DLPN Dolphin Entertainment Inc

NOTE 1 – GENERAL

Dolphin Entertainment, Inc., a Florida corporation (the “Company,” “Dolphin,” “we,” “us” or “our”), is a leading independent entertainment marketing and production company. Through its subsidiaries 42West LLC (“42West”) including BHI Communications Inc (“BHI”) that merged with 42West effective January 1, 2024, The Door Marketing Group, LLC (“The Door”), Shore Fire Media, Ltd (“Shore Fire”), The Digital Dept., LLC (“The Digital Dept.”) formerly known as Socialyte, LLC (“Socialyte”) and Be Social Public Relations LLC (“Be Social”) that merged effective January 1, 2024 and Special Projects LLC (“Special Projects”), the Company provides expert strategic marketing and publicity services to many of the top brands, both individual and corporate, in the motion picture, television, music, gaming, culinary, hospitality and lifestyle industries.

42West (Film and Television, Gaming), Shore Fire (Music), and The Door (Culinary, Hospitality, Lifestyle) are each recognized global PR and marketing leaders for the industries they serve. The Digital Dept. (formerly, Socialyte and Be Social), provides influencer marketing capabilities through divisions dedicated to influencer talent management, brand campaign strategy and execution, and influencer event ideation and production. Special Projects is the entertainment industry’s leading celebrity booking firm, specializing in uniting brands and events with celebrities and influencers across the entertainment, media, fashion, consumer product and tech industries. Dolphin’s legacy content production business, founded by our Emmy-nominated Chief Executive Officer, Bill O’Dowd, has produced multiple feature films and award-winning digital series, primarily aimed at family and young adult markets. 

 NOTE 2 – REVENUE

Disaggregation of Revenue

The Company’s principal geographic markets are within the U.S. The following is a description of the principal activities, by reportable segment, from which we generate revenue. For more detailed information about reportable segments, see Note 13.

Entertainment Publicity and Marketing

The Entertainment Publicity and Marketing (“EPM”) segment generates revenue from diversified marketing services, including public relations, entertainment and hospitality content marketing, strategic marketing consulting and content production of marketing materials. Within the EPM segment, we typically identify one performance obligation, the delivery of professional publicity services, in which we typically act as the principal. Fees are generally recognized on a straight-line or monthly basis, as the services are consumed by our clients, which approximates the proportional performance on such contracts.

We also enter into management agreements with a roster of social media influencers and are paid a percentage of the revenue earned by the social media influencer. Due to the short-term nature of these contracts, in which we typically act as the agent, the performance obligation is typically completed and revenue is recognized net at a point in time, typically the date of publication.

Content Production

The Content Production (“CPD”) segment generates revenue from the production of original motion pictures and other digital content production. In the CPD segment, we typically identify performance obligations depending on the type of service, for which we generally act as the principal. Revenue from motion pictures is recognized upon transfer of control of the licensing rights of the motion picture to the customer. For minimum guarantee licensing arrangements, the amount related to each performance obligation is recognized when the content is delivered, and the window for exploitation rights in that territory has begun, which is the point in time at which the customer is able to begin to use and benefit from the content. For sales or usage-based royalty income, revenue is recognized starting at the exhibition date and is based on the Company’s participation in the box office receipts of the theatrical exhibitor and the performance of the motion picture.

In June 2022, the Company entered into an agreement with IMAX Corporation (“IMAX”) to co-produce and co-finance a documentary motion picture on the flight demonstration squadron of the United States Navy called The Blue Angels. On April 25, 2023, IMAX entered into an acquisition agreement with Amazon Content Services, LLC (the “Amazon Agreement”) for the distribution rights of The Blue Angels. During the six months ended June 30, 2024, we recorded net revenues of $3,421,141 from the Amazon Agreement upon delivery of the film to Amazon Content Services LLC, our single performance obligation. Under this arrangement, we acted in the capacity of an agent. During the three and six months ended June 30, 2023, no revenues were recognized from the content licensing arrangement.

The revenues recorded by the EPM and CPD segments is detailed below:

Contract Balances

The opening and closing balances of our contract liability balances from contracts with customers as of June 30, 2024 and December 31, 2023 were as follows:

Contract liabilities are recorded when the Company receives advance payments from customers for public relations projects or as deposits for promotional or brand-support video projects. Once the work is performed or the projects are delivered to the customer, the contract liabilities are deemed earned and recorded as revenue. Advance payments received are generally for short duration and are recognized once the performance obligation of the contract is met.

Revenues for the three and six months ended June 30, 2024 and 2023 include the following:

The Company’s unsatisfied performance obligations are for contracts that have an original expected duration of one year or less and, as such, the Company is not required to disclose the remaining performance obligation.

 NOTE 3 — GOODWILL AND INTANGIBLE ASSETS

Goodwill

As of June 30, 2024, the Company had a balance of $25,211,206 of goodwill on its condensed consolidated balance sheet resulting from its acquisitions of 42West, The Door, Shore Fire, The Digital Dept. and Special Projects. All of the Company’s goodwill is related to the entertainment, publicity and marketing segment.

The Company evaluates goodwill in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, (3) significant decline in market capitalization or (4) an adverse action or assessment by a regulator. During the three months ended June 30, 2024, the Company determined to close the Viewpoint subsidiary, and therefore the Company impaired goodwill for $190,565, which is the balance of goodwill attributable to Viewpoint as of June 30, 2024 immediately prior to the decision to shut down. This impairment is included in the condensed consolidated statement of operations for the three and six months ended June 30, 2024.

Intangible Assets

Finite-lived intangible assets consisted of the following as of June 30, 2024 and December 31, 2023:

Amortization expense associated with the Company’s intangible assets was $530,847 and $503,357 for the three months ended June 30, 2024, and 2023, respectively, and $1,061,694 and $1,009,197 for the six months ended June 30, 2024 and 2023, respectively.

Amortization expense related to intangible assets for the remainder of 2024 and thereafter is as follows:

NOTE 4 —ACQUISITIONS

Special Projects Media LLC

On October 2, 2023, (the “Special Projects Closing Date”), 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 (the “Special Projects Purchase Agreement”) between the Company and Andrea Oliveri, Nicole Vecchiarelli, Foxglove Corp and Alexandra Alonso (“Special Projects Sellers”). Headquartered in New York and Los Angeles, Special Projects is a talent booking and events agency that elevates media, fashion, and lifestyle brands.

The total consideration paid by the Company in connection with the acquisition of Special Projects was approximately $10.4 million, which is subject to adjustments based on a customary post-closing cash consideration adjustment. On the Special Projects Closing Date, the Company paid the Sellers $5,000,000 cash and issued the Sellers 2,500,000 shares of the Company’s common stock. On May 15, 2024, the Company issued 714,578 shares of the Company’s common stock as settlement for the working capital and excess cash adjustment, pursuant to the Special Projects Purchase Agreement. The Company partially financed the cash portion of the consideration with the BankUnited Loan Agreement described in Note 7.

As part of the Special Projects Purchase Agreement, the Company entered into employment agreements with Andrea Oliveri and Nicole Vecchiarelli, each for a period of four years. 

The following table summarizes the final fair value of the consideration transferred, after measurement period adjustments:

The following table summarizes the fair values of the assets acquired and liabilities assumed by the acquisition of Special Projects on the Special Projects Closing Date. Amounts in the table are estimates that may change, as described below. The measurement period of the Special Projects acquisition concludes on October 2, 2024. 

Unaudited Pro Forma Consolidated Statements of Operations

The following presents the unaudited pro forma consolidated operations as if Special Projects had been acquired on January 1, 2023:

The pro forma amounts for 2023 have been calculated after applying the Company’s accounting policies and adjusting the results of the acquisition to reflect (a) the amortization that would have been charged, assuming the intangible assets resulting from the acquisition had been recorded on January 1, 2023, (b) include interest expense on the BKU Term Loan (see Note 7) in the amount of $58,871 and $119,838 for the three and six months ended June 30, 2023, respectively, and (c) eliminate $97,238 and $208,610 of revenue and expenses related to work performed by Special Projects for Dolphin for the three and six months ended June 30, 2023, respectively.

The impact of the acquisition of Special Projects on the Company’s actual results for periods following the acquisition may differ significantly from that reflected in this unaudited pro forma information for several reasons. As a result, this unaudited pro forma information is not necessarily indicative of what the combined company’s financial condition or results of operations would have been had the acquisition been completed on January 1, 2023, as provided in this pro forma financial information. In addition, the pro forma financial information does not purport to project the future financial condition and results of operations of the combined company.

NOTE 5 — NOTES RECEIVABLE

The Company holds an equity method investment in JDDC Elemental LLC (“Midnight Theatre”). On various dates during the three months ended June 30, 2024, Midnight Theatre issued three unsecured convertible promissory notes to the Company with an aggregate principal of $1,135,000, respectively, each with a ten percent (10%) per annum simple coupon rate, which mature between May 2025 and June 2025.

On July 15, 2024 and August 9, 2024, Midnight Theatre issued two unsecured convertible promissory notes to the Company with aggregate principals of $110,000 and $135,000, respectively, with a ten percent (10%) per annum simple coupon rate, with maturity dates of July 15, 2025 and August 9, 2025.

NOTE 6 — OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:

NOTE 7 — DEBT

Total debt of the Company was as follows as of June 30, 2024 and December 31, 2023:

The table below details the maturity dates of the principal amounts for the Company’s debt as of June 30, 2024:

Convertible Notes Payable

As of June 30, 2024, the Company has ten convertible notes payable outstanding. The convertible notes payable bear interest at a rate of 10% per annum, with initial maturity dates ranging between the second anniversary and the sixth anniversary of their respective issuances. The balance of each convertible note payable and any accrued interest may be converted at the noteholder’s option at any time at a purchase price based on a 90-day average closing market price per share of the common stock. Three of the convertible notes payable may not be converted at a price less than $2.50 per share, four of the convertible notes payable may not be converted at a price less than $2.00 per share, and three of the convertible notes payable may not be converted at a price less than $1.00 per share. As of both June 30, 2024 and December 31, 2023, the principal balance of the convertible notes payable of $5,100,000 was recorded in noncurrent liabilities under the caption “Convertible notes payable” on the Company’s condensed consolidated balance sheets.

The Company recorded interest expense related to these convertible notes payable of $127,500 and $141,583 during the three months ended June 30, 2024 and 2023, respectively, and $255,250 and $286,139 during the six months ended June 30, 2024 and 2023, respectively. In addition, the Company made cash interest payments amounting to $255,250 and $305,573, respectively, during the six months ended June 30, 2024 and 2023, related to the convertible notes payable.

Convertible Note Payable at Fair Value

The Company had one convertible promissory note outstanding with a principal amount of $500,000 as of June 30, 2024 for which it elected the fair value option. As such, the estimated fair value of the note was recorded on its issue date. At each balance sheet date, the Company records the fair value of the convertible promissory note with any changes in the fair value recorded in the condensed consolidated statements of operations.

The Company had a balance of $290,000 and $355,000 in noncurrent liabilities as of June 30, 2024 and December 31, 2023, respectively, on its condensed consolidated balance sheets related to the convertible promissory note payable measured at fair value. See Note 9 – Fair Value Measurements for further discussion on the valuation of the convertible promissory note payable.

The Company recorded gains in fair value of $40,000 and $4,000 for the three months ended June 30, 2024 and 2023, respectively, and a gain in fair value of $65,000 and a loss in fair value of $6,444 for the six months ended June 30, 2024 and 2023, respectively, on its condensed consolidated statements of operations related to this convertible promissory note at fair value.

The Company recorded interest expense related to this convertible note payable at fair value of $9,863 for both the three months ended June 30, 2024 and 2023, and $19,726 for both the six months ended June 30, 2024 and 2023. In addition, the Company made cash interest payments amounting to $19,726 for both the six months ended June 30, 2024 and 2023, related to the convertible promissory notes at fair value.

Nonconvertible Promissory Notes

As of June 30, 2024, the Company has outstanding unsecured nonconvertible promissory notes in the aggregate amount of $3,880,000, which bear interest at a rate of 10% per annum and mature between November 2024 and March 2029.

As of both June 30, 2024 and December 31, 2023, the Company had a balance of $900,000 and $500,000, respectively, recorded as current liabilities and $2,980,000 and $3,380,000, respectively, in noncurrent liabilities on its condensed consolidated balance sheets related to these unsecured nonconvertible promissory notes.

The Company recorded interest expense related to these nonconvertible promissory notes of $97,000 and $153,468 for the three months ended June 30, 2024 and 2023, respectively, and $194,000 and $210,053 for the six months ended June 30, 2024 and 2023, respectively. The Company made interest payments of $194,000 and $127,211 during the six months ended June 30, 2024 and 2023, respectively, related to the nonconvertible promissory notes.

Nonconvertible Unsecured Promissory Note - Socialyte Promissory Note

In connection with the purchase agreement with Socialyte (“Socialyte Purchase Agreement”), the Company entered into a promissory note with Socialyte (“the Socialyte Promissory Note”) amounting to $3,000,000. The Socialyte Promissory Note matured on September 30, 2023 and was payable in two payments: $1,500,000 on June 30, 2023 and $1,500,000 on September 30, 2023. The Socialyte Promissory Note carries an interest of 4% per annum, which accrues monthly, and all accrued interest was to be due and payable on September 30, 2023.

The Socialyte Purchase Agreement allows the Company to offset a working capital deficit against the Socialyte Promissory Note. As such, the Company deferred these installment payments until the final post-closing working capital adjustment is agreed upon with the seller of Socialyte. The Company has filed a lawsuit against the seller of Socialyte and certain of its principals related to the Socialyte Purchase Agreement. See Note 17.

The Company recorded interest expense related to this Socialyte Promissory Note of $30,000 and $60,000 for the three and six months ended June 30, 2024, respectively and $65,000 for the three and six months ended June 30, 2023. No interest payments were made during the three and six months ended June 30, 2024 and 2023, related to the Socialyte Promissory Note.

BankUnited Loan Agreement