true
Amendment No 1
0001282224
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2023-10-02
2023-10-02
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
Current
Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported): October 2, 2023
DOLPHIN
ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Florida |
001-38331 |
86-0787790 |
(State
or other jurisdiction |
(Commission
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(IRS
Employer |
of
incorporation) |
File
Number) |
Identification
No.) |
150
Alhambra Circle, Suite 1200,
Coral Gables, Florida
33134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area
code (305) 774
-0407
Not Applicable
(Former Name or Former Address, if Changed Since
Last Report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.
below):
☐ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)
☐ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))
☐ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))
Securities registered pursuant to Section 12(b) of
the Act:
Title
of each class |
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Trading
symbol(s) |
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Name
of each exchange on which registered |
Common
Stock, $0.015 par value per share |
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DLPN |
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The Nasdaq
Capital Market |
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934
(17 CFR §240.12b-2).
Emerging
growth company ☐
If
an emerging growth company, indicate by check mark 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. ☐
INTRODUCTORY NOTE
On October 2, 2023 (the “Closing
Date”), Dolphin Entertainment, Inc., a Florida corporation (the “Company”), acquired all of the issued
and outstanding membership interests of Special Projects Media LLC, a New York limited liability company (“Special Projects”),
pursuant to a membership interest purchase agreement dated the Closing Date, by and among the Company and the sellers signatory thereto
(the “Acquisition”). Special Projects is a New York based talent booking and creative content agency.
This Current Report on Form 8-K/A
amends the Current Report on Form 8-K the Company filed on October 6, 2023, to include Special Projects audited financial statements as
of and for the years ended December 31, 2022 and 2021, the unaudited financial statements as of and for the nine months ended September
30, 2023 and the unaudited pro forma combined financial information related to the Acquisition required by Items 9.01(a) and 9.01(b) of
Form 8-K.
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of businesses or funds
acquired.
The audited consolidated balance
sheets of Special Projects as of December 31, 2022 and 2021 and the related consolidated statements of operations, consolidated statements
of members’ equity and consolidated statements of cash flows for the years ended December 31, 2022 and 2021, together with the accompanying
notes thereto and the unaudited consolidated financial statements of Special Projects as of and for the nine month period ended September
30, 2023 are filed as Exhibit 99.1 hereto and are incorporated herein by reference.
(b) Pro forma financial information.
The unaudited pro forma condensed
combined financial information, including the condensed combined balance sheet as of September 30, 2023, statement of operations for the
nine months ended September 30, 2023 and statement of operations for the period ending December 31, 2022 are filed as Exhibit 99.2 and
are incorporated herein by reference. The unaudited pro forma condensed combined financial information was prepared giving effect to the
Acquisition as if it had occurred on January 1, 2022. This unaudited pro forma condensed combined financial information is provided for
illustrative purposes only and does not purport to represent what the Company's actual results of operations or financial position would
have been if the Acquisition had occurred on the dates indicated, nor are they necessarily indicative of the Company's future operating
results or financial position.
(d) Exhibits. The following exhibits are filed
as part of this report.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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DOLPHIN ENTERTAINMENT, INC. |
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Date: December 18, 2023 |
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By: |
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/s/ Mirta A. Negrini |
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Mirta A. Negrini |
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Chief Financial and Operating Officer |
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated December 18, 2023, with respect
to the financial statements of Special Projects Media, LLC included in the Current Report of Dolphin Entertainment, Inc. on Form 8-K/A
filed on December 18, 2023. We consent to the incorporation by reference of said report in the Registration Statements of Dolphin Entertainment,
Inc. on Form S-8 (File No. 333-219770), on Form S-1 (File No. 333-267336), and on Form S-3 (File No. 333-273431).
/s/ GRANT THORNTON LLP
Fort Lauderdale, Florida
December 18, 2023
Exhibit 99.1
Special Projects Media, LLC
fINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED December 31, 2022 AND 2021
INDEX TO FINANCIAL STATEMENTS
SPECIAL PROJECTS MEDIA, LLC
AUDITED FINANCIAL STATEMENTS
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Page
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Report
of Independent Certified Public Accountants |
1 |
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Balance
sheets as of December 31, 2022 and 2021 |
3 |
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Statements
of operations for the years ended December 31, 2022 and 2021 |
4 |
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Statements
of cash flows for the years ended December 31, 2022 and 2021 |
5 |
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Statements
of changes in members' equity as of December 31, 2022 and 2021 |
6 |
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Notes
to the financial statements |
7 |
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i
grant
thornton llp
1301 International
Parkway, Suite 300
Fort Lauderdale,
FL 33323
D +1
954 768 9900
F +1
954 768 9908
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Special Projects Media, LLC
Opinion
We
have audited the financial statements of Special Projects Media, LLC (the “Company”), which comprise the balance sheets as
of December 31, 2022 and 2021, and the related statements of operations, changes in members’ equity, and cash flows for the years
then ended, and the related notes to the financial statements.
In
our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as
of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with accounting
principles generally accepted in the United States of America.
Basis
for opinion
We
conducted our audits of the financial statements in accordance with auditing standards generally accepted in the United States of America
(US GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of
the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities
in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Emphasis
of matter
As
discussed in Note 2 to the financial statements, the Company has adopted new accounting guidance in 2022 related to the accounting for
leases. Our opinion is not modified with respect to this matter.
Responsibilities
of management for the financial statements
Management
is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally
accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation
and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In
preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate,
that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date the financial
statements are available to be issued.
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GT.COM |
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Grant Thornton LLP is the U.S. member firm of Grant Thornton International
Ltd (GTIL). GTIL and each of its member firms are separate legal entities and are not a worldwide partnership.
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Auditor’s
responsibilities for the audit of the financial statements
Our
objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always
detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate,
they would influence the judgment made by a reasonable user based on the financial statements.
In
performing an audit in accordance with US GAAS, we:
| • | Exercise
professional judgment and maintain professional skepticism throughout the audit. |
| • | Identify
and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, and design and perform audit procedures responsive to those risks. Such procedures
include examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. |
| • | Obtain
an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control. Accordingly, no such opinion
is expressed. |
| • | Evaluate
the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluate the overall presentation of the financial
statements. |
| • | Conclude
whether, in our judgment, there are conditions or events, considered in the aggregate, that
raise substantial doubt about the Company’s ability to continue as a going concern
for a reasonable period of time. |
We
are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, and certain internal control-related matters that we identified during the audit.
GRANT
THORNTON LLP
/s/
GRANT THORNTON LLP
Fort
Lauderdale, Florida
December 18, 2023
SPECIAL PROJECTS MEDIA, LLC
BALANCE SHEETS
AS OF DECEMBER 31, 2022 AND 2021
| |
2022 | | |
2021 | |
ASSETS | |
| | |
| |
Current assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 502,931 | | |
$ | 1,400,922 | |
Accounts receivable | |
| 336,279 | | |
| 618,899 | |
Prepaid expenses | |
| 78,327 | | |
| — | |
Prepaid income taxes | |
| 4,538 | | |
| 3,859 | |
Total current assets | |
| 922,075 | | |
| 2,023,680 | |
Right-of-use asset | |
| 149,611 | | |
| — | |
Other assets | |
| 17,456 | | |
| 6,407 | |
Total assets | |
$ | 1,089,142 | | |
$ | 2,030,087 | |
| |
| | | |
| | |
LIABILITIES AND MEMBERS' EQUITY | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 215,289 | | |
$ | 405,250 | |
Credit card payable | |
| 100,278 | | |
| 35,903 | |
Advance billings | |
| 210,189 | | |
| 690,000 | |
Lease liability - current | |
| 72,089 | | |
| — | |
Total current liabilities | |
| 597,845 | | |
| 1,131,153 | |
Lease liability - noncurrent | |
| 77,522 | | |
| — | |
Total liabilities | |
| 675,367 | | |
| 1,131,153 | |
| |
| | | |
| | |
MEMBERS' EQUITY | |
| | | |
| | |
Members' equity | |
| 413,775 | | |
| 898,934 | |
Total liabilities and members' equity | |
$ | 1,089,142 | | |
$ | 2,030,087 | |
| |
| | | |
| | |
The accompanying
notes are an integral part of these financial statements.
SPECIAL PROJECTS MEDIA, LLC
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
2022 AND 2021
| |
| |
| |
2022 | | |
2021 | |
REVENUES | |
$ | 6,979,272 | | |
$ | 4,529,175 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Cost of services | |
| 5,307,590 | | |
| 2,943,599 | |
Office and general expenses | |
| 798,664 | | |
| 525,653 | |
| |
| 6,106,254 | | |
| 3,469,252 | |
| |
| | | |
| | |
Income from operations | |
| 873,018 | | |
| 1,059,923 | |
| |
| | | |
| | |
OTHER INCOME: | |
| | | |
| | |
Gain on extinguishment of debt | |
| — | | |
| 275,892 | |
Interest income | |
| 201 | | |
| 220 | |
Other income | |
| 201 | | |
| 276,112 | |
Income before income taxes | |
| 873,219 | | |
| 1,336,035 | |
Income tax expense | |
| 28,693 | | |
| 22,941 | |
Net income | |
$ | 844,526 | | |
$ | 1,313,094 | |
| |
| | | |
| | |
The accompanying
notes are an integral part of these financial statements.
SPECIAL PROJECTS MEDIA, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2022 AND 2021
| |
| | |
| |
| |
2022 | | |
2021 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net income | |
$ | 844,526 | | |
$ | 1,313,094 | |
Adjustments to reconcile net income to net cash | |
| | | |
| | |
provided by operating activities | |
| | | |
| | |
Gain on extinguishment of debt | |
| — | | |
| (275,892 | ) |
Increase (decrease) in cash from changes in | |
| | | |
| | |
operating assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| 282,620 | | |
| (430,221 | ) |
Prepaid income taxes | |
| (679 | ) | |
| (3,859 | ) |
Prepaid expenses | |
| (78,327 | ) | |
| (8,964 | ) |
Other assets | |
| (11,049 | ) | |
| 2,544 | |
Accounts payable | |
| (189,961 | ) | |
| 213,250 | |
Credit card payable | |
| 64,375 | | |
| 22,418 | |
Lease liability, net | |
| (13,131 | ) | |
| — | |
Advance billings | |
| (479,811 | ) | |
| 690,000 | |
Net cash provided by operating activities | |
| 418,563 | | |
| 1,522,370 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from PPP loan | |
| — | | |
| 129,267 | |
Members' draws | |
| (1,316,554 | ) | |
| (1,010,000 | ) |
Net cash used in financing activities | |
| (1,316,554 | ) | |
| (880,733 | ) |
| |
| | | |
| | |
Increase (decrease) in cash and cash equivalents | |
| (897,991 | ) | |
| 641,637 | |
Cash and cash equivalents, beginning of the year | |
| 1,400,922 | | |
| 759,285 | |
Cash and cash equivalents, end of the year | |
$ | 502,931 | | |
$ | 1,400,922 | |
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| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF: | |
| | | |
| | |
CASH FLOWS INFORMATION: | |
| | | |
| | |
Income taxes paid | |
$ | 29,372 | | |
$ | 35,651 | |
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| | | |
| | |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: | |
| | | |
| | |
PPP loan principal forgiven | |
$ | — | | |
$ | 275,892 | |
The accompanying
notes are an integral part of these financial statements.
SPECIAL PROJECTS MEDIA, LLC
STATEMENTS OF CHANGES IN MEMBERS’
EQUITY
AS OF DECEMBER 31, 2022 AND 2021
| |
| |
Balance as of December 31, 2020 | |
$ | 595,840 | |
Net income for the year ended December 31, 2021 | |
| 1,313,094 | |
Members' draws during the year ended December 31, 2021 | |
| (1,010,000 | ) |
Balance as of December 31, 2021 | |
$ | 898,934 | |
Net income for the year ended December 31, 2022 | |
| 844,526 | |
Adoption of ASC 842 | |
| (13,131 | ) |
Members' draws during the year ended December 31, 2022 | |
| (1,316,554 | ) |
Balance as of December 31, 2022 | |
$ | 413,775 | |
| |
| | |
The accompanying
notes are an integral part of these financial statements.
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
NOTE 1 – ORGANIZATION
AND NATURE OF BUSINESS
Founded in 2016, Special Projects
Media, LLC (the “Company”) is an editorially minded talent booking and events agency that elevates media, fashion and lifestyle
brands through the unique use of celebrities and storytelling. The Company is organized in New York, New York. The Company leverages
the experience of its founders as magazine makers, dynamic thinkers and strategic marketers to connect talent with editorial, branded
content, advertising and live and virtual event opportunities. The Company works with clients in multiple industries.
NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates –
The preparation of the financial statements in conformity with generally accepted accounting principles (“GAAP”) requires
management to make judgements, estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and the
amounts of revenue and expenses reported during the period. These estimates are evaluated on an ongoing basis and are based on historical
experience, current conditions and various other assumptions believed to be reasonable under the circumstances. These estimates require
the use of assumptions about future performance, which are uncertain at the time of estimation. To the extent actual results differ from
the assumptions used, results of operations and cash flows could be materially affected.
Fair Value – The
Company applies the fair value measurement guidance for financial assets and liabilities that are required to be measured at fair value
and for non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis.
Cash and Cash Equivalents
– The Company’s cash equivalents are primarily comprised of investments in overnight interest-bearing deposits with original
maturity dates of three months or less at the time of purchase.
Concentration of Credit Risk
– The Company provides marketing services to clients who operate in several industries. Credit is granted to qualified clients
in the ordinary course of business. Due to the diversified nature of the Company’s client base, the Company does not believe that
it is exposed to a concentration of credit risk. The Company’s financial instruments that are exposed primarily consist of cash
and cash equivalents and trade accounts receivable. Cash balances are maintained principally at one major United States financial institution
and are insured by the Federal Deposit Insurance Corporation (“FDIC”). At various times throughout the year, the Company’s
cash balance may exceed the FDIC insurance limit.
Allowance for Doubtful Accounts
– Accounts receivables are stated at invoiced amounts less allowance for doubtful accounts. The allowances represent estimated
uncollectible receivables associated with potential customer defaults usually due to customers’ potential insolvency. The allowances
include amounts for certain customers where a risk of default has been specifically identified. The assessment of the likelihood of customer
defaults is based on various factors, including the length of time the receivables are past due, historical experience and existing economic
conditions. Allowance for doubtful accounts was $0 as December 31, 2022 and 2021.
Leases – Effective
January l, 2022, the Company adopted Accounting Standards Codification 842, Leases ("ASC 842") using the modified retrospective
method of adoption, which does not require restatement of prior year reported results. The Company recognizes on the balance sheet at
the time of lease commencement a right-of-use lease asset and a lease liability, initially measured at the present value of the lease
payments. All right-of-use lease assets are reviewed for impairment. With the adoption of ASC 842, the Company elected to apply the package
of practical expedients: (i) whether a contract is or contains a lease, (ii) the classification of existing leases, and (iii) whether
previously capitalized costs continue to qualify as initial indirect costs. Additionally, the Company elected the practical expedient
to not separate non-lease components from lease components for operating leases and not to apply the recognition requirements to short-term
leases. On the date of adoption, the Company recorded a right-of-use asset and offsetting lease liability of $218,627. See Note 6 for
further information on leases.
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
Revenue Recognition –
The Company’s revenue is recognized as control of the promised services are transferred to clients, in an amount that reflects
the consideration it expects to be entitled to in exchange for those services. See Note 3 for additional information.
Cost of Services –
Cost of services primarily consists of staff costs that are directly attributable to the Company’s client engagements, as well
as third-party direct costs of production and delivery of services to its clients. Cost of services does not include other office and
general expenses that are not directly attributable to client engagements.
Income Taxes – The
Company operates as a Limited Liability Company (“LLC”) under the statutes of the Limited Liability Company Act of the State
of New York. Under those statutes, the Company’s taxable income or loss is distributed to its members, who report their proportionate
share of income or loss on their income tax returns. However, the Company is subject to the New York limited liability fee, California
State limited liability fee and tax, New York City unincorporated business tax and City of Los Angles business tax. Current tax expense
includes New York State limited liability fee, California State limited liability fee, California State limited liability tax, New York
unincorporated business tax and City of Los Angeles business tax. Current tax expense is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax
payable in respect of previous years.
The Company takes a two-step
approach to recognizing and measuring tax positions taken or to be taken in the Company’s income tax returns. The first step is
to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than not the position
will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the
tax benefit as the largest amount that is more than 50% likely of being recognized upon settlement.
Interest and penalties resulting
from uncertain tax positions are classified in the financial statements as provision for income taxes.
Retirement Costs –
The Company offers employees access to a defined contribution retirement plan. Under the defined contribution plan, the Company may make
annual contributions to the participants’ accounts which are subject to vesting. The Company’s contribution expense pursuant
to this plan was $40,772 and $33,165 for the years ended December 31, 2022 and 2021, respectively and is recorded in office and
general expenses in the accompanying statements of operations.
NOTE 3 – REVENUE
The Company derives revenues
from providing an extensive range of services to clients, offering a variety of marketing and communication capabilities including casting
and coordinating celebrity and influencer involvement with brands marketing campaigns and special events and production for advertising
campaigns across a variety of platforms (print, digital, social media, television broadcast) and events management. The Company’s
arrangements are in the form of fees for services performed, commissions, and from performance incentives or bonuses, depending on the
terms of the client contracts. In all circumstances, revenue is recognized when its customers obtain control of the promised services,
in an amount that reflects the consideration to which it expects to receive in exchange for those services. Payment terms are generally
less than 30 days.
To determine recognition, the
Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in
the contracts; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contracts;
and (v) recognize revenue as or when it satisfies the performance obligation. The Company only applies the five-step model to contracts
when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers
to the customer. At contract inception, the Company assesses the goods or services promised within each contract and determines those
that are distinct performance obligations. It then assesses whether it acts as an agent or a principal for each identified performance
obligation and includes revenue within the transaction price for third-party costs when it determines that it is acting as principal.
The Company typically does not capitalize costs to obtain a contract as these amounts would generally be recognized over a period of
one year or less.
The majority of the Company’s
fees are recognized over time as services are performed, and are generally recognized on a straight-line or monthly basis, as the services
are consumed by its clients, which approximates the proportional performance on such contracts.
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
Principal vs Agent
When a third-party is involved
in the delivery of the Company’s services to its client, it assesses whether or not it is acting as a principal or an agent in
the arrangement. The assessment is based on whether it controls the specified services at any time before they are transferred to the
customer. The Company has determined that in the services that it performs, it generally acts as principal as it provides a significant
service of integrating goods or services provided by third parties into the specified deliverable to its clients. In addition, the Company
has determined that it is responsible for the performance of the third-party suppliers, which are combined with its own services, before
transferring those services to the customer. For the majority of its contracts, the Company records the gross amount billed to the customer
within total revenue and the related costs in costs of services in its statement of operations.
Contract Assets and Liabilities
Contract assets consist of fees
and reimbursable outside vendor costs incurred on behalf of clients when providing advertising and marketing services that have not yet
been invoiced to clients. Such amounts are invoiced to clients at various times over the course of providing services. Unbilled revenue
was $0 as of December 31, 2022 and 2021.
Contract liabilities consist
of fees received from or billed to clients in excess of fees recognized. Such fees are classified and presented on the Company’s
balance sheets as advance billings. Advance billings as of December 31, 2022 and 2021, were $210,189 and $690,000, respectively.
During the year ended December 31, 2022, the Company recognized as revenue $529,811 from advance billings made in 2021. The Company
did not record any revenue from advance billings for the year ended December 31, 2021 as the balance of advance billings as of December 31,
2020 was $0.
Changes in contract asset and
liability balances during the years ended December 31, 2022 and 2021, were not materially impacted by write off, impairment losses
or any other factors.
The majority of the Company’s
contracts are for periods of one year or less.
NOTE 4 – INCOME TAXES
The provision of income taxes
is comprised of the following for the years ended December 31, 2022 and 2021:
| |
For the year
ended December 31, | |
| |
2022 | | |
2021 | |
Current | |
| | |
| |
State | |
$ | 6,800 | | |
$ | 6,800 | |
Local | |
| 21,893 | | |
| 16,141 | |
Total current tax provision | |
$ | 28,693 | | |
$ | 22,941 | |
| |
| | | |
| | |
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
NOTE 5 – DEBT
The Company received loan proceeds
in the amount of $146,625 during the year ended December 31, 2020 and $129,267 during the year ended December 31, 2021 under
the Paycheck Protection Program (“PPP”) as 1st draw PPP loan and 2nd draw PPP loan, respectively. Established
as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), the PPP provided loans to qualifying businesses
in amounts up to 2.5 times the business’ average monthly payroll expense. PPP loans and accrued interest were forgivable after
a “covered period” (eight or 24 weeks) as long as the borrower maintained its payroll levels and used the loan proceeds for
eligible purposes, including payroll, benefits, rent and utilities. The forgiveness amounts were to be reduced if the borrower terminated
employees or reduced salaries during the covered period. Any unforgiven portion of a PPP loan was payable over two or five years at an
interest rate of 1%, with a deferral of payments for ten months after the end of the covered period. The Company used the PPP loan proceeds
of the 1st and 2nd draw PPP loans for purposes consistent with the PPP, applied for forgiveness, and was granted
full forgiveness during the year ended December 31, 2021. The Company recorded the forgiveness when the loan obligation was legally
released. Interest on the forgiven PPP loan was immaterial and was not recorded by the Company when it received 100% loan forgiveness
on both the PPP loans. The loan forgiveness of $275,892 was recorded as a gain on extinguishment of debt in the accompanying statement
of operations for the year ended December 31, 2021. The Company did not have any outstanding PPP loans during the year ended December 31,
2022.
NOTE 6 – LEASES
The Company leases operating
and office space in New York and California (the “New York Lease” and “California Lease”, respectively). The
New York Lease expired on September 30, 2022 and was extended for a period of two years until September 30, 2024. The California lease
was entered into on October 15, 2021 and expired on April 30, 2022. On June 20, 2022, the Company entered into a new lease for a
larger space for a period of six months until December 20, 2022. Subsequent to December 20, 2022, the California lease is on
a month-to-month basis. These spaces are primarily used for office and administrative purposes by the Company’s employees in performing
professional services. These leases are classified as operating leases. All operating leases are accounted for by recognizing a right-of-use
asset and a lease liability except for leases of low value assets and leases with a duration period of twelve months or less.
The Company’s leasing policies
are established in accordance with ASC 842, and accordingly, the Company recognizes on the balance sheet at the time of lease commencement
a right-of-use asset and a lease liability, initially measured at the present value of the lease payments. Right-of-use assets represent
the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation
to make lease payments arising from the lease. The right-of-use asset is reviewed for impairment. In determining the present value of
its lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement of the lease,
as the Company’s implicit rate in its leases is not readily determinable. Lease payments included in the measurement of the lease
liability are comprised of noncancelable lease payments, payments based upon an index or rate, payments for optional renewal periods
where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably
certain the lease will not be terminated early.
Lease costs are recognized in the
statements of operations over the lease term on a straight-line basis. The discount rate used for the New York Lease is 7.27%.
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
The following table presents
operating lease balances as of December 31, 2022:
Operating
Leases | |
As
of December 31, 2022 | |
Assets | |
| | |
Right-of-use asset | |
$ | 149,611 | |
| |
| | |
Liabilities | |
| | |
Current | |
| | |
Lease liability | |
$ | 72,089 | |
| |
| | |
Noncurrent | |
| | |
Lease liability | |
$ | 77,522 | |
| |
| | |
Total operating lease liability | |
$ | 149,611 | |
Lease cost associated with operating
leases for the year ended December 31, 2022 of $156,657 is included in office and general expenses on the accompanying statement
of operations, $85,600 of which relates to the California Lease. Prior to the adoption of ASC 842, rent expense of $88,488 was recognized
during the year ended December 31, 2021 in office and general expenses on the accompanying statement of operations.
The following table presents
minimum future lease payments under the Company’s leases at December 31, 2022 and their reconciliation to the corresponding
lease liability:
Year | | |
Operating
Leases | |
| 2023 | | |
$ | 85,873 | |
| 2024 | | |
| 65,843 | |
| Total future lease payments | | |
$ | 151,716 | |
| Less: Imputed interest | | |
| (2,105 | ) |
| Present value of lease liabilities | | |
$ | 149,611 | |
NOTE 7 – FAIR VALUE
MEASUREMENTS
A fair value measurement assumes
a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability or, in the absence of
a principal market, the most advantageous for the asset or liability.
In determining fair value, the
Company utilizes valuation techniques that maximize the use of the observable inputs and minimize the use of unobservable inputs to the
extent possible as well as considers counterparty credit risk in the assessment of fair value. The hierarchy for observable and unobservable
inputs used to measure fair value into three broad levels are described below:
Level 1 –
Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets and liabilities. The fair value hierarchy
gives the highest priority to Level 1 inputs.
Level 2 –
Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3 –
Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level
3 inputs.
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2022 AND 2021
At December 31, 2022 and
2021, the carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts
payable, prepaid expenses, prepaid income taxes, credit card payable and advance billings approximated fair value because of their short-term
maturity.
Non-financial Assets and Liabilities
that are Measured at Fair Value on a Nonrecurring Basis – Certain non-financial assets are measured at fair value on a nonrecurring
basis, primarily the right-of-use asset (Level 2 for fair value measurement). Accordingly, these assets are not measured and adjusted
to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment when impairment indicators are present.
There were no indicators of impairment of right-of-use asset during the year ended December 31, 2022.
NOTE 8 – CONCENTRATIONS
As of December 31, 2022,
four vendors represented approximately 28%, 22%, 16% and 14% of the accounts payable respectively. For the year ended December 31,
2022, one customer accounted for approximately 32% of revenues. As of December 31, 2022, four customers represented 26%, 25%, 17%
and 10%, respectively, of accounts receivable.
As of December 31, 2021,
three vendors represented approximately 58%, 11% and 10% of accounts payable, respectively. For the year ended December 31, 2021,
two customers accounted for approximately 35% and 11% of the revenue, respectively. As of December 31, 2021, three customers represented
approximately 40%, 18% and 11% of the accounts receivable, respectively.
NOTE 9 – SUBSEQUENT
EVENTS
On October 2, 2023, Dolphin Entertainment,
Inc., (“Dolphin”), a Florida corporation, acquired all of the issued and outstanding membership interest of the Company,
pursuant to a membership interest purchase agreement and the Company became a wholly owned subsidiary of Dolphin.
The consideration paid by Dolphin
in connection with the acquisition of the Company was approximately $10.0 million, which is subject to adjustments based on a customary
post-closing cash consideration adjustment.
In connection with its acquisition,
on October 2, 2023, the Company became a party to a loan agreement with BankUnited (“BankUnited Loan Agreement”), which was
entered into on September 29, 2023 by certain subsidiaries of Dolphin. The BankUnited Loan Agreement includes: (i) $5,800,000 secured
term loan (“BKU Term Loan”), (ii) and $750,000 of a secured revolving line of credit (“BKU Line of Credit”) and
(iii) $400,000 Commercial Card (“BKU Commercial Card”), which mature in September 2026. The BankUnited Credit Facility
contains certain financial and liquidity covenants.
Proceeds from the BKU Term Loan
were partially used to finance Dolphin’s acquisition of the Company.
The Company evaluated its December 31,
2022 financial statements for subsequent events through December 18, 2023, the date the financial statements were available to be
issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements other
than those disclosed.
Special Projects Media, LLC
fINANCIAL
STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 and 2022
|
Page |
|
|
|
|
Balance sheets as of September 30, 2023 and 2022 |
1 |
|
Statements of operations for the nine months ended September 30, 2023 and 2022 |
2 |
|
Statements of cash flows for the nine months ended September 30, 2023 and 2022 |
3 |
|
Statements of changes in members' equity as of September 30, 2023 and 2022 |
4 |
|
Notes to the financial statements |
5 |
|
|
|
|
i
SPECIAL PROJECTS MEDIA, LLC
BALANCE SHEETS
AS OF SEPTEMBER 30, 2023 and 2022
(Unaudited)
ASSETS | |
2023 | | |
2022 | |
Current
assets | |
| | | |
| | |
Cash
and cash equivalents | |
$ | 521,821 | | |
$ | 1,497,814 | |
Accounts
receivable | |
| 1,155,871 | | |
| 776,297 | |
Prepaid
expenses | |
| 6,800 | | |
| 36,000 | |
Prepaid
income taxes | |
| 4,538 | | |
| 3,859 | |
Total
current assets | |
| 1,689,030 | | |
| 2,313,970 | |
Right-of-use
asset | |
| 91,840 | | |
| 168,172 | |
Other
assets | |
| 30,453 | | |
| 12,582 | |
Total
assets | |
$ | 1,811,323 | | |
$ | 2,494,724 | |
| |
| | | |
| | |
LIABILITIES
AND MEMBERS' EQUITY | |
| | | |
| | |
Current
liabilities | |
| | | |
| | |
Accounts
payable | |
$ | 724,724 | | |
$ | 631,220 | |
Credit
card payable | |
| 39,917 | | |
| 90,012 | |
Advance
billings | |
| 30,000 | | |
| 366,250 | |
Lease
liability - current | |
| 91,840 | | |
| 85,236 | |
Other
current liabilities | |
| 15,000 | | |
| — | |
Total
current liabilities | |
| 901,481 | | |
| 1,172,718 | |
Noncurrent
liabilities | |
| | | |
| | |
Lease
liability - noncurrent | |
| — | | |
| 82,936 | |
Total
liabilities | |
| 901,481 | | |
| 1,255,654 | |
MEMBERS'
EQUITY | |
| | | |
| | |
Members'
equity | |
| 909,842 | | |
| 1,239,070 | |
Total
liabilities and members' equity | |
$ | 1,811,323 | | |
$ | 2,494,724 | |
The
accompanying notes are an integral part of these financial statements.
SPECIAL PROJECTS MEDIA, LLC
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2023 and 2022
(Unaudited)
| |
| | |
| |
| |
2023 | | |
2022 | |
REVENUES | |
$ | 5,478,385 | | |
$ | 5,211,271 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
Cost of services | |
| 4,150,631 | | |
| 3,760,381 | |
Office and general expenses | |
| 431,442 | | |
| 328,854 | |
| |
| 4,582,073 | | |
| 4,089,235 | |
| |
| | | |
| | |
Income from operations | |
| 896,312 | | |
| 1,120,036 | |
| |
| | | |
| | |
OTHER INCOME: | |
| | | |
| | |
Interest income | |
| 12 | | |
| 167 | |
Other income | |
| 12 | | |
| 167 | |
Income before income taxes | |
| 896,324 | | |
| 1,122,203 | |
Income tax expense | |
| 18,892 | | |
| 29,372 | |
Net income | |
$ | 877,432 | | |
$ | 1,092,831 | |
| |
| | | |
| | |
The
accompanying notes are an integral part of these financial statements.
SPECIAL PROJECTS MEDIA, LLC
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2023 and 2022
(Unaudited)
| |
| | |
| |
| |
2023 | | |
2022 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net income | |
$ | 877,432 | | |
$ | 1,092,831 | |
Increase (decrease) in cash from changes in operating assets and liabilities | |
| | | |
| | |
| |
| | | |
| | |
Accounts receivable | |
| (819,592 | ) | |
| (157,398 | ) |
Prepaid expenses | |
| 71,527 | | |
| (36,000 | ) |
Other assets | |
| (12,997 | ) | |
| (6,175 | ) |
Accounts payable | |
| 509,435 | | |
| 225,970 | |
Credit card payable | |
| (60,361 | ) | |
| 54,109 | |
Other current liabilities | |
| 15,000 | | |
| — | |
Advance billings | |
| (180,189 | ) | |
| (323,750 | ) |
Net cash provided by operating activities | |
| 400,255 | | |
| 849,587 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Members' draws | |
| (381,365 | ) | |
| (752,695 | ) |
Net cash used in financing activities | |
| (381,365 | ) | |
| (752,695 | ) |
| |
| | | |
| | |
Increase in cash and cash equivalents | |
| 18,890 | | |
| 96,892 | |
Cash and cash equivalents, beginning of the period | |
| 502,931 | | |
| 1,400,922 | |
Cash and cash equivalents, end of the period | |
$ | 521,821 | | |
$ | 1,497,814 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | |
| | | |
| | |
Income taxes paid | |
$ | 26,057 | | |
$ | 29,372 | |
| |
| | | |
| | |
The
accompanying notes are an integral part of these financial statements.
SPECIAL PROJECTS MEDIA, LLC
STATEMENTS OF CHANGES IN MEMBERS’
EQUITY
AS OF SEPTEMBER 30, 2023 and 2022
(Unaudited)
| | |
| |
| Balance as of December 31, 2021 | | |
$ | 898,934 | |
| Net income for the nine months ended September 30, 2022 | | |
| 1,092,831 | |
| Member draws during the nine months ended September 30, 2022 | | |
| (752,695 | ) |
| Balance as of September 30, 2022 | | |
$ | 1,239,070 | |
| | | |
| | |
| Balance as of December 31, 2022 | | |
$ | 413,775 | |
| Net income for the nine months ended September 30, 2023 | | |
| 877,432 | |
| Members' draws during the nine months ended September 30, 2023 | | |
| (381,365 | ) |
| Balance as of September 30, 2023 | | |
$ | 909,842 | |
The
accompanying notes are an integral part of these financial statements.
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 and 2022
(Unaudited)
NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS
Founded
in 2016, Special Projects Media, LLC (the “Company”) is an editorially minded talent booking and events agency that elevates
media, fashion and lifestyle brands through the unique use of celebrities and storytelling. The Company is organized in New York, New
York. The Company leverages the experience of its founders as magazine makers, dynamic thinkers and strategic marketers to connect talent
with editorial, branded content, advertising and live and virtual event opportunities. The Company works with clients in multiple industries.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates – The preparation of the financial statements in conformity with generally accepted accounting principles (“GAAP”)
requires management to make judgements, estimates and assumptions. These estimates and assumptions affect the reported amounts of assets
and the amounts of revenue and expenses reported during the period. These estimates are evaluated on an ongoing basis and are based on
historical experience, current conditions and various other assumptions believed to be reasonable under the circumstances. These estimates
require the use of assumptions about future performance, which are uncertain at the time of estimation. To the extent actual results
differ from the assumptions used, results of operations and cash flows could be materially affected.
Fair
Value – The Company applies the fair value measurement guidance for financial assets and liabilities that are required to be
measured at fair value and for non-financial assets and liabilities that are not required to be measured at fair value on a recurring
basis.
Cash
and Cash Equivalents – The Company’s cash equivalents are primarily comprised of investments in overnight interest-bearing
deposits with original maturity dates of three months or less at the time of purchase.
Concentration
of Credit Risk – The Company provides marketing services to clients who operate in several industries. Credit is granted to
qualified clients in the ordinary course of business. Due to the diversified nature of the Company’s client base, the Company does
not believe that it is exposed to a concentration of credit risk. The Company’s financial instruments that are exposed primarily
consist of cash and cash equivalents and trade accounts receivable. Cash balances are maintained principally at one major United States
financial institution and are insured by the Federal Deposit Insurance Corporation (“FDIC”). At various times throughout
the year, the Company’s cash balance may exceed the FDIC insurance limit.
Allowance for Doubtful Accounts – Accounts receivables
are stated at invoiced amounts less allowance for doubtful accounts. The allowances represent estimated uncollectible receivables associated
with potential customer defaults usually due to customers’ potential insolvency. The allowances include amounts for certain customers
where a risk of default has been specifically identified. The assessment of the likelihood of customer defaults is based on various factors,
including the length of time the receivables are past due, historical experience and existing economic conditions. Allowance for doubtful
accounts was $0 as of September 30, 2023 and 2022.
Leases – Effective January l, 2022, the Company adopted
Accounting Standards Codification 842, Leases ("ASC 842") using the modified retrospective method of adoption, which does
not require restatement of prior year reported results. The Company recognizes on the balance sheet at the time of lease commencement
a right-of-use lease asset and a lease liability, initially measured at the present value of the lease payments. All right-of-use lease
assets are reviewed for impairment. With the adoption of ASC 842, the Company elected to apply the package of practical expedients: (i)
whether a contract is or contains a lease, (ii) the classification of existing leases, and (iii) whether previously capitalized costs
continue to qualify as initial indirect costs. Additionally, the Company elected the practical expedient to not separate non-lease components
from lease components for operating leases and not to apply the recognition requirements to short-term leases. As of September 30, 2023
and 2022, the Company had a right of use asset of $91,840 and $168,172, respectively in its balance sheets. See Note 5 for further information
on leases.
Revenue
Recognition – The Company’s revenue is recognized as control of the promised services are transferred to clients, in
an amount that reflects the consideration it expects to be entitled to in exchange for those services. See Note 3 for additional information.
Cost
of Services – Cost of services primarily consists of staff costs that are directly attributable to the Company’s client
engagements, as well as third-party direct costs of production and delivery of services to its clients. Cost of services does not include
other office and general expenses that are not directly attributable to client engagements.
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 and 2022
(Unaudited)
Income
Taxes – The Company operates as a Limited, Liability Company (“LLC”) under the statutes of the Limited Liability
Company Act of the State of New York. Under those statutes, the Company’s taxable income or loss is distributed to its members,
who report their proportionate share of income or loss on their income tax returns. However, the Company is subject to the New York limited
liability fee, California State limited liability fee and tax, New York City unincorporated business tax and City of Los Angles business
tax. Current tax expense includes New York State limited liability fee, California State limited liability fee, California State limited
liability tax, New York unincorporated business tax and City of Los Angeles business tax. Current tax expense is the expected tax payable
or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and
any adjustment to tax payable in respect of previous years.
The
Company takes a two-step approach to recognizing and measuring tax positions taken or to be taken in the Company’s income tax returns.
The first step is to evaluate the tax position for recognition by determining if, based on the technical merits, it is more likely than
not the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount that is more than 50% likely of being recognized upon settlement.
Interest
and penalties resulting from uncertain tax positions are classified in the financial statements as provision for income taxes.
Retirement
Costs – The Company offers employees access to a defined contribution retirement plan. Under the defined contribution plan,
the Company may make annual contributions to the participants’ accounts which are subject to vesting. The Company’s contribution
expense pursuant to this plan was $31,807 and $28,029, respectively, for the nine months ended September 30, 2023 and 2022 and is recorded
in office and general expenses in the accompanying statement of operations.
NOTE
3 – REVENUE
The
Company derives revenues from providing an extensive range of services to clients, offering a variety of marketing and communication
capabilities including casting and coordinating celebrity and influencer involvement with brands marketing campaigns and special events
and production for advertising campaigns across a variety of platforms (print, digital, social media, television broadcast) and events
management. The Company’s arrangements are in the form of fees for services performed, commissions, and from performance incentives
or bonuses, depending on the terms of the client contracts. In all circumstances, revenue is recognized when its customers obtain control
of the promised services, in an amount that reflects the consideration to which it expects to receive in exchange for those services.
Payment terms are generally less than 30 days.
To
determine recognition, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the
performance obligations in the contracts; (iii) determine the transaction price; (iv) allocate the transaction price to the performance
obligations in the contracts; and (v) recognize revenue as or when it satisfies the performance obligation. The Company only applies
the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for
the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within
each contract and determines those that are distinct performance obligations. It then assesses whether it acts as an agent or a principal
for each identified performance obligation and includes revenue within the transaction price for third-party costs when it determines
that it is acting as principal. The Company typically does not capitalize costs to obtain a contract as these amounts would generally
be recognized over a period of one year or less.
The
majority of the Company’s fees are recognized over time as services are performed, and are generally recognized on a straight-line
or monthly basis, as the services are consumed by its clients, which approximates the proportional performance on such contracts.
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 and 2022
(Unaudited)
Principal
vs Agent
When
a third-party is involved in the delivery of the Company’s services to its client, it assesses whether or not it is acting as a
principal or an agent in the arrangement. The assessment is based on whether it controls the specified services at any time before they
are transferred to the customer. The Company has determined that in the services that it performs, it generally acts as principal as
it provides a significant service of integrating goods or services provided by third parties into the specified deliverable to its clients.
In addition, the Company has determined that it is responsible for the performance of the third-party suppliers, which are combined with
its own services, before transferring those services to the customer. For the majority of its contracts, the Company records the gross
amount billed to the customer within total revenue and the related costs in costs of services in its statement of operations.
Contract
Assets and Liabilities
Contract assets consist of fees and reimbursable outside vendor costs
incurred on behalf of clients when providing advertising and marketing services that have not yet been invoiced to clients. Such amounts
are invoiced to clients at various times over the course of providing services. Unbilled revenue was $0 as of September 30, 2023 and 2022.
Contract liabilities consist of fees received from or billed to clients
in excess of fees recognized. Such fees are classified and presented on the Company’s balance sheets as advance billings. Advance
billings as of September 30, 2023 and 2022 were $30,000 and $366,250, respectively. During nine months ended September 30, 2023 and 2022,
respectively, the Company recognized as revenue $210,189 from advance billings made in 2022 and $323,750 from advance billings made in
2021.
Changes in contract asset and liability balances during the nine
months ended September 30, 2023 and 2022 were not materially impacted by write off, impairment losses or any other factors.
The majority of the Company’s contracts are for periods of
one year or less.
NOTE 4 – INCOME TAXES
The provision of income taxes is comprised of the following for the
nine months ended September 30, 2023 and 2022:
| |
| | |
| |
Current | |
2023 | | |
2022 | |
State | |
$ | 6,800 | | |
$ | 6,800 | |
Local | |
| 12,092 | | |
| 22,572 | |
Total current tax provision | |
$ | 18,892 | | |
$ | 29,372 | |
NOTE
5 – LEASES
The
Company leases operating and office space in New York and California (the “New York Lease” and “California Lease”,
respectively). The New York Lease expired on September 30, 2022 and was extended for a period of two years until September 30, 2024.
The California lease is on a month-to-month basis. These spaces are primarily used for office and administrative purposes by the Company’s
employees in performing professional services. These leases are classified as operating leases. All operating leases are accounted for
by recognizing a right-of-use asset and a lease liability except for leases of low value assets and leases with a duration period of
twelve months or less.
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 and 2022
(Unaudited)
The
Company’s leasing policies are established in accordance with ASC 842, and accordingly, the Company recognizes on the balance sheet
at the time of lease commencement a right-of-use asset and a lease liability, initially measured at the present value of the lease payments.
Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent
the Company’s obligation to make lease payments arising from the lease. The right-of-use asset is reviewed for impairment. In determining
the present value of its lease payments, the Company uses its incremental borrowing rate based on the information available at the commencement
of the lease, as the Company’s implicit rate in its leases is not readily determinable. Lease payments included in the measurement
of the lease liability are comprised of noncancelable lease payments, payments based upon an index or rate, payments for optional renewal
periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is
reasonably certain the lease will not be terminated early.
Lease
costs are recognized in the statements of operations over the lease term on a straight-line basis. The discount rate used for the New
York Lease is 7.27%.
The following table presents operating lease balances as of September
30, 2023 and 2022:
Operating Leases | |
2023 | | |
2022 | |
Assets | |
| | | |
| | |
Right-of-use asset | |
$ | 91,840 | | |
$ | 168,172 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Current | |
| | | |
| | |
Lease liability | |
$ | 91,840 | | |
$ | 85,236 | |
| |
| | | |
| | |
Noncurrent | |
| | | |
| | |
Lease liability | |
$ | 91,840 | | |
$ | 82,936 | |
Total operating lease liability | |
$ | 91,840 | | |
$ | 168,172 | |
| |
| | | |
| | |
Lease cost associated with operating leases for the nine months ended
September 30, 2023 and 2022 of $151,319 and $119,934, respectively, is included in office and general expenses on the accompanying statement
of operations, $86,731 of which relates to the California month-to-month lease during the nine months ended September 30, 2023.
The
following table presents minimum future lease payments under the Company’s leases at September 30, 2023 and their reconciliation
to the corresponding lease liability:
Year | | |
Operating Leases | |
| 2023 | | |
$ | 21,948 | |
| 2024 | | |
| 73,160 | |
| Total future lease payments | | |
$ | 95,108 | |
| Less: Imputed interest | | |
| (3,268 | ) |
| Present value of lease liabilities | | |
$ | 91,840 | |
SPECIAL PROJECTS MEDIA, LLC
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 and 2022
(Unaudited)
NOTE
6 – FAIR VALUE MEASUREMENTS
A
fair value measurement assumes a transaction to sell an asset or transfer a liability occurs in the principal market for the asset or
liability or, in the absence of a principal market, the most advantageous for the asset or liability.
In
determining fair value, the Company utilizes valuation techniques that maximize the use of the observable inputs and minimize the use
of unobservable inputs to the extent possible as well as considers counterparty credit risk in the assessment of fair value. The hierarchy
for observable and unobservable inputs used to measure fair value into three broad levels are described below:
Level
1 – Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets and liabilities. The
fair value hierarchy gives the highest priority to Level 1 inputs.
Level
2 – Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level
3 – Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority
to Level 3 inputs.
At September 30, 2023 and 2022, the carrying amount of the Company’s
financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, prepaid expenses, prepaid income taxes,
credit card payable and advance billings approximated fair value because of their short-term maturity.
Non-financial
Assets and Liabilities that are Measured at Fair Value on a Nonrecurring Basis – Certain non-financial assets are measured
at fair value on a nonrecurring basis, primarily the right-of-use asset (Level 2 for fair value measurement). Accordingly, these assets
are not measured and adjusted to fair value on an ongoing basis but are subject to periodic evaluations for potential impairment when
impairment indicators are present. There were no indicators of impairment of right-of-use asset during the nine months ended September
30, 2023 and 2022.
NOTE
7 – CONCENTRATIONS
As
of September 30, 2023, two vendors represented approximately 45% and 33% of the accounts payable respectively. For the nine months ended
September 30, 2023, one customer accounted for approximately 48% of revenues. As of September 30, 2023, two customers represented 46%
and 11%, respectively, of accounts receivable.
As of September 30, 2022, one vendor represented approximately 48%
of the accounts payable. For the nine months ended September 30, 2022, one customer accounted for approximately 31% of revenues. As of
September 30, 2022, two customers represented 28 and 24%, respectively, of accounts receivable.
NOTE
8 – SUBSEQUENT EVENTS
On
October 2, 2023, Dolphin Entertainment, Inc., (“Dolphin”), a Florida corporation, acquired all of the issued and outstanding
membership interest of the Company, pursuant to a membership interest purchase agreement and the Company became a wholly owned subsidiary
of Dolphin.
The
consideration paid by Dolphin in connection with the acquisition of the Company was approximately $10.0 million, which is subject
to adjustments based on a customary post-closing cash consideration adjustment.
In
connection with its acquisition, on October 2, 2023, the Company became a party to a loan agreement with BankUnited (“BankUnited
Loan Agreement”), which was entered into on September 29, 2023 by certain subsidiaries of Dolphin. The BankUnited Loan Agreement
includes: (i) $5,800,000 secured term loan (“BKU Term Loan”), (ii) and $750,000 of a secured revolving line of credit (“BKU
Line of Credit”) and (iii) $400,000 Commercial Card (“BKU Commercial Card”), which mature in September 2026. The
BankUnited Credit Facility contains certain financial and liquidity covenants.
Proceeds
from the BKU Term Loan were partially used to finance Dolphin’s acquisition of the Company.
The
Company evaluated its September 30, 2023 and 2022 financial statements for subsequent events through December 18, 2023, and is
not aware of any subsequent events which would require recognition or disclosure in the financial statements other than those
disclosed.
10
Exhibit 99.2
DOLPHIN ENTERTAINMENT, INC
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
The following unaudited
pro forma condensed combined financial information and related notes present the historical condensed combined financial information
of Dolphin Entertainment, Inc. and its wholly owned subsidiaries (hereinafter referred to as “Dolphin” or “the Company”)
and Special Projects Media LLC (“Special Projects”) after giving effect to Dolphin’s acquisition of Special Projects
that was completed on October 2, 2023 (the “Closing Date”). The pro forma adjustments are based upon available
information and assumptions that the Company believes are reasonable.
The
unaudited pro forma condensed combined balance sheet as of September 30, 2023 is presented as if the acquisition of Special Projects had
occurred on September 30, 2023. The unaudited pro forma condensed combined statements of operations for the year ended December
31, 2022 and the nine months ended September 30, 2023 are presented as if the acquisition had occurred on January 1, 2022. The unaudited
condensed combined statement of operations for the year ended December 31, 2022 includes the information for Socialyte LLC (“Socialyte”)
for the period between January 1, 2022 and November 13, 2022, the period prior its acquisition by Dolphin on November 14, 2022. The historical
financial information is adjusted in the unaudited pro forma condensed combined financial information to reflect certain reclassifications
to conform with current financial statement presentation.
The
determination and preliminary allocation of the purchase consideration used in the unaudited pro forma condensed combined financial information
are based upon preliminary estimates, which are subject to change during the measurement period (up to one year from the Closing Date). Accordingly,
the aggregate value of the consideration paid by Dolphin to complete the acquisition was allocated to the assets acquired and liabilities
assumed from Special Projects based upon estimated fair values on the Closing Date. Dolphin has not completed the detailed
valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed from Special Projects and the related
allocations of purchase price, nor has Dolphin identified all adjustments necessary to conform Special Projects’ accounting policies
to Dolphin’s accounting policies. Accordingly, the pro forma purchase price adjustments presented herein are preliminary, and may
not reflect any final purchase price adjustments made. Dolphin estimated the fair value of Special Projects’ assets and
liabilities based on discussion with Special Projects’ management, due diligence and preliminary work performed by third-party valuation
specialists. As the final valuations are being performed, adjustments to the fair value of relevant balance sheet amounts may result in
material differences from the information presented herein.
The unaudited pro forma adjustments
are not necessarily indicative of or intended to represent the results that would have been achieved had the transaction been consummated
as of the dates indicated or that may be achieved in the future. The actual results reported by the combined company in periods
following the acquisition may differ significantly from those reflected in these unaudited pro forma condensed combined financial information
for a number of reasons, including cost saving synergies from operating efficiencies and the effect of incremental costs incurred to integrate
the two companies.
Dolphin will finalize the acquisition
accounting as soon as practicable within the required measurement period prescribed by Financial Accounting Standards Board Accounting
Standards Codification (“ASC”) 805, “Business Combinations” (“ASC 805”), but in no event later than
one year following the Closing Date. The unaudited pro forma condensed combined financial information has been presented for informational
purposes only and should not be relied upon. The unaudited pro forma condensed combined financial information should be read in conjunction
with Dolphin’s historical consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for
the year ended December 31, 2022 and quarterly financial statements on Form 10-Q for the nine months ended September 30, 2023 and the
historical audited financial statements of Special Projects for the year ended December 31, 2022 and the historical unaudited financial
statements of Special Projects for the nine months ended September 30, 2023 contained in this Form 8-K.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2023
|
ASSETS |
|
Dolphin Entertainment, Inc. (Historical) |
|
|
Special Projects Media, LLC
(Historical) |
|
|
Pro Forma Adjustments |
|
Notes |
|
Pro Forma Combined |
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
6,406,646 |
|
|
$ |
521,821 |
|
|
$ |
(2,404,092 |
) |
(a) |
$ |
4,524,375 |
|
Restricted cash |
|
|
3,723,868 |
|
|
|
— |
|
|
|
(2,595,908 |
) |
(a) |
|
|
1,127,960 |
|
Accounts receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade, net |
|
|
4,993,703 |
|
|
|
1,155,871 |
|
|
|
— |
|
|
|
|
6,149,574 |
|
Other receivables |
|
|
4,299,330 |
|
|
|
— |
|
|
|
— |
|
|
|
|
4,299,330 |
|
Notes receivable |
|
|
4,608,962 |
|
|
|
— |
|
|
|
— |
|
|
|
|
4,608,962 |
|
Other current assets |
|
|
954,029 |
|
|
|
11,338 |
|
|
|
|
|
|
|
|
965,367 |
|
Total current assets |
|
|
24,986,538 |
|
|
|
1,689,030 |
|
|
|
(5,000,000 |
) |
|
|
|
21,675,568 |
|
Capitalized production costs, net |
|
|
2,070,275 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2,070,275 |
|
Employee receivable |
|
|
748,085 |
|
|
|
— |
|
|
|
— |
|
|
|
|
748,085 |
|
Right-of-use asset |
|
|
5,996,732 |
|
|
|
91,840 |
|
|
|
— |
|
|
|
|
6,088,572 |
|
Goodwill |
|
|
22,796,683 |
|
|
|
— |
|
|
|
5,579,547 |
|
(b) |
|
|
28,376,230 |
|
Intangible assets, net |
|
|
8,030,366 |
|
|
|
— |
|
|
|
3,740,000 |
|
(c) |
|
|
11,770,366 |
|
Property, equipment and leasehold improvements, net |
|
|
214,877 |
|
|
|
— |
|
|
|
— |
|
|
|
|
214,877 |
|
Other long-term assets |
|
|
896,712 |
|
|
|
30,453 |
|
|
|
— |
|
|
|
|
927,165 |
|
Total Assets |
|
$ |
65,740,268 |
|
|
$ |
1,811,323 |
|
|
$ |
4,319,547 |
|
|
|
$ |
71,871,138 |
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
4,309,920 |
|
|
$ |
764,641 |
|
|
$ |
— |
|
|
|
$ |
5,074,561 |
|
Term loan, current portion |
|
|
960,503 |
|
|
|
— |
|
|
|
— |
|
|
|
|
960,503 |
|
Notes payable, current portion |
|
|
3,380,859 |
|
|
|
— |
|
|
|
— |
|
|
|
|
3,380,859 |
|
Accrued interest - related party |
|
|
1,623,921 |
|
|
|
— |
|
|
|
— |
|
|
|
|
1,623,921 |
|
Accrued compensation - related party |
|
|
2,625,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2,625,000 |
|
Lease liability, current portion |
|
|
2,089,297 |
|
|
|
91,840 |
|
|
|
— |
|
|
|
|
2,181,137 |
|
Deferred revenue |
|
|
1,923,076 |
|
|
|
30,000 |
|
|
|
— |
|
|
|
|
1,953,076 |
|
Other current liabilities |
|
|
6,052,420 |
|
|
|
15,000 |
|
|
|
704,389 |
|
(d) |
|
|
6,771,809 |
|
Total current liabilities |
|
|
22,964,996 |
|
|
|
901,481 |
|
|
|
704,389 |
|
|
|
|
24,570,866 |
|
Term loan, noncurrent portion |
|
|
4,755,384 |
|
|
|
|
|
|
|
|
|
|
|
|
4,755,384 |
|
Notes payable, noncurrent portion |
|
|
3,530,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
3,530,000 |
|
Convertible notes payable |
|
|
5,150,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
5,150,000 |
|
Convertible notes payable at fair value |
|
|
350,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
350,000 |
|
Loan from related party |
|
|
1,107,873 |
|
|
|
— |
|
|
|
— |
|
|
|
|
1,107,873 |
|
Lease liability |
|
|
4,613,704 |
|
|
|
— |
|
|
|
— |
|
|
|
|
4,613,704 |
|
Deferred tax liability |
|
|
344,432 |
|
|
|
— |
|
|
|
— |
|
|
|
|
344,432 |
|
Warrant liability |
|
|
10,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
10,000 |
|
Other noncurrent liabilities |
|
|
18,915 |
|
|
|
— |
|
|
|
— |
|
|
|
|
18,915 |
|
Total Liabilities |
|
|
42,845,304 |
|
|
|
901,481 |
|
|
|
704,389 |
|
|
|
|
44,451,174 |
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity |
|
$ |
22,894,964 |
|
|
$ |
909,842 |
|
|
$ |
3,615,158 |
|
(e) |
|
$ |
27,419,964 |
|
Total Liabilities and Stockholders' Equity |
|
$ |
65,740,268 |
|
|
$ |
1,811,323 |
|
|
$ |
4,319,547 |
|
|
|
$ |
71,871,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the Unaudited Pro
Forma Condensed Combined Financial Information
Unaudited
Pro Forma Condensed Combined Statements of Operations
For the nine months ended September 30, 2023
| |
| | |
| | |
| | |
| |
| |
| |
Dolphin
Entertainment, Inc. (Historical) | | |
Special
Projects Media, LLC (Historical) | | |
Pro
Forma Adjustments | | |
Notes | |
Pro
Forma Combined | |
| |
| | |
| | |
| | |
| |
| |
Revenues | |
$ | 31,100,867 | | |
$ | 5,478,385 | | |
$ | (340,610 | ) | |
(g) | |
$ | 36,238,642 | |
Cost of services and operating expenses | |
| 43,228,963 | | |
| 4,582,073 | | |
| 1,890 | | |
(c), (g) | |
| 47,812,926 | |
Loss from operations | |
| (12,128,096 | ) | |
| (896,312 | ) | |
| (342,500 | ) | |
| |
| (11,574,284 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Change in fair value of convertible note | |
| (6,444 | ) | |
| — | | |
| — | | |
| |
| (6,444 | ) |
Change in fair value of warrants | |
| 5,000 | | |
| — | | |
| — | | |
| |
| 5,000 | |
Interest income | |
| 309,424 | | |
| 12 | | |
| — | | |
| |
| 309,436 | |
Interest expense | |
| (1,413,177 | ) | |
| — | | |
| (31,196 | ) | |
(f) | |
| (1,444,373 | ) |
(Loss) income before income taxes and equity in losses of unconsolidated
affiliates | |
| (13,233,293 | ) | |
| 896,324 | | |
| (373,696 | ) | |
| |
| (12,710,665 | ) |
Income tax expense | |
| (91,243 | ) | |
| (18,892 | ) | |
| — | | |
| |
| (110,135 | ) |
(Loss) income before equity in losses of unconsolidated affiliates | |
| (13,324,536 | ) | |
| 877,432 | | |
| (373,696 | ) | |
| |
| (12,820,800 | ) |
Equity in losses of unconsolidated affiliates | |
| (1,467,356 | ) | |
| — | | |
| — | | |
| |
| (1,467,356 | ) |
Net (loss) income | |
$ | (14,791,892 | ) | |
$ | 877,432 | | |
$ | (373,696 | ) | |
| |
$ | (14,288,156 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Loss Per Share: | |
| | | |
| | | |
| | | |
| |
| | |
Basic | |
$ | (1.11 | ) | |
| | | |
$ | 0.21 | | |
(h) | |
$ | (0.90 | ) |
Diluted | |
$ | (1.11 | ) | |
| | | |
$ | 0.21 | | |
(h) | |
$ | (0.90 | ) |
| |
| | | |
| | | |
| | | |
| |
| | |
Weighted average number of shares used in per share calculation: | |
| | | |
| |
| | |
Basic | |
| 13,328,138 | | |
| | | |
| | | |
| |
| 15,828,138 | |
Diluted | |
| 13,328,138 | | |
| | | |
| | | |
| |
| 15,828,138 | |
| |
| | | |
| | | |
| | | |
| |
| | |
See accompanying notes to the Unaudited Pro
Forma Condensed Combined Financial Information
Unaudited
Pro Forma Combined Statements of Operations
For the year ended December 31, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dolphin Entertainment, Inc. (Historical) |
|
|
|
Socialyte LLC (1/1/2022 - 11/13/2022) |
|
|
|
Special Projects Media, LLC (Historical) |
|
|
Pro Forma Adjustments |
|
|
|
Notes |
|
|
|
Pro Forma Combined |
|
Revenues |
|
$ |
40,505,558 |
|
|
$ |
5,857,281 |
|
|
$ |
6,979,272 |
|
|
$ |
— |
|
|
|
|
|
|
$ |
53,342,111 |
|
Cost of services and operating expenses |
|
|
45,080,700 |
|
|
|
5,621,376 |
|
|
|
6,106,254 |
|
|
|
1,071,346 |
|
|
|
(c) |
|
|
|
57,879,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations |
|
|
(4,575,142 |
) |
|
|
235,905 |
|
|
|
873,018 |
|
|
|
(1,071,346 |
) |
|
|
|
|
|
|
(4,537,565 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paycheck Protection Program loan forgiveness |
|
|
— |
|
|
|
716,343 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
716,343 |
|
Change in fair value of convertible note |
|
|
654,579 |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
654,579 |
|
Change in fair value of warrants |
|
|
120,000 |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
120,000 |
|
Other miscellaneous expenses |
|
|
— |
|
|
|
(113,886 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
(113,886 |
) |
Interest income |
|
|
309,012 |
|
|
|
|
|
|
|
201 |
|
|
|
— |
|
|
|
|
|
|
|
309,213 |
|
Interest expense |
|
|
(864,814 |
) |
|
|
(38,079 |
) |
|
|
— |
|
|
|
(502,447 |
) |
|
|
(f) |
|
|
|
(1,405,340 |
) |
(Loss) income before income taxes |
|
|
(4,356,365 |
) |
|
|
800,283 |
|
|
|
873,219 |
|
|
|
(1,573,793 |
) |
|
|
|
|
|
|
(4,256,656 |
) |
Income tax expense |
|
|
(176,981 |
) |
|
|
— |
|
|
|
(28,693 |
) |
|
|
— |
|
|
|
|
|
|
|
(205,674 |
) |
(Loss) income before equity in losses of unconsolidated affiliates |
|
$ |
(4,533,346 |
) |
|
$ |
800,283 |
|
|
$ |
844,526 |
|
|
$ |
(1,573,793 |
) |
|
|
|
|
|
$ |
(4,462,330 |
) |
Equity in losses of unconsolidated affiliates |
|
$ |
(246,789 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
(246,789 |
) |
Net (loss) income |
|
$ |
(4,780,135 |
) |
|
$ |
800,283 |
|
|
$ |
844,526 |
|
|
$ |
(1,573,793 |
) |
|
|
|
|
|
$ |
(4,709,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.49 |
) |
|
|
|
|
|
|
|
|
|
$ |
0.11 |
|
|
|
(h) |
|
|
$ |
(0.38 |
) |
Diluted |
|
$ |
(0.56 |
) |
|
|
|
|
|
|
|
|
|
$ |
0.12 |
|
|
|
(h) |
|
|
$ |
(0.44 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in per share calculation: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
9,799,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,292,172 |
|
Diluted |
|
|
9,906,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,420,076 |
|
See accompanying notes to the Unaudited Pro
Forma Condensed Combined Financial Information
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
NOTE 1 – DESCRIPTION OF THE TRANSACTION
On the Closing Date, Dolphin acquired
all of the issued and outstanding membership interests of Special Projects, pursuant to a membership interest purchase agreement (the
“Special Projects Purchase Agreement”) between Dolphin and Andrea Oliveri, Nicole Vecchiarelli, Foxglove Corp and Alexandra
Alonso (“Sellers”) and Special Projects became a wholly owned subsidiary of Dolphin.
The consideration paid by Dolphin
in connection with the acquisition of Special Projects is approximately $10.2 million, which is subject to adjustments based on a customary
post-closing cash consideration adjustment. On the Closing Date, Dolphin paid the Sellers $5.0 million cash and issued the Sellers 2.5
million shares of Dolphin’s common stock. As part of the Special Projects Purchase Agreement, Dolphin entered into employment
agreements with Andrea Oliveri and Nicole Vecchiarelli, each for a period of four years. The Company partially financed the cash portion
of the consideration with a five-year term secured term loan from Bank United. See Note 5.
NOTE 2 –BASIS OF PRO FORMA PRESENTATION
The
unaudited pro forma condensed combined balance sheet as of September 30, 2023, combines the historical balance sheet of Dolphin with the
historical balance sheet of Special Projects and has been prepared as if the Special Projects acquisition had occurred on September 30,
2023. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2022 and the nine
months ended September 30, 2023, combines the historical statement of operations of Dolphin with the historical statement of operations
of Special Projects and was prepared as if the acquisition had occurred on January 1, 2022. The unaudited condensed combined statement
of operations for the year ended December 31, 2022 includes the information for Socialyte for the period between January 1, 2022 and November
13, 2022, the period prior its acquisition by Dolphin on November 14, 2022. The historical financial information is adjusted in the unaudited
pro forma condensed combined financial information to reflect certain reclassifications to conform with current financial statement presentation.
Dolphin
accounted for the acquisition in the unaudited pro forma condensed combined financial information using the acquisition method of accounting
in accordance with ASC 805. In accordance with ASC 805, the Company used its best estimates and assumptions to assign fair
value to the tangible and intangible assets acquired and liabilities assumed at the Closing Date. Goodwill as of the Closing
Date is measured as the excess of purchase consideration over the fair value of the net tangible and identifiable assets acquired.
The
pro forma adjustments described below were developed based on Dolphin management’s assumptions and estimates, including assumptions
relating to the consideration paid and the allocation thereof to the assets acquired and liabilities assumed from Special Projects based
on preliminary estimates to fair value. The final purchase consideration and allocation of the purchase consideration will
differ from that reflected in the unaudited pro forma condensed combined financial information after the final valuation procedures are
performed and the amounts are finalized.
The unaudited pro forma
condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial position of the combined company would have been had the acquisition
occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or financial position.
Dolphin
expects to incur costs and realize benefits associated with integrating the operations of Dolphin and Special Projects. The
unaudited pro forma condensed combined financial statements do not reflect the costs of any integration activities or any benefits that
may result from operating efficiencies or revenue synergies. The unaudited pro forma condensed combined statement of operations
do not reflect any non-recurring charges directly related to the acquisition that the condensed combined companies incurred upon completion
of Special Projects acquisition.
NOTE 3 – ESTIMATED PRELIMINARY PURCHASE PRICE CONSIDERATION
The table below represents the total estimated
preliminary purchase price consideration:
Closing Common Stock (2,500,000 shares, at a purchase price of $1.81, the September 30, 2023 closing stock price) (See Note 6(e)) | |
$ | 4,525,000 | |
Cash paid at closing | |
| 5,000,000 | |
Due to seller for working capital and cash adjustments | |
| 704,389 | |
Preliminary purchase price consideration | |
$ | 10,229,389 | |
NOTE 4 – ESTIMATED PRELIMINARY PURCHASE PRICE
ALLOCATION
The
Company has performed a preliminary valuation analysis of the estimated fair market value of Special Projects’ assets and liabilities
that were acquired or assumed by the Company.
The following table summarized the allocation of the
preliminary purchase price as of the Closing Date:
Cash | |
$ | 521,821 | |
Accounts receivable | |
| 1,155,871 | |
Other current assets | |
| 11,338 | |
Right-of-use asset | |
| 91,840 | |
Other assets, noncurrent | |
| 30,453 | |
Intangibles | |
| 3,740,000 | |
Total identifiable assets acquired | |
| 5,551,323 | |
| |
| | |
Accounts payable | |
| (448,330 | ) |
Lease liability | |
| (91,840 | ) |
Other current liabilities | |
| (56,214 | ) |
Deferred revenue | |
| (305,097 | ) |
Total liabilities assumed | |
| (901,481 | ) |
Net identifiable assets acquired | |
| 4,649,842 | |
Goodwill | |
| 5,579,547 | |
Net assets acquired | |
$ | 10,229,389 | |
This
preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet as of September 30,
2023 and the statements of operations for the year ended December 31, 2022 and the nine months ended September 30, 2023. The final purchase
price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation
could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (i) changes
in allocations to intangible assets such as trade name and customer relationships, as well as goodwill and (ii) other changes to the assets
and liabilities.
NOTE 5 – FINANCING TRANSACTIONS
Term Loan
On September 29, 2023, Dolphin,
through its subsidiaries, 42West, LLC, Be Social Marketing Group, LLC and Socialyte LLC, as co-borrowers, (the “Co-Borrowers”)
entered into a five-year term loan with BankUnited, N.A. (“BankUnited Loan Agreement”). The BankUnited Loan Agreement includes:
(i) $5,800,000 secured term loan (“BKU Term Loan”), (ii) and $750,000 of a secured revolving line of credit (“BKU Line
of Credit”) and (iii) $400,000 Commercial Card (“BKU Commercial Card”). The BKU Term Loan carries a 1.0% origination
fee and matures in September 2028, the BKU Line of Credit carries an initial origination fee of 0.5% and an 0.25% fee on each annual anniversary
and matures in September 2026; the BKU Commercial Card does not have any initial or annual fee and matures in September 2026. The BKU
Term Loan has a declining prepayment penalty equal to 5% in year one, 4% in year two, 3% in year three, 2% in year four and 1% in year
five of the outstanding balance. The BKU Line of Credit and BKU Commercial Card can be repaid without any prepayment penalty.
On September 29, 2023, $3,129,979
of the proceeds of the BKU Term Loan were used to payoff the term loan and the line of credit with BankProv, including a prepayment penalty
of $79,286. On October 2, 2023, $2,595,908 of the BKU Term Loan were used to finance part of the cash portion of the consideration paid
to the Sellers and on that day, Special Projects became a party to the BankUnited Loan Agreement.
Interest on the BKU Term Loan
accrues at 8.10% fixed rate per annum. Principal and interest on the BKU Term Loan shall be payable on a monthly basis based on a 5-year
amortization. Interest on the BKU Line of Credit is payable on a monthly basis, with all principal due at maturity. The BKU Commercial
Card payment is due in full at the end of each bi-weekly billing cycle.
The BankUnited Loan Agreement
contains financial covenants tested semi-annually on a trailing twelve-month basis that require the Company to maintain a minimum debt
service coverage ratio of 1.25:1.00 and a maximum funded debt/EBITDA ratio of 3.00:1.00. In addition, the BankUnited Loan Agreement contains
a liquidity covenant that requires the Company to hold a cash balance at BankUnited N.A, with a daily minimum deposit balance of $1,500,000.
NOTE 6 – PRO FORMA ADJUSTMENTS
The pro forma adjustments are based on our preliminary estimates and assumptions
that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined information:
| (a) | Represents
the $2,434,092 cash paid to the Seller by Dolphin on the Closing Date, calculated at the $5,000,000 due under the purchase agreement,
net of the $2,595,908 financed at closing and included in restricted cash. |
| (b) | To record $5,579,547 of preliminary goodwill based on the excess of purchase
consideration of the acquisition of Special Projects over the preliminary fair value of the net identifiable assets acquired. In accordance
with ASC 805, goodwill will not be amortized but instead will be tested for impairment at least annually and more frequently if certain
indicators of impairment are present. In the event that goodwill has become impaired, we will record an expense for the amount
impaired during the fiscal quarter in which the determination is made. |
| (c) | The addition of intangible assets as a result of the estimated preliminary purchase price allocation
is comprised of the following: |
| | |
Special Projects | |
Closing Date Opening Balance | | |
Estimated Useful Live
(Years) | | |
Annual Amortization | | |
Quarterly Amortization | |
Intangible assets: | |
| | | |
| | | |
| | | |
| | |
Customer relationships | |
$ | 3,110,000 | | |
| 12 | | |
| Note (1) | | |
| | |
Trade name | |
| 630,000 | | |
| 7 | | |
| 90,000 | | |
| 22,500 | |
Total intangible assets | |
$ | 3,740,000 | | |
| | | |
| | | |
| | |
Note (1) - The Company amortizes customer relationships using
an accelerated method in which a greater percentage of the customer relationship asset is amortized in the early years of the asset’s
useful life as the ability to generate revenue from this asset is greater in the beginning years. The amortization expense presented in
these unaudited proforma financial statements for the year ended December 31, 2022 and the nine months ended September 30, 2023, is $473,180
and $342,500, respectively.
Note (2) – For the unaudited pro forma statement of operations
for the year ended December 31, 2022, the Company included amortization expense of $598,166 related to the amortization of the intangible
assets of Socialyte for the period between January 1, 2022 and November 13, 2022. The amortization expense for the period between November
14, 2022 and December 31, 2022 is included in the historical statement of operations of the Company.
| (d) | Represents the adjustment for the preliminary calculation of working capital in the amount of $357,568
and cash adjustment of $346,821 due to the Sellers per the Special Projects Purchase Agreement. |
| (e) | Adjustments to shareholders equity are as follows: |
Common Stock, par value of 2,500,000 shares issued on the Closing Date | |
$ | 37,500 | |
Additional paid in capital of Common Stock issued on the Closing Date | |
| 4,487,500 | |
Total fair value of the equity of the Special Projects acquisition | |
| 4,525,000 | |
Historical member equity of Special Projects | |
| (909,842 | ) |
Adjustment to shareholders equity | |
$ | 3,615,158 | |
| (f) | For the nine months ended September 30, 2023 and the year ended December 31, 2022, the Company increased
interest expense in the amounts of $31,196 and 502,447, respectively for interest expense on the term loan described in Note 5. For the
year ended December 31, 2022, the unaudited proforma statement of operations also includes $79,286 of prepayment penalty and additional
interest expense of $9,647 paid to Bank Prov related to the payoff of the term loan and line of credit. For the nine months ended September
30, 2023, the amount is net of $243,717 recorded in the historical consolidated statement of operations of Dolphin for the Bank Prov term
loan and line of credit. |
| (g) | During the nine months ended September 30, 2023, the Company retained the services of Special Projects
for a monthly fee of $30,000 plus out of pocket expenses. An adjustment in the amount of $340,610 was made to revenue and operating expenses
to eliminate the transactions between Dolphin and Special Projects. The $340,610 includes reimbursements for audit costs and travel in
the amount of $70,610. |
| (h) | The Company recalculated loss per share as if the acquisition had taken place and shares had been issued
on January 1, 2022: |
| |
| | |
| | |
| | |
| |
| |
Year
ended December
31, 2022 | | |
Nine
months ended September
30, 2023 | |
| |
Historical | | |
Pro
Forma | | |
Historical | | |
Pro
Forma | |
Numerator | |
| | |
| | |
| | |
| |
Net loss attributable to Dolphin Entertainment common stock shareholders and numerator for basic loss per share | |
| (4,780,135 | ) | |
| (4,709,119 | ) | |
| (14,791,892 | ) | |
| (14,288,156 | ) |
Change in fair value of convertible notes payable | |
| (654,579 | ) | |
| (654,579 | ) | |
| — | | |
| — | |
Change in fair value of warrants | |
| (120,000 | ) | |
| (120,000 | ) | |
| — | | |
| — | |
Interest expense | |
| 39,452 | | |
| 39,452 | | |
| — | | |
| — | |
Numerator for diluted loss per share “LPS” | |
$ | (5,515,262 | ) | |
$ | (5,444,246 | ) | |
$ | (14,791,892 | ) | |
$ | (14,288,156 | ) |
| |
| | | |
| | | |
| | | |
| | |
Denominator | |
| | | |
| | | |
| | | |
| | |
Denominator for basic LPS - weighted-average shares | |
| 9,799,021 | | |
| 12,292,172 | | |
| 13,328,138 | | |
| 15,828,138 | |
Effect of dilutive securities: | |
| | | |
| | | |
| | | |
| | |
Warrants | |
| 28 | | |
| 28 | | |
| — | | |
| — | |
Convertible note payable | |
| 127,877 | | |
| 127,877 | | |
| — | | |
| — | |
Denominator for diluted LPS - adjusted weighted-average shares | |
| 9,926,926 | | |
| 12,420,076 | | |
| 13,328,138 | | |
| 15,828,138 | |
| |
| | | |
| | | |
| | | |
| | |
Basic loss per share | |
$ | (0.49 | ) | |
$ | (0.38 | ) | |
$ | (1.11 | ) | |
$ | (0.90 | ) |
Diluted loss per share | |
$ | (0.56 | ) | |
$ | (0.44 | ) | |
$ | (1.11 | ) | |
$ | (0.90 | ) |
| |
| | | |
| | | |
| | | |
| | |
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