Shore Fire seller, entered into an employment agreement with the Company to continue as an employee after the closing of the Shore Fire Purchase. Ms. Laverty’s employment agreement is through December 31, 2022 and may be renewed by Ms. Laverty for two successive one-year terms. The employment agreement defines base compensation and a salary increase and bonus structure based on Shore Fire achieving certain financial targets. Ms. Laverty will serve as Shore Fire’s President. The employment agreement contains provisions for termination including as a result of death or disability and entitles the employee to vacations and to participate in all employee benefit plans offered by the Company.
As a condition to the acquisition of Viewpoint, David Shilale entered into an employment agreement with the Company to continue as an employee after the closing of the Viewpoint purchase. Mr. Shilale’s employment agreement is for a period of three years, commencing October 31, 2018. The contract defines the base compensation and a commission structure based on Viewpoint achieving certain financial targets. The bonus for Mr. Shilale is determined at the sole discretion of the Company’s Board of Directors and management. The agreement does not provide for guaranteed increases to the base salary. The employment agreement contains provisions for termination including as a result of death or disability and entitles the employee to vacations and to participate in all employee benefit plans offered by the Company.
In connection with the acquisition of The Door, each of the former members of The Door (the “Door Members”) entered into a four-year employment agreement with The Door, commencing July 5, 2018, pursuant to which each Door Member has agreed not to transfer any shares of Common Stock received as consideration for the merger (the “Share Consideration”) in the first year following the closing date of the merger, no more than 1/3 of such Share Consideration in the second year and no more than an additional 1/3 of such Share Consideration in the third year.
Effective April 1, 2020, the Company renewed Leslee Dart’s employment agreement for a period of three years and may automatically be renewed for successive one-year terms by mutual agreement of Ms. Dart and the Company. The employment agreement provides for a base salary and contains provisions for termination including as a result of death or disability. During the term of the employment agreement, Ms. Dart is entitled to participate in all employee benefit plans, practices and programs maintained by the Company as well as is entitled to paid vacation in accordance with the Company’s policy.
Letter of Credit
Pursuant to the lease agreements of the 42West New York and Los Angeles office locations, the Company is required to issue letters of credit to secure the leases. On July 24, 2018, the Company renewed the letter of credit issued by City National Bank for the 42West office space in New York. The letter of credit is for $677,354 and originally expired on August 1, 2018. This letter of credit renews automatically annually unless City National Bank notifies the landlord 60-days prior to the expiration of the bank’s election not to renew the letter of credit. The Company granted City National Bank a security interest in bank account funds totaling $677,354 pledged as collateral for the letter of credit. The letters of credit commit the issuer to pay specified amounts to the holder of the letter of credit under certain conditions. If this were to occur, the Company would be required to reimburse the issuer of the letter of credit. Pursuant to the lease agreement of Viewpoint, Viewpoint issued a letter of credit in the amount of $36,735 to secure the lease. The Viewpoint lease expired on March 31, 2021, and the Company is negotiating the end of lease payment with the landlord and all or a portion of the letter of credit may be used to settle the end of the lease. The Company is not aware of any other claims relating to its outstanding letters of credit as of March 31, 2021. |
SUBSEQUENT EVENTS |
3 Months Ended |
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Mar. 31, 2021 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | NOTE 19 – SUBSEQUENT EVENTS
On April 23, 2021 and April 30, 2021, the Company issued three convertible promissory notes in the aggregate amount of $1,050,000. The convertible promissory notes bear interest at a rate of 10% per annum and mature on the second anniversary of their respective issuances. The balance of each convertible promissory note and any accrued interest may be converted at the noteholder’s option at any time at a purchase price based on the 90-day average closing market price per share of the Common Stock.
On May 16, 2021, Leslee Dart resigned from her position as a member of the Board, effective as of such date. Ms. Dart’s decision to resign as a director of the Company was not due to any disagreements with the Company on any matter relating to the Company’s operations, policies or practices. Ms. Dart will remain as an employee of the Company.
On May 17, 2021, the Compensation Committee of the Board approved an annual salary increase of $100,000, from $300,000 to $400,000 for the Company’s Chief Executive Officer and $50,000, from $250,000 to $300,000 for the Company’s Chief Financial Officer. The increases are effective January 1, 2021.
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GENERAL (Policies) |
3 Months Ended |
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Mar. 31, 2021 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Impact of COVID-19 | Impact of COVID-19
On March 11, 2020, the World Health Organization categorized a novel coronavirus (COVID-19) as a pandemic, and it has spread throughout the United States. The outbreak of COVID-19 and public and private sector measures to reduce its transmission, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place have adversely affected the demand for certain of the services the Company offers resulting in decreased revenues and cash flows. One of our subsidiaries operates in the food and hospitality sector and has been negatively impacted by the orders to either suspend or reduce operations of restaurants and hotels. Another subsidiary represents talent, such as actors, directors and producers. The revenues from these clients has been negatively impacted by the suspension of content production. Conversely, the television and streaming consumption around the globe has increased as well as the demand for consumer products. Revenues from the marketing of these shows and products has somewhat offset the decrease in revenue from the sectors discussed above. The Company has taken steps such as freezes on hiring, staff reductions, salary reductions and cuts in non-essential spending to mitigate the effects of COVID-19 on the Company’s financial results.
Between April 19, 2020 and April 23, 2020, the Company and its subsidiaries received five separate unsecured loans for an aggregate amount of $2.8 million (the “PPP Loans”) under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). Through our acquisition of Be Social, the Company assumed a PPP Loan of $304,169. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments and covered utilities during the measurement period beginning on the date of first disbursement of the PPP Loans. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40% of the forgiven amount can be attributable to non-payroll costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the PPP Loans and qualifying for the forgiveness of the PPP Loans based on its adherence to the forgiveness criteria. The Company has not yet applied for forgiveness.
Depending on the extent and duration of the pandemic and the related economic impacts, COVID-19 may continue to impact our business and financial results, as well as significant judgements and estimates, including those related to goodwill and other asset impairments and allowances for doubtful accounts. |
Basis of Presentation | Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Dolphin, and all of its wholly owned subsidiaries, comprising Dolphin Films, Inc. (“Dolphin Films”), Dolphin SB Productions LLC, Dolphin Max Steel Holdings, LLC (“Max Steel Holdings”), Dolphin JB Believe Financing, LLC, Dolphin JOAT Productions, LLC, 42West, The Door, Viewpoint, Shore Fire, Be Social and B/HI.
The Company enters into relationships or investments with other entities, and in certain instances, the entity in which the Company has a relationship or investment may qualify as a variable interest entity (“VIE”). A VIE is consolidated in the financial statements if the Company is deemed to be the primary beneficiary of the VIE. The primary beneficiary is the party that has the power to direct activities that most significantly impact the activities of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially be significant to the VIE. The Company has included JB Believe, LLC formed on December 4, 2012 in the State of Florida in its condensed consolidated financial statements for the three months ended March 31, 2021 and 2020 as a VIE.
The unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of the Company’s management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been reflected in these unaudited condensed consolidated financial statements. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read together with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. |
Reclassifications | Reclassifications
Reclassifications have been made to our condensed consolidated financial statements for the prior period to conform to classifications used in 2021. |
Use of Estimates | Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The most significant estimates made by management in the preparation of the financial statements relate to the expected revenue and costs for investments in digital and feature film projects, estimates of sales returns and other allowances, provisions for doubtful accounts and impairment assessments for investment in feature film projects, goodwill and intangible assets. Actual results could differ materially from such estimates.
Additionally, the full impact of the COVID-19 outbreak is unknown and cannot be reasonably estimated. However, management has made appropriate accounting estimates on certain accounting matters, which include the allowance for doubtful accounts, carrying value of the goodwill and other intangible assets, carrying amount of certain convertible notes payable and embedded derivatives and warrant liabilities, based on the facts and circumstances available as of the reporting date. The Company’s future assessment of the magnitude and duration of the COVID-19 outbreak, as well as other factors, could result in material impacts to the Company’s financial statements in future reporting periods. |
Update to Significant Accounting Policies | Update to Significant Accounting Policies
The Company’s significant accounting policies are detailed in "Note 3: Summary of Significant Accounting Policies" within Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. Significant changes to our accounting policies as a result of adopting ASU 2020-06 during the three months ended March 31, 2021 is discussed below:
Convertible Notes
On January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2020-06 that simplifies the accounting for convertible instruments. ASU 2020-06 (i) reduced the number of accounting models for convertible instruments, by eliminating the models that require separation of cash conversion or beneficial conversion features from the host and (ii) revised derivative scope exception and (iii) provided targeted improvements for EPS. The adoption of ASU 2020-06 did not have a material impact on the Company’s outstanding convertible debt instruments as of March 31, 2021. |
Income Taxes | Income Tax
The Company recorded an income tax benefit of $38,851 for the three months ended March 31, 2021. There was no income tax expense or benefit for the three ended March 31, 2020. The income tax benefit of $38,851 is due to a reduction of the valuation allowance against the deferred tax liability recorded as a result of the B/HI acquisition. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements
Accounting Guidance Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. The guidance simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this new guidance on January 1, 2021 using the modified retrospective approach without a material impact on its condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12 to simplify the accounting for income taxes by removing certain exceptions and amending certain exceptions related to the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This ASU also clarifies and simplifies other aspects of the accounting for income taxes. This amended guidance was effective for the Company beginning January 1, 2021. The Company adopted this new guidance on January 1, 2021 without a material impact on its condensed consolidated financial statements
Accounting Guidance Not yet Adopted
In June 2016, the FASB issued new guidance on measurement of credit losses (ASU 2016-13, Measurement of Credit Losses on Financial Instruments) with subsequent amendments issued in November 2018 (ASU 2018-19) and April 2019 (ASU 2019-04). This update changes the accounting for credit losses on loans and held-to-maturity debt securities and requires a current expected credit loss (CECL) approach to determine the allowance for credit losses. It is applicable to trade accounts receivable. The guidance is effective for fiscal years beginning after December 15, 2022 with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted. The Company is in the process of evaluating the impact of the adoption of ASU 2016-13 on the Company's consolidated financial statements and disclosures. |
GOODWILL AND INTANGIBLE ASSETS (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Changes In Carrying Value of Goodwill | All of the Company’s goodwill is related to the entertainment, publicity and marketing segment. Changes in the carrying value of goodwill were as follows:
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Schedule of Intangible Assets | Intangible assets consisted of the following as of March 31, 2021 and December 31,2020:
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MERGERS AND ACQUISITIONS (Tables) |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of provisional fair value of consideration transferred | The following table summarizes the provisional fair value of the consideration transferred:
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Schedule of Assets Acquired and Liabilities Assumed | The following table summarizes the provisional fair values of the assets acquired and liabilities assumed by the B/HI Purchase. Amounts in the table are estimates that may change, as described below.
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Schedule of Proforma Results of Operations | The following represents the Company’s unaudited pro forma consolidated operations after giving effect to the Be Social and B/HI acquisitions for the three months ended March 31, 2020 as if the Company had completed both acquisitions on January 1, 2020 and its results had been included in the consolidated results of the Company for the three months ending March 31, 2020.
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PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Tables) |
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Mar. 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property, equipment and leasehold | Property, equipment and leasehold improvement consists of:
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DEBT (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of debt | Total debt of the Company was as follows as of March 31, 2021 and December 31, 2020:
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Schedule of Future Annual Contractual Principal Payment Commitments of Debt | The table below details the maturity dates for the Company’s debt as of March 31, 2021:
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FAIR VALUE MEASUREMENTS (Tables) |
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Put Rights [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Liability Fair Value Categorized Within Level 3 | The following is a reconciliation of the fair value of the Put Rights from December 31, 2020 to March 31, 2021:
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Contingent Consideration [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value Assumptions Used to Value Liabilities | The Company determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:
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Schedule of Liability Fair Value Categorized Within Level 3 | For the contingent consideration, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
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Contingent Consideration [Member] | Be Social [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value Assumptions Used to Value Liabilities | The Company determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:
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Schedule of Liability Fair Value Categorized Within Level 3 | For the contingent consideration, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
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2020 convertible notes payable [Member] | January 3, 2020 note [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Liability Fair Value Categorized Within Level 3 | For the January 3rd Note, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
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2020 convertible notes payable [Member] | March 4, 2020 Note[Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value Assumptions Used to Value Liabilities | The estimated fair value of the March 4th Note as of December 31, 2020 and as of March 31, 2021, was computed using a Black-Scholes simulation of the present value of its cash flows using a synthetic credit rating analysis and a required rate of return, using the following assumptions:
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Schedule of Liability Fair Value Categorized Within Level 3 | For the March 4th Note, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
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2020 convertible notes payable [Member] | March 25, 2020 Note[Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Schedule of Liability Fair Value Categorized Within Level 3 | For the March 25th Note, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
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Warrant I Series [Member] | 2020 Convertible Debt Warrants [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Liability Fair Value Categorized Within Level 3 | For the warrants, which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
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Warrant I Series [Member] | 2020 Convertible [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value Assumptions Used to Value Liabilities | The estimated fair value of the Series “I” Warrants was computed using a Black-Scholes valuation model, using the following assumptions:
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Schedule of Liability Fair Value Categorized Within Level 3 | For the Series “I” Warrant, which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair values from December 31, 2020 to March 31, 2021:
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VARIABLE INTEREST ENTITIES (Tables) |
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable Interest Entity, Primary Beneficiary, Does Not Hold Majority Voting Interest, Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Financial Information for Variable Interest Entities | This entity was previously under common control and has been accounted for at historical costs for all periods presented.
|
(LOSS) EARNINGS PER SHARE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Basic and Diluted Income (Loss) Per Share | The following table sets forth the computation of basic and diluted (loss) earnings per share:
|
WARRANTS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants and Rights Note Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Warrants Issued | A summary of warrants outstanding at December 31, 2020 and issued, exercised and expired during the three months ended March 31, 2021 is as follows:
|
SEGMENT INFORMATION (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revenue and Assets by Segment |
|
LEASES (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Right of Use Asset or Lease Liability Calculations | The amortizable life of the right-of-use asset is limited by the expected lease term. Although certain leases include options to extend the Company did not include these in the right-of-use asset or lease liability calculations because it is not reasonably certain that the options will be executed.
|
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Schedule of Lease Income and Expenses | The table below shows the lease income and expenses recorded in the condensed consolidated statement of operations incurred during the three months ended March 31, 2021 and 2020.
|
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Schedule of Future Minimum Payments Under Operating Lease Agreements | Future maturities lease payments for operating leases in effect at March 31, 2021, were as follows:
|
GENERAL (Details Narrative) - USD ($) |
1 Months Ended | 3 Months Ended | ||||
---|---|---|---|---|---|---|
Apr. 23, 2020 |
Dec. 03, 2019 |
Aug. 17, 2020 |
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 31, 2020 |
|
Business Acquisition [Line Items] | ||||||
Total consideration for business acquisition | $ 800,000 | |||||
Common stock, authorized | 40,000,000 | 40,000,000 | ||||
Income tax benefit | $ (38,851) | |||||
Deferred tax liability | $ (38,851) | |||||
PPP Loans [Member] | ||||||
Business Acquisition [Line Items] | ||||||
Proceeds from issuance of five separate unsecured debt | $ 2,800,000 | $ 304,169 | ||||
Amount of compensation of an individual employee in excess | $ 100,000 | |||||
Percentage of forgiven amount | 40.00% | |||||
Shore Fire Seller [Member] | ||||||
Business Acquisition [Line Items] | ||||||
Total consideration for business acquisition | $ 3,124,836 | |||||
Be Social Public Relations, LLC [Member] | PPP Loans [Member] | ||||||
Business Acquisition [Line Items] | ||||||
Total consideration for business acquisition | $ 304,169 |
GOING CONCERN (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 31, 2020 |
|
Going Concern Narrative Details Abstract | |||
Net loss | $ (5,271,985) | $ 2,073,847 | |
Accumulated deficit | 103,244,026 | $ 97,972,041 | |
Working capital deficit | $ (4,029,249) | ||
Common stock, par value | $ 0.015 | $ 0.015 |
GOODWILL AND INTANGIBLE ASSETS (Schedule of Changes In Carrying Value of Goodwill) (Details) |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2021
USD ($)
| ||||
Goodwill and Intangible Assets Disclosure [Abstract] | ||||
Goodwill originally reported at beginning | $ 19,627,856 | |||
Measurement period adjustments | 0 | |||
Business Acquisitions | 470,595 | [1] | ||
Adjusted goodwill at Ending | $ 20,098,451 | |||
|
GOODWILL AND INTANGIBLE ASSETS (Schedule of Intangible Assets) (Details) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
Mar. 31, 2020 |
---|---|---|---|
Finite-Lived Intangible Assets [Line Items] | |||
Gross Carrying Amount | $ 13,470,000 | $ 13,200,000 | |
Accumulated Amortization | 6,142,939 | $ 5,747,941 | 5,747,941 |
Net Carrying Amount | 7,327,061 | 7,452,059 | |
Customer relationships [Member] | |||
Finite-Lived Intangible Assets [Line Items] | |||
Gross Carrying Amount | 8,290,000 | 8,130,000 | |
Accumulated Amortization | 4,057,653 | 3,787,406 | |
Net Carrying Amount | 4,232,347 | 4,342,593 | |
Trademarks and trade names [Member] | |||
Finite-Lived Intangible Assets [Line Items] | |||
Gross Carrying Amount | 4,490,000 | 4,440,000 | |
Accumulated Amortization | 1,450,286 | 1,330,535 | |
Net Carrying Amount | 3,039,714 | 3,109,465 | |
Non-compete agreements [Member] | |||
Finite-Lived Intangible Assets [Line Items] | |||
Gross Carrying Amount | 690,000 | 630,000 | |
Accumulated Amortization | 635,000 | 630,000 | |
Net Carrying Amount | $ 55,000 |
GOODWILL AND INTANGIBLE ASSETS (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense | $ 394,998 | $ 430,912 |
Description estimated amortization expenses for future period | Amortization expense remaining relating to intangible assets for each of the years ended December 31, 2021 through 2025 is estimated at approximately $1.5 million, $1.3 million, $1.1 million, $1.0 million and $1.0 million, respectively. | |
Impairment of goodwill | $ 1,857,000 |
MERGERS AND ACQUISITIONS (Summary of provisional fair value of consideration transferred) (Details) |
3 Months Ended |
---|---|
Mar. 31, 2020
USD ($)
| |
Business Combinations [Abstract] | |
Payments made to settle final indebtedness, net of minimum operating cash as defined in the B/HI Share Purchase Agreement | $ 575,856 |
Provisional working capital adjustment | 192,986 |
Provisional amount of Common Stock to be issued to the B/HI Sellers | 31,158 |
Provisional fair value of the consideration transferred | $ 800,000 |
MERGERS AND ACQUISITIONS (Schedule of Assets Acquired and Liabilities Assumed) (Details) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Business Acquisition [Line Items] | ||
Goodwill | $ 20,098,451 | $ 19,627,856 |
B/HI Share [Member] | ||
Business Acquisition [Line Items] | ||
Cash | 65,465 | |
Accounts receivable | 154,162 | |
Other current assets | 15,262 | |
Property, plant & equipment | 24,639 | |
Right-of-use asset | 1,044,864 | |
Other assets | 23,617 | |
Intangible assets | 270,000 | |
Total identifiable assets acquired | 1,598,009 | |
Accounts payable | (104,724) | |
Accrued expenses and other current liabilities | (259,936) | |
Lease liability | (1,044,864) | |
Deferred revenue | (56,994) | |
Line of credit | (456,527) | |
Deferred tax liabilities | (38,851) | |
Loans payable | (75,550) | |
Total liabilities assumed | (2,037,446) | |
Net identifiable liabilities acquired | (439,437) | |
Goodwill | 470,595 | |
Net assets acquired | $ 31,158 |
MERGERS AND ACQUISITIONS (Schedule of Proforma Results of Operations) (Details) |
3 Months Ended |
---|---|
Mar. 31, 2020
USD ($)
| |
Business Combinations [Abstract] | |
Revenues | $ 7,782,783 |
Net loss | $ 1,789,627 |
MERGERS AND ACQUISITIONS (Details Narrative) - B/HI Share Purchase Agreement [Member] |
Jan. 08, 2021
USD ($)
|
---|---|
Business Acquisition [Line Items] | |
Purchase price | $ 800 |
Additional earned | 1,200 |
Property, equipment and leasehold improvements | 24,639 |
Other current assets | 15,262 |
Other assets | 23,617 |
Right-of-use asset | $ 1,044,864 |
CAPITALIZED PRODUCTION COSTS, ACCOUNTS RECEIVABLES AND OTHER CURRENT ASSETS (Capitalized Production Costs) (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 31, 2020 |
|
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||
Production and distribution revenues | |||
Net capitalized production costs | 325,866 | $ 271,139 | |
Impairment costs | 45,000 | ||
Accounts receivable | 4,708,359 | 5,027,101 | |
Other current assets | 323,020 | 231,890 | |
Income tax receivable | 37,200 | 37,200 | |
Allowance for doubtful accounts | $ 621,104 | $ 653,272 |
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Property, Plant and Equipment [Abstract] | ||
Furniture and fixtures | $ 900,451 | $ 883,491 |
Computers and equipment | 1,717,224 | 1,759,659 |
Leasehold improvements | 770,629 | 770,629 |
Property plant and equipment gross | 3,388,304 | 3,413,779 |
Less: accumulated depreciation and amortization | (2,651,308) | (2,613,708) |
Property, equipment and leasehold improvements, net of accumulated depreciation and amortization | $ 736,996 | $ 800,071 |
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 87,714 | $ 90,091 |
DEBT (Schedule of debt) (Details) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Debt Disclosure [Abstract] | ||
Convertible notes payable | $ 150,000 | $ 1,445,000 |
Convertible notes payable - fair value option | 1,298,740 | 1,527,293 |
Nonconvertible notes payable | 1,250,656 | 1,273,394 |
Term loan | 800,260 | 900,292 |
Payroll Protection Program loans | 3,099,869 | 3,099,869 |
Total debt | 6,599,525 | 8,245,848 |
Less current portion of debt | (2,432,633) | (2,909,479) |
Noncurrent portion of debt | $ 4,166,892 | $ 5,336,369 |
DEBT (Schedule of Future Annual Contractual Principal Payment Commitments of Debt) (Details) |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
| |
Debt Instrument [Line Items] | |
2021 | $ 1,706,546 |
2022 | 2,257,750 |
2023 | 1,336,488 |
2024 | |
2025 | |
Thereafter | 500,000 |
Convertible notes payable [Member] | |
Debt Instrument [Line Items] | |
2021 | |
2022 | |
2023 | 150,000 |
2024 | |
2025 | |
Thereafter | $ 500,000 |
Maturity Date | Ranging between March 2023 and March 2030 |
Nonconvertible Promissory Notes [Member] | |
Debt Instrument [Line Items] | |
2021 | $ 824,010 |
2022 | 307,685 |
2023 | 118,960 |
2024 | |
2025 | |
Thereafter | |
Maturity Date | Ranging between March 2023 and March 2030 |
Term loan Bank United [Member] | |
Debt Instrument [Line Items] | |
2021 | $ 300,098 |
2022 | 400,130 |
2023 | 100,032 |
2024 | |
2025 | |
Thereafter | |
Maturity Date | March 31, 2023 |
Payroll Protection Program loans [Member] | |
Debt Instrument [Line Items] | |
2021 | $ 582,438 |
2022 | 1,549,935 |
2023 | 967,496 |
2024 | |
2025 | |
Thereafter | |
Maturity Date | Two years after the effective date which range between April 22, 2020 and May 5, 2020 |
LOANS FROM RELATED PARTY (Details Narrative) - USD ($) |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 31, 2020 |
Dec. 31, 2016 |
|
Related Party Transaction [Line Items] | ||||
Interest expense | $ 165,194 | $ 624,282 | ||
Loan from related party | 1,875,161 | $ 1,783,121 | ||
Accrued interest | 2,625,000 | 2,625,000 | ||
Promissory Note [Member] | DE New Promissory Note [Member] | CEO [Member] | ||||
Related Party Transaction [Line Items] | ||||
Debt instrument amount | 1,107,873 | 1,107,873 | $ 1,009,624 | |
Debt instrument interest rate | 10.00% | |||
Certain script costs and other payables added to note principal amount | $ 594,315 | |||
Interest expense | 27,317 | $ 27,621 | ||
Loan from related party | 1,107,873 | |||
Accrued interest | $ 54,000 | $ 27,317 |
FAIR VALUE MEASUREMENTS (Schedule of Liability Fair Value Categorized Within Level 3) (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Loss in fair value reported in condensed consolidated the statement of operations | $ 2,562,877 | $ (72,515) |
Put Rights [Member] | The Door [Member] | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Beginning fair value balance reported on the consolidated balance sheet | 1,544,029 | |
Put rights exercised | (260,900) | |
Loss in fair value reported in condensed consolidated the statement of operations | 71,106 | |
Put rights converted into common stock | (300,000) | |
Ending fair value balance reported on the consolidated balance sheet | $ 1,054,235 |
FAIR VALUE MEASUREMENTS (Schedule of Fair Value Assumptions Used to Value Liabilities, Put Rights) (Details) - Put Rights [Member] - The Door [Member] |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2021 |
Dec. 31, 2020 |
|
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Risk Free Discount Rate (based on US government treasury obligation with a term similar to that of the Contingent Consideration) | 0.06% | 0.16% |
Annual Asset Volatility Estimate | 82.50% | 60.00% |
FAIR VALUE MEASUREMENTS (Schedule of Liability Fair Value, Contingent Consideration - The Door) (Details) - Contingent Consideration [Member] - The Door [Member] |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
| |
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | |
Beginning fair value balance reported on the consolidated balance sheet | $ 370,000 |
Loss in fair value reported in the condensed consolidated statement of operations | 370,000 |
Ending fair value balance reported on the consolidated balance sheet | $ 740,000 |
FAIR VALUE MEASUREMENTS (Schedule of Fair Value Assumptions Used to Value Liabilities, Contingent Consideration) (Details) - Contingent Consideration [Member] - Be Social [Member] |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2021 |
Dec. 31, 2020 |
|
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Annual Asset Volatility Estimate | 87.50% | 73.50% |
Salary Before Increase [Member] | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Risk Free Discount Rate (based on US government treasury obligation with a term similar to that of the Contingent Consideration) | 0.14% | 0.13% |
Salary After Increase [Member] | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Risk Free Discount Rate (based on US government treasury obligation with a term similar to that of the Contingent Consideration) | 0.30% | 0.17% |
FAIR VALUE MEASUREMENTS (Schedule of Liability Fair Value, Contingent Considerations - Be Social) (Details) - Be Social [Member] - Contingent Consideration [Member] |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
| |
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | |
Beginning fair value balance reported on the consolidated balance sheet | $ 160,000 |
Gain in fair value reported in the condensed consolidated statement of operations | (5,000) |
Ending fair value balance reported on the consolidated balance sheet | $ 155,000 |
FAIR VALUE MEASUREMENTS (Schedule of Liability Fair Value (Convertible notes payable - B/HI) (Details) - Convertible note payable [Member] - B/HI [Member] |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
| |
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | |
Beginning fair value balance on issue date | $ 436,155 |
Loss in fair value reported in the condensed consolidated statement of operations | 103,845 |
Exercised | (540,000) |
Ending fair value balance | $ 0 |
FAIR VALUE MEASUREMENTS (Schedule of Liability Fair Value (Convertible notes payables - B/HI) (Details) - Convertible note payable [Member] - B/HI [Member] |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
| |
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | |
Beginning fair value balance on issue date | $ 511,136 |
Loss in fair value reported in the condensed consolidated statement of operations | 787,604 |
Ending fair value balance | $ 1,298,740 |
FAIR VALUE MEASUREMENTS (Schedule of Fair Value Assumptions, (Convertible notes payables B/HI) (Details) - B/HI [Member] - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2021 |
Dec. 31, 2020 |
|
Contingent Consideration [Member] | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Face value principal payable | $ 500,000 | $ 500,000 |
Original conversion price | $ 3.91 | $ 3.91 |
Value of Common Stock | $ 3.4 | $ 12.71 |
Volatility | 100.00% | 100.00% |
Risk free rate | 0.93% | 1.74% |
Convertible note payable [Member] | ||
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Expected term (years) | 9 years 2 months 5 days | 8 years 11 months 4 days |
FAIR VALUE MEASUREMENTS (Schedule of Liability Fair Value (Convertible note payables - B/HI) (Details) - Convertible note payable [Member] - B/HI [Member] |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
| |
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | |
Beginning fair value balance on issue date | $ 580,000 |
Gain in fair value reported in the condensed consolidated statement of operations | (20,000) |
Exercised | (560,000) |
Ending fair value balance |
FAIR VALUE MEASUREMENTS (Schedule of Liability Fair Value (Series E, F, G and H Warrants) (Details) - Series E, F, G and H Warrants |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
| |
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | |
Beginning fair value balance on issue date | $ 400,000 |
Loss in fair value reported in the condensed consolidated statement of operations | 2,397,877 |
Conversion of warrants | (2,797,877) |
Ending fair value balance |
FAIR VALUE MEASUREMENTS (Schedule of Liability Fair Value (Series “I” Warrant) (Details) - Series I Warrant |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
| |
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | |
Beginning fair value balance on issue date | $ 50,000 |
Loss in fair value reported in the condensed consolidated statement of operations | 165,000 |
Ending fair value balance | $ 215,000 |
FAIR VALUE MEASUREMENTS (Schedule of Fair Value Assumptions, (Series “I” Warrant) (Details) - Series I Warrants [Member] - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2021 |
Dec. 31, 2020 |
|
Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
Aggregate Fair Value | $ 215,000 | $ 50,000 |
Exercise Price per share | $ 3.91 | $ 3.91 |
Value of Common Stock | $ 12.71 | $ 3.4 |
Expected term (years) | 4 years 5 months 5 days | 4 years 8 months 2 days |
Volatility | 100.00% | 100.00% |
Dividend yield | 0.00% | 0.00% |
Risk free rate | 0.78% | 0.31% |
CONTRACT LIABILITIES (Details Narrative) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Revenue from Contract with Customer [Abstract] | ||
Contract liabilities | $ 2,928,797 | $ 1,855,209 |
VARIABLE INTEREST ENTITIES (Summary of Financial Information for Variable Interest Entities) (Details) - JB Believe, LLC [Member] - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 31, 2020 |
|
Variable Interest Entity [Line Items] | |||
Assets | $ 61,151 | $ 190,347 | $ 61,151 |
Liabilities | (6,301,314) | 6,749,914 | $ (6,559,567) |
Revenues | |||
Expenses |
VARIABLE INTEREST ENTITIES (Details Narrative) - JB Believe, LLC [Member] |
3 Months Ended |
---|---|
Mar. 31, 2021
USD ($)
| |
Variable Interest Entity [Line Items] | |
Producer fee owed to lender | $ 6,301,314 |
Repayments of investments | 3,200,000 |
Amount paid to release film | $ 5,000,000 |
(LOSS) EARNINGS PER SHARE (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Numerator | ||
Net (loss) income | $ (5,271,985) | $ 2,073,847 |
Deemed dividend attributable to participating securities | (369,557) | |
Net loss attributable to Dolphin Entertainment common share stockholders and numerator for basic earnings per share | (5,271,985) | 1,704,290 |
Change in fair value of put rights | (1,470,740) | |
Interest expense | 52,566 | |
Numerator for diluted loss per share | $ (5,271,985) | $ 286,116 |
Denominator | ||
Denominator for basic EPS - weighted-average shares | 7,267,297 | 4,099,713 |
Effect of dilutive securities: | ||
Put rights | 879,665 | |
Convertible notes payable | $ 697,619 | |
Denominator for diluted EPS - adjusted weighted-average shares assuming exercise of Put rights | 7,267,297 | 5,676,996 |
Basic loss per share | $ (0.73) | $ 0.4 |
Diluted loss per share | $ (0.73) | $ 0.05 |
WARRANTS (Schedule of Warrant Activity) (Details) - Warrant Member |
3 Months Ended |
---|---|
Mar. 31, 2021
$ / shares
shares
| |
Shares | |
Balance at December 31 | shares | 221,513 |
Issued | shares | |
Exercised | shares | (166,072) |
Expired | shares | (35,441) |
Balance at December 31 | shares | 20,000 |
Weighted Avg. Exercise Price | |
Balance at December 31 | $ / shares | $ 7.08 |
Issued | $ / shares | |
Exercised | $ / shares | 0.00 |
Expired | $ / shares | 23.70 |
Balance at December 31 | $ / shares | $ 3.91 |
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 31, 2014 |
|
Related Party Transaction [Line Items] | |||
Accrued compensation | $ 64,726 | $ 65,445 | |
CEO [Member] | |||
Related Party Transaction [Line Items] | |||
Annual compensation owed to related party per signed agreement | $ 250,000 | ||
Accrued compensation | 2,625,000 | ||
Accrued interest | $ 1,756,438 | ||
Put Rights [Member] | |||
Related Party Transaction [Line Items] | |||
Shares exercised during the period | 22,867 | 35,504 | |
Put Rights [Member] | Mr. Allan Mayer [Member] | |||
Related Party Transaction [Line Items] | |||
Number of shares purchased | 13,015 | ||
Amount owes for put rights exercised | $ 500,000 | ||
Aggregate cost of shares purchased by Company through Put Rights | $ 300,000 | ||
Shares exercised during the period | 10,848 | ||
Stock issued as consideration for merger | 77,519 | ||
Stock issued as consideration for merger, value | $ 200,000 | ||
Put Rights [Member] | Ms. Leslee Dart [Member] | |||
Related Party Transaction [Line Items] | |||
Price per share | $ 46.10 |
SEGMENT INFORMATION (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Dec. 31, 2020 |
|
Segment Reporting Information [Line Items] | |||
Revenue | $ 7,177,117 | $ 6,633,800 | |
Total operating loss | (1,194,940) | (870,859) | |
Interest expense | (165,194) | (624,282) | |
Other income, net | (3,950,702) | 3,568,988 | |
Loss before income taxes | (5,310,836) | 2,073,847 | |
Total assets | 49,164,090 | $ 49,351,951 | |
EPD [Member] | |||
Segment Reporting Information [Line Items] | |||
Revenue | 7,177,117 | 6,633,800 | |
Total operating loss | (390,067) | (258,966) | |
Total assets | 47,018,591 | 45,266,315 | |
CPD [Member] | |||
Segment Reporting Information [Line Items] | |||
Revenue | |||
Total operating loss | (804,873) | $ (611,893) | |
Total assets | $ 2,145,499 | $ 4,085,636 |
SEGMENT INFORMATION (Details Narrative) - USD ($) |
3 Months Ended | ||||
---|---|---|---|---|---|
Mar. 31, 2021 |
Dec. 31, 2020 |
Mar. 31, 2020 |
|||
Segment Reporting Information [Line Items] | |||||
Accumulated amortization on intangible assets | $ 6,142,939 | $ 5,747,941 | $ 5,747,941 | ||
Goodwill acquired | [1] | 470,595 | |||
42 West, The Door and Viewpoint, Shore Media [Member] | |||||
Segment Reporting Information [Line Items] | |||||
Intangible assets acquired | 7,327,061 | ||||
Accumulated amortization on intangible assets | 6,142,939 | ||||
Goodwill acquired | $ 20,098,451 | ||||
|
LEASES (Schedule of Right of Use Asset or Lease Liability Calculations) (Details) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Assets | ||
Right-of-use asset | $ 7,586,271 | $ 7,106,279 |
Current | ||
Lease liability | 1,926,917 | 1,791,773 |
Noncurrent | ||
Lease liability | 6,313,936 | 5,964,275 |
Total lease liability | $ 8,240,853 | $ 7,756,048 |
LEASES (Schedule of Lease Income and Expenses) (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
|
Net lease costs | $ 808,691 | $ 605,498 |
Selling, general and administrative expenses [Member] | ||
Operating lease costs | 747,830 | 547,037 |
Sublease income | (2,400) | |
Direct costs [Member] | ||
Operating lease costs | $ 60,861 | $ 60,861 |
LEASES (Schedule of Maturities of Lease Liabilities) (Details) - USD ($) |
Mar. 31, 2021 |
Dec. 31, 2020 |
---|---|---|
Leases [Abstract] | ||
2021 (excluding three months ended March 31, 2021) | $ 1,996,123 | |
2022 | 2,073,640 | |
2023 | 1,954,903 | |
2024 | 1,824,908 | |
2025 | 1,232,060 | |
Thereafter | 940,976 | |
Total | 10,022,610 | |
Less: Imputed interest | (1,781,757) | |
Present value of lease liabilities | $ 8,240,853 | $ 7,756,048 |
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Mar. 31, 2021 |
Mar. 31, 2020 |
Jun. 29, 2017 |
|
Commitments and Contingencies Disclosure [Abstract] | |||
Common shares authorized under 2017 Plan | 200,000 | ||
Incentive compensation plan description | The 2017 Plan was adopted as a flexible incentive compensation plan that would allow us to use different forms of compensation awards to attract new employees, executives and directors, to further the goal of retaining and motivating existing personnel and directors and to further align such individuals’ interests with those of the Company’s shareholders. Under the 2017 Plan, the total number of shares of Common Stock reserved and available for delivery under the 2017 Plan (the “Awards”), at any time during the term of the 2017 Plan, will be 200,000 shares of Common Stock. The 2017 Plan imposes individual limitations on the amount of certain Awards, in part with the intention to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Under these limitations, in any fiscal year of the Company during any part of which the 2017 Plan is in effect, no participant may be granted (i) stock options or stock appreciation rights with respect to more than 60,000 shares, or (ii) performance shares (including shares of restricted stock, restricted stock units, and other stock based-awards that are subject to satisfaction of performance goals) that the Compensation Committee intends to be exempt from the deduction limitations under Section 162(m) of the Code, with respect to more than 600,000 shares, in each case, subject to adjustment in certain circumstances. The maximum amount that may be paid out to any one participant as performance units that the Compensation Committee intends to be exempt from the deduction limitations under Section 162(m) of the Code, with respect to any 12-month performance period is $1,000,000 (pro-rated for any performance period that is less than 12 months), and with respect to any performance period that is more than 12 months, $2,000,000. | ||
Profit sharing plan contributions | $ 102,056 | $ 105,788 | |
Letter of Credit description | On July 24, 2018, the Company renewed the letter of credit issued by City National Bank for the 42West office space in New York. The letter of credit is for $677,354 and originally expired on August 1, 2018. This letter of credit renews automatically annually unless City National Bank notifies the landlord 60-days prior to the expiration of the bank’s election not to renew the letter of credit. The Company granted City National Bank a security interest in bank account funds totaling $677,354 pledged as collateral for the letter of credit. The letters of credit commit the issuer to pay specified amounts to the holder of the letter of credit under certain conditions. If this were to occur, the Company would be required to reimburse the issuer of the letter of credit. Pursuant to the lease agreement of Viewpoint, Viewpoint issued a letter of credit in the amount of $36,735 to secure the lease. | ||
Contribution description | The Company and its wholly owned subsidiaries have 401(K) profit sharing plan that covers substantially all of its employees. The Company's 401(K) plan matches up to 4% of the employee’s contribution. The plans match dollar for dollar the first 3% of the employee’s contribution and then 50% of contributions up to 5%. |
SUBSEQUENT EVENTS (Details Narrative) - Subsequent Event [Member] - USD ($) |
1 Months Ended | |
---|---|---|
May 17, 2021 |
Apr. 23, 2021 |
|
CEO [Member] | ||
Subsequent Event [Line Items] | ||
Increase in salary | $ 100,000 | |
CEO [Member] | Salary Before Increase [Member] | ||
Subsequent Event [Line Items] | ||
Salary | 300,000 | |
CEO [Member] | Salary After Increase [Member] | ||
Subsequent Event [Line Items] | ||
Salary | 400,000 | |
Chief Financial Officer [Member] | ||
Subsequent Event [Line Items] | ||
Increase in salary | 50,000 | |
Chief Financial Officer [Member] | Salary Before Increase [Member] | ||
Subsequent Event [Line Items] | ||
Salary | 250,000 | |
Chief Financial Officer [Member] | Salary After Increase [Member] | ||
Subsequent Event [Line Items] | ||
Salary | $ 300,000 | |
Convertible promissory note [Member] | ||
Subsequent Event [Line Items] | ||
Debt instrument, face amount | $ 1,050,000 | |
Interest rate | 10.00% |
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