UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-38331
DOLPHIN ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Florida
86-0787790
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
150 Alhambra Circle, Suite 1200, Coral Gables, FL
33134
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number:
(305) 774-0407
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.015 par value per share
DLPN
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of
the Act:
None
Indicate by
a check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐
Yes ☒
No
Indicate by
a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐
Yes ☒
No
Indicate by
a check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. ☒
Yes ☐
No
Indicate by
check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). ☒ Yes
☐ No
Indicate by a check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging
growth company" in Rule 12b-2 of the Exchange
Act:
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Smaller reporting company ☒
Emerging
Growth Company ☐
If an emerging
growth company, indicate by 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. ☐
Indicate by
check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting from that prepared or issued its audit report: ☐
If securities
are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included
in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by
check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) ☐
Yes ☒
No
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common equity was last
sold, as of the last business day of the
registrant’s most recently completed second fiscal quarter: $12,869,919
Number of shares outstanding of the registrant’s common stock
as of March 20, 2025: 11,168,199
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for the
registrant’s 2025 Annual Meeting of Shareholders are incorporated by reference in Part III of this report. The
Definitive Proxy
Statement or an amendment to this Form 10-K will be filed with the Securities and Exchange Commission within 120 days after the registrant’s
fiscal year
ended December 31, 2024.
TABLE OF CONTENTS
FORM 10-K
Page
PART I
Item 1. BUSINESS
1
Item 1A. RISK FACTORS
6
Item 1B. UNRESOLVED STAFF COMMENTS
13
Item 1C. CYBERSECURITY
13
Item 2. PROPERTIES
13
Item 3. LEGAL PROCEEDINGS
13
Item 4. MINE SAFETY DISCLOSURES
13
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
14
Item 6. [RESERVED]
14
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
14
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
29
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
30
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
30
Item 9A. CONTROLS AND PROCEDURES
30
Item 9B. OTHER INFORMATION
32
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
32
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
33
Item 11. EXECUTIVE COMPENSATION
33
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
33
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
33
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
33
PART IV
Item 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
34
Item 16. FORM 10-K SUMMARY
35
SIGNATURES
36
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form
10-K contain “forward-looking statements” and information within the meaning of Section 27A of the Securities
Act of
1933, as amended, or the “Securities Act”, and Section 21E of the Securities Exchange Act of 1934, as amended, or the
“Exchange Act”, which are
subject to the “safe harbor” created by those sections. These forward-looking statements
include, but are not limited to, statements about our plans,
objectives, representations and intentions and are not historical facts and
typically are identified by use of terms such as “may,” “should,” “could,”
“expect,” “plan,”
“anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,”
“will,” “would” and similar words, although some forward-looking
statements are expressed differently. You should
be aware that the forward-looking statements included herein represent management’s current judgment
and expectations, but our actual
results, events and performance could differ materially from those in the forward-looking statements. Specifically, this
Form 10-K contains
forward-looking statements regarding:
·
the effects of a challenging economy on the demand for our marketing services, on our clients’ financial condition and our business or
financial condition;
·
risks associated with assumptions we make in connection with our critical accounting estimates, including changes in assumptions
associated with any effects of a weakened economy;
·
potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments;
·
our expectations regarding the potential benefits and synergies we can derive from our acquisitions;
·
our expectations to offer clients a broad array of interrelated services, the impact of such strategy on our future profitability and growth and
our belief regarding our resulting market position;
·
our beliefs regarding our competitive advantages;
·
our intention to hire new individuals or teams whose existing books of business and talent rosters can be accretive to revenues and profits of
the business and our expectations regarding the impact of such additional hires on the growth of our revenues and profits;
·
our beliefs regarding the drivers of growth in the entertainment publicity and marketing segment, the timing of such anticipated growth trend
and its resulting impact on the overall revenue;
·
our intention to expand into television production in the near future;
·
our belief regarding the transferability of 42West, The Door, Shore Fire, The Digital Dept., Special Projects, Elle, and Always Alpha’s skills
and experience to related business sectors and our intention to expand our involvement in those areas;
·
our intention to selectively pursue complementary acquisitions to enforce our competitive advantages, scale and grow, our belief that such
acquisitions will create synergistic opportunities and increased profits and cash flows, and our expectation regarding the timing of such
acquisitions;
·
our expectations to raise funds through loans, additional sales of our common stock, securities convertible into our common stock, debt
securities or a combination of financing alternatives;
·
our intention to implement improvements to address material weaknesses in internal control over financial reporting.
These forward-looking statements
reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to
caution readers that
certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ
significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our
goals, and cause
the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed
in or implied by those forward-
looking statements include, but are not limited to, the following:
·
our ability to continue as a going concern;
·
our history of net losses and our ability to generate a profit;
·
our significant indebtedness and our ability to obtain additional financing or service the existing indebtedness;
·
the volatility of the price of our common stock and the possibility that stockholders could incur substantial losses;
·
our ability to accurately predict our clients’ acceptance of our differentiated business model that offers interrelated services;
·
our ability to successfully identify and complete acquisitions in line with our growth strategy and anticipated timeline, and to realize the
anticipated benefits of those acquisitions;
·
any failure to maintain the security and functionality of our information systems or to defend against or otherwise prevent a cybersecurity
attack or breach;
·
our ability to maintain compliance with Nasdaq listing requirements;
·
adverse events, trends and changes in the entertainment or entertainment marketing industries that could negatively impact our operations
and ability to generate revenues;
ii
·
loss of a significant number of entertainment publicity and marketing clients and the ability of our clients to terminate or alter our business
relationship on short notice;
·
the ability of key clients to increase their marketing budgets as anticipated;
·
our ability to continue to successfully identify and hire new individuals or teams who will provide growth opportunities;
·
uncertainty that our strategy of hiring of new individuals or teams will positively impact our revenues and profits;
·
lack of demand for strategic
communications services by traditional and non-traditional media clients who are expanding their activities in
the content
production, branding and consumer products public relation sectors;
·
economic factors that adversely impact the entertainment industry, as well as advertising, production and distribution revenue in the online
and motion picture industries;
·
economic factors that adversely impact the food and hospitality industries;
·
competition for talent and other resources within the industry and our ability to enter into agreements with talent under favorable terms;
·
our ability to attract and/or retain the highly specialized services of the 42West, The Door, Shore Fire, The Digital Dept., Special Projects,
Elle, and Always Alpha executives and employees and our CEO;
·
availability of financing from investors under favorable terms;
·
potential dilution of our stockholder interests resulting from our issuance of equity securities;
·
our Series C Convertible Preferred shareholder’s significant voting power limiting the ability of our common shareholders to influence our
business;
·
our ability to adequately address material weaknesses in internal control over financial reporting; and
·
uncertainties regarding the outcome of pending litigation.
The foregoing list of important
factors does not include all such factors, nor necessarily present them in order of importance. In addition, you
should consult other
disclosures made by the Company (such as in our other filings with the SEC or in Company press releases) for other factors that may
cause
actual results to differ materially from those projected by the Company. Please refer to Part I, Item 1A, Risk Factors of this Form 10-K
for additional
information regarding factors that could affect the Company’s results of operations, financial condition and liquidity.
Any forward-looking statements,
which we make in this Form 10-K, speak only as of the date of such statement, and we undertake no obligation
to update such statements, except as
otherwise required by applicable law. We can give no assurance that such forward-looking statements
will prove to be correct. An occurrence of, or any
material adverse change in, one or more of the risk factors or risks and uncertainties
referred to in this report or included in our other periodic reports filed
with the SEC could materially and adversely impact our operations
and our future financial results. Comparisons of results for current and any prior periods
are not intended to express any future trends
or indications of future performance, unless expressed as such, and should only be viewed as historical data.
Any public statements or
disclosures made by us following this report that modify or impact any of the forward-looking statements contained in or
accompanying
this report will be deemed to modify or supersede such outlook or other forward-looking statements in or accompanying this report.
iii
PART I
Unless the context otherwise requires, all references to “we”,
“us”, “our”, “Dolphin” and the “Company” refer to Dolphin Entertainment, Inc., a Florida
corporation, and its consolidated subsidiaries.
ITEM 1. BUSINESS
Overview
We are a leading independent
entertainment marketing and production company. Through our 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 Relations LLC (“Be
Social”) that merged effective January
1, 2024, Special Projects Media, LLC (“Special Projects”), Always Alpha Sports Management, LLC (“Always
Alpha”) and Elle Communications, LLC (“Elle”) we provide 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, lifestyle
and charitable industries. 42West (Film and Television,
Gaming), Shore Fire (Music), The Door (Culinary, Hospitality, Lifestyle) and
Elle (Impact, Philanthropy, Non-Profit) are each recognized global public
relations and marketing leaders for the industries they
serve. As a group, we were recognized as the #1 Public Relations firm in the country in the
prestigious Observer rankings earlier
this year. 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.
Always Alpha
is a talent management firm primarily focused on representing female athletes, broadcasters and coaches. 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, Dolphin Films, Inc. (“Dolphin Films”), founded by our Emmy-
nominated Chief Executive
Officer, Bill O’Dowd, has produced multiple feature films and award-winning digital series, primarily aimed at family and
young adult markets.
We were first incorporated in
the State of Nevada on March 7, 1995 and domesticated in the State of Florida on December 4, 2014. Our common
stock trades on
The Nasdaq Capital Market under the symbol “DLPN”.
We currently operate in two reportable
segments: our entertainment publicity and marketing segment and our content production segment. The
entertainment publicity and marketing
segment is composed of 42West, Shore Fire, The Door, The Digital Dept., Special Projects, Always Alpha and Elle
and provides clients with
diversified services, including public relations, entertainment content marketing, strategic communications, social media and
influencer
marketing and celebrity booking. The content production segment is composed of Dolphin Films and a department within Dolphin, which
develop,
produce and distribute feature films, television and digital content.
With respect to our
entertainment publicity and marketing segment, we have endeavored to create an “earned media marketing super group,”
combining marketing, public relations, influencer marketing, celebrity sponsorships and talent booking and experiential marketing,
that will serve as a
platform for organic growth via the cross-selling of services among our subsidiaries. By way of example, all of
our public relations companies (42West,
Shore Fire, The Door and Elle) have identified the capability to run influencer marketing
campaigns for clients as a “must have” in today’s environment,
which requires the ability to drive social media
awareness and engagement. Thus, we believe that The Digital Dept. will be able to provide a critical
competitive advantage in the
acquisition of new clients in the entertainment and lifestyle marketing space and will continue to fuel topline revenue growth
as
the average revenue per client increases with the cross-selling of influencer marketing services. Furthermore, influencer marketing
campaigns are also
considered essential to the earned media campaigns of so many consumer products in today’s online
marketplace, creating large cross-selling opportunities
between our public relations agencies and The Digital Dept.’s
expertise and services.
We believe that our expanding
portfolio of earned media marketing companies will continue to attract future acquisitions. We believe that our
“marketing super
group” is unique in the industry, as a collection of best-in-class earned media service providers across a variety of entertainment
and
lifestyle verticals. We further believe that with each new acquisition in this space, our portfolio will increase its breadth and
depth of services and,
therefore, be able to offer an even more compelling opportunity for other industry leaders to join and enjoy the
benefits of cross-selling to a wide variety of
existing and potential clients. Thus, we believe we can continue to grow both revenues
and profits through future acquisitions into our entertainment
publicity and marketing segment.
Finally, we believe our ability
to engage a broad consumer base through our best-in-class pop culture assets provides us an opportunity to make
investments in products
or companies which would benefit from our collective marketing power. We call these investments “Ventures,” or “Dolphin
2.0”
(with “Dolphin 1.0” being the underlying businesses of each of our subsidiaries).
Simply put, we seek to own some
of the assets we are marketing. Specifically, we want to own assets where our experience, industry relationships
and marketing power will
most influence the likelihood of success. This leads us to seek investments in the following categories of assets: 1) Content; 2)
Live
Events; and 3) Consumer Products.
By way of example, our first content
investment was made in June 2022, when we entered into a multi-year deal with IMAX Corporation
(“IMAX”) to jointly finance
the development and production of a slate of feature-length documentaries for the global market. The first project under this
deal
is The Blue Angels, co-produced by legendary Hollywood filmmaker J.J. Abrams and his Bad Robot Productions. The Blue Angels follows
the newest
class of the storied Navy and Marine Corps flight squadron through intense training and into their first season of heart-stopping
aerial artistry, while also
sharing the emotional stories of the veterans on the team who, this year, will take their final flights. It
marked the first time the iconic blue and yellow F/A-
18 Super Hornets were featured in IMAX. The film was released in IMAX theaters
on May 17, 2024 and began streaming on Amazon Prime Video on May
23, 2024.
1
Growth Opportunities and Strategies
For Dolphin 1.0, we are focused
on driving growth through the following efforts:
Expand and grow 42West to
serve more clients with a broad array of interrelated services. We believe that the launch and growth of a large
number of streaming
services over the last seven years represents tremendous organic growth opportunities for 42West, due to the increase in potential new
clients and a larger number of individual projects to promote.
Enhanced by Dolphin’s acquisitions
of The Digital Dept., 42West has the ability to both structure influencer marketing campaigns and to create
promotional and marketing
content for clients, which are critical services for entertainment content marketers in today’s digital world.
Through our acquisition of B/HI
in January 2021 (considered a division of 42West), 42West has entered into the “sister” entertainment verticals of
video gaming
and e-sports. We believe these industries represent a tremendous growth opportunity for 42West.
Furthermore, the growing involvement
in non-entertainment businesses by many of our existing entertainment clients has allowed 42West to
establish a presence and develop expertise
outside its traditional footprint. Using this as a foundation, we are now working to expand our involvement in
these new areas, including
consumer products “fronted” by recognizable celebrities or “branded” with recognizable intellectual property.
Expand and grow Shore Fire
Media to serve more clients in more genres of music and in more markets. For over 30 years, Shore Fire has been
a leader
in providing public relations and marketing services to a broad array of songwriters, recording artists, publishers and others within
the music
industry, primarily from its headquarters in Brooklyn. We plan to significantly expand Shore Fire’s presence in other
major music markets, including Los
Angeles, Nashville and Miami, which we believe will provide greater access to potential clients across
a wide array of popular musical genres, including
pop, country and Latin.
Expand and grow The Door
through the expansion of its Consumer Products Public Relations business. The Door’s market-leading position in
both the
food and hospitality verticals, with many clients that have consumer-facing products and the need for attendant marketing campaigns, has
provided
the Company with the requisite experience for a successful expansion across the high-margin consumer products public relations
business with potential
clients both inside and outside of the food and hospitality verticals. We plan to significantly increase the number
of consumer products public relation
accounts at The Door. Such accounts often generate higher monthly fees and longer-term engagements
than any other of our customer verticals.
Expand and Grow Elle Communications
to Serve More Clients Across the Non-Profit Spectrum. For over 15 years, Elle has been a leader in
providing public relations
and marketing services to a broad array of non-profits and sustainable lifestyle companies. We plan to significantly expand Elle’s
client base by cross-selling their Impact public relations services across all of the Dolphin agencies, many of which already have clients
with foundations
and other charitable organizations.
Expand The Digital Dept.’s
Talent Roster + Platform Presence. The Digital Dept. has a well-known influencer talent management roster,
representing over 200
individual talent that tend to specialize in the beauty, fashion and wellness industries, and that tend to use Instagram as their primary
user engagement platform. We plan to strategically scale into new verticals with significant potential, including the highly lucrative
skin
care/cosmetics/beauty vertical, which has a long history of branding and co-marketing partnerships with the entertainment industry.
Additionally,
broadening our talent pool across platforms like TikTok and YouTube will allow us to offer brand partners premium access
to the coveted Young Adult
segment. These are sizable addressable markets that add another dimension to our growth strategy. We believe
they present promising avenues for further
diversification and expansion.
Diversify The Digital Dept.’s
Brand Client Bases. The Digital Dept. has a division dedicated to working with brands to create the strategy and
subsequently
execute influencer marketing campaigns, with a specialization in the beauty, fashion and wellness industries. Through 42West, The Door,
Shore Fire and Elle, The Digital Dept. can offer their services to several new verticals, including motion picture and television content,
podcasts, musical
artists and labels, restaurant groups, hotels and resorts, the travel industry, the gaming and e-sports industry, charitable
organizations and the marketers of
broader consumer products. The ability for The Digital Dept. to reach clients of 42West, The Door,
Shore Fire and Elle provides The Digital Dept. with the
opportunity to diversify its client base, while allowing 42West, The Door and
Shore Fire to increase their service offerings to, existing and future clients,
potentially driving increased revenues.
Expand The Digital Dept.’s
Influencer Event Business to New Markets. The Digital Dept. has a division dedicated to producing influencer
“showrooms,”
wherein The Digital Dept. rents a venue and hosts up to 200 influencers over 2 days to sample a wide variety of beauty, fashion and wellness
products. Since 2021, The Digital Dept. has hosted multiple such showrooms per year, all in Los Angeles. In 2024, we added additional
showrooms in New
York and Miami. In 2025, we plan to add an additional showroom in Nashville, to further expand this successful format.
Build Always Alpha’s Business.
Always Alpha launched in October 2024 in partnership with Allyson Felix, the most decorated track and field
athlete of all-time. Initially,
we have focused on recruiting Olympic athletes to join our roster, and now we plan to expand into soccer and basketball in
2025 (the two
most established sports for female athletes in the United States).
Leverage Special Projects’
Industry Reputation and Position to Expand Clientele. Special Projects already books celebrity talent to marquee
events across
the entertainment, media, fashion, consumer product and tech verticals. 42West, Shore Fire and The Door all have multiple clients that
regularly seek to book celebrities for commercial endorsement or seek to host events with celebrity attendance to garner out-sized media
coverage. The
ability for Special Projects to reach clients of 42West, The Door and Shore Fire provides Special Projects with the opportunity
to expand its clientele, while
allowing 42West, The Door and Shore Fire to increase their service offerings to existing and future clients,
potentially driving increased revenues.
2
Opportunistically grow through
complementary acquisitions. We plan to selectively pursue acquisitions to further enhance our competitive
advantages, scale our
revenues, and increase our profitability. Our acquisition strategy is based on identifying and acquiring companies that complement
our
existing entertainment marketing services businesses. We believe that complementary businesses can create synergistic opportunities that
may increase
profits and operating cash flow.
Leverage Our Marketing Expertise
To Receive Equity Stakes In Ventures That We Will Promote
For Ventures, or Dolphin 2.0,
we are focused on driving growth through the following efforts:
Build a portfolio
of premium film, television and digital content. We intend to grow and diversify our portfolio of film, television and
digital
content by capitalizing on demand for high quality digital media and film content throughout the world marketplace. We plan
to balance our financial risks
against the probability of commercial success for each project. We believe that our strategic focus
on content and creation of innovative content distribution
strategies will enhance our competitive position in the industry, ensure
optimal use of our capital, build a diversified foundation for future growth and
generate long-term value for our shareholders.
Finally, we believe that marketing strategies that will be developed by our best-in-class entertainment public
relations and
marketing companies will drive our creative content, thus creating greater potential for profitability.
Develop Live Events.
With the acquisition of Special Projects, Dolphin now has the expertise in house to develop and produce live events.
42West, Shore
Fire, The Door and The Digital Dept. all have market-leading expertise in promoting live events, through public relations and influencer
marketing respectively, from movie and television premieres, award shows, music festivals, food festivals, and many more. We believe we
can conceive
and execute our own live events, whether B2C or B2B, that leverage our ability to book celebrity talent, as well as run best-in-class
earned media
marketing campaigns to attract sponsors and attendance.
Develop Consumer Products.
We believe there are many consumer product categories that have strong historical influence from either celebrities,
influencers,
athletes or the entertainment industry in general, including liquor, cosmetics, skin care, fashion, supplements, and wellness products,
to name
just a few. Across our public relations firms and The Digital Dept., and Always Alpha, we represent both brands in these verticals,
as well as many
individual celebrities, athletes and influencers, with proprietary consumer products in these verticals. We believe we
can conceive and partner with leading
producers and distributors across several consumer product verticals to launch a wide variety of
products that leverage our ability to access celebrity and
influencer talent, as well as run best-in-class earned media marketing campaigns
to launch brand awareness, maintain brand prominence, and enhance sales
and distribution efforts.
Entertainment Publicity and Marketing
42West
Through 42West, an entertainment
public relations agency, we offer talent publicity, entertainment (motion picture and television) marketing,
video game and eSports marketing,
entertainment consumer product marketing, and strategic communications services. Prior to its acquisition, 42West
grew to become one of
the largest independently-owned public relations firms in the entertainment industry, and after the acquisition, in March 2022,
42West
was ranked #2 in the annual rankings of the nation’s Power 50 PR firms by the New York Observer, the highest position held by an
entertainment
public relations firm. As such, we believe that 42West has served, and will continue to serve, as an “acquisition
magnet” for us to acquire new members of
our marketing “super group,” which has the ability to provide synergistic new
members with the opportunity to grow revenues and profits through 42West’s
access, relationships and experience in the entertainment
industry.
Marketing professionals at
42West develop and execute marketing and publicity strategies for dozens of movies and television shows annually, as
well as for individual
actors, filmmakers, recording artists, video game publishers, and authors. Through 42West, we provide services in the following
areas:
Entertainment Marketing
We provide marketing direction,
public relations counsel and media strategy for productions (including theatrical films, DVD and VOD releases,
television programs, and
online series) as well as content producers, ranging from individual filmmakers and creative artists to production companies, film
financiers,
DVD distributors, and other entities. Our capabilities include worldwide studio releases, independent films, television programming and
web
productions. We provide entertainment marketing services in connection with film festivals, awards campaigns, event publicity and
red-carpet
management.
Talent Publicity
We focus on creating and
implementing strategic communication campaigns for performers and entertainers, including film, television and
Broadway stars. Our talent
roster includes multiple Oscar-, Emmy- and Tony-winning actors. Our services in this area include ongoing strategic counsel,
media relations,
studio, network, charity, corporate liaison and event support.
Video Game and eSports
Publicity
We provide marketing direction,
public relations counsel and media strategy for video game publishers as well as eSports leagues, and other
entities in the gaming industry.
Our capabilities include global game releases (web, console and mobile), independent releases, eSports tournament and
league publicity,
and various gaming events.
3
Entertainment Consumer
Product Marketing
We provide marketing direction,
public relations counsel and media strategy for leading toy companies, consumer product companies and
divisions of major entertainment
studios, and entertainment memorabilia companies. Our capabilities include product launch and feature releases, media
strategy, and industry
conference execution.
Strategic Communications
Our strategic communications
team advises brands and non-profits seeking to utilize entertainment and pop culture in their marketing campaigns.
We also help companies
define objectives, develop messaging, create brand identities, and construct long-term strategies to achieve specific goals, as well
as
manage functions such as media relations or internal communications on a day-to-day basis. Our clients include major studios and production
companies, record labels, media conglomerates, technology companies, philanthropic organizations, talent guilds, and trade associations,
as well as a wide
variety of high-profile individuals, ranging from major movie and pop stars to top executives and entrepreneurs.
Shore Fire
Through Shore Fire, we represent
musical artists and culture makers at the top of their fields. Shore Fire’s dedicated teams in New York, Los
Angeles, and Nashville
wield extensive, varied expertise to strategically amplify narratives and shape reputations for career-advancing effect. We believe
Shore
Fire is the largest public relations agency in the music business, representing top recording artists in multiple genres, songwriters,
music producers,
record labels, music industry businesses, venues, trade organizations, authors, social media personalities and cultural
institutions.
The Door
Through The Door, a hospitality,
lifestyle and consumer products public relations agency, we offer traditional public relations services, as well as
social media marketing,
creative branding, and strategic counsel. Prior to its acquisition, The Door was widely considered the leading independent public
relations
firm in the hospitality and lifestyle industries. Among other benefits, The Door acquisition has expanded our entertainment verticals
through the
addition of celebrity chefs and their restaurants, as well as with live events, such as some of the most prestigious and well-attended
food and wine festivals
in the United States. Our public relations and marketing professionals at The Door develop and execute marketing
and publicity strategies for dozens of
restaurant and hotel groups annually, as well as for individual chefs, live events, and consumer-facing
corporations.
Elle
Through Elle, we specialize in
social and environmental impact public relations services for a client roster of mission-centered brands, nonprofits
and philanthropic
foundations, social enterprises, sustainability, and ethically made products and services. Elle’s dedicated teams in New York and
Los
Angeles, achieve marketing and publicity strategies for non-profits. We believe Elle is the largest public relations agency in the
philanthropy and social
impact sector.
The Digital Dept.
Through The Digital Dept. we offer
management for individual influencers, brand marketing services (both paid and organic influencer marketing
campaigns) and influencer
event development and production services, with teams in New York, Los Angeles, Miami and Nashville. The
Digital Dept. has
a talent management roster of more than 200 market-leading influencers, representing some of the most sought-after creators,
from digital-only to celebrity-
level talent. The Digital Dept.’s brands division represents some of the world's most iconic brands,
providing a full suite of services for paid influencer
campaigns, from strategy and casting, through execution and delivery, with in-depth
analytics and reporting. And, The Digital Dept.’s events division
produces both proprietary showrooms to connect brands and influencers,
as well as custom events for specific brands, at locations across Los Angeles, New
York and Miami.
Always Alpha
Through Always Alpha, we offer
management for individual athlete, broadcasters and coach influencers, brand marketing services (both paid and
organic influencer marketing
campaigns) and influencer event development and production services, with teams in New York and Los Angeles.
Always
Alpha is the first sports management firm of its kind fully focused on women’s sports. Founded by Olympic legend and women's
rights advocate Allyson
Felix, her longtime business partner and brother Wes Felix and standout sports executive Cosette Chaput, the venture
is supported by Dolphin's portfolio of
best-in-class marketing and communications companies. With the ethos that womanhood is multidimensional
and that personal management should be
customized to reflect this, Always Alpha aims to empower modern women who are breaking barriers,
owning their voices and creating a better future on
and off the field of play.
Special Projects
Special Projects is a creative
content, and special events agency that elevates media, fashion, and lifestyle brands through the unique use of
celebrities and storytelling.
Trusted by both companies and public figures, Special Projects creates opportunities that garner press, build engagement, drive
sales,
and uniquely position our partners within the zeitgeist. Its core services include talent strategy and partnerships, event activation
and guest list
curation, and brand amplification through celebrities, influencers, and culture-defining personalities. Its keen trend-spotting
and cultural forecasting
abilities allow us to keep our finger on the pulse of pop culture and highlight new talents before they hit the
mainstream.
4
Content Production
Dolphin Films and Dolphin Digital Studios
Dolphin Films is a content producer
of motion pictures. We own the rights to several scripts that we intend to produce at a future date. Dolphin
Digital Studios creates original
content to premiere online. We own several concepts and scripts that we intend to further develop and produce at a future
date.
In June 2022, we entered into
an agreement with 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. We paid $2,250,000 in connection with the production of 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 year ended December 31, 2024, we recorded revenue of $3,421,141 related to the Amazon Agreement. On February 22,
2024, we
received $777,905 from IMAX, as a first installment in connection with the Amazon Agreement and on July 9, 2024, the Company
received the second
installment from IMAX in the amount of $2,556,452.
The Blue Angels documentary
motion picture was released in theatres on May 17, 2024 and began streaming on Amazon Prime Video on May 23,
2024.
In February, 2025, Dolphin
Films partnered with Aircraft Productions of Toronto, Canada to produce a re-boot of the popular 1986 MGM hockey
movie “Youngblood.”
The film is expected to be completed and ready for delivery in the second half of 2025.
Competition
The businesses in which we
engage are highly competitive. Through 42West, Shore Fire, The Door and Elle, we compete against other public
relations and marketing
communications companies, as well as independent and niche agencies to win new clients and maintain existing client
relationships. Through
The Digital Dept., we compete against other influencer marketing agencies as well as in-house teams at many of our clients.
Through Always
Alpha, we complete with other management firms that represent both male and female athletes. Through Special Projects, we compete
with
other celebrity booking or live event production companies. Our content production business faces competition from companies within the
entertainment business and from alternative forms of leisure entertainment, such as travel, sporting events, video games and computer-related
activities. We
are subject to competition from other digital media and motion production companies, as well as from large, well-established
companies within the
entertainment industry that have significantly greater development, production, distribution and capital resources
than us. We compete for the acquisition of
literary properties and for the services of producers, directors, actors and other artists
as well as creative and technical personnel and production financing,
all of which are essential to the success of our business. In addition,
our productions compete for audience acceptance and advertising dollars.
We believe that we compete on the basis of the
following competitive strengths:
·
Market
Reputations of 42West, Shore Fire, The Door and Elle — 42West, Shore Fire, The Door and Elle consistently rank among the
most
prestigious and powerful public relations firms in the United States (as a group we were ranked as the #1 Public Relations firm
in the United
States in 2025, as published by the New York Observer), which is a significant competitive advantage given the nature
of the entertainment
marketing and public relations industry, in which “perception is power;”
·
An Exceptional Management Team—our CEO, Mr. O’Dowd, has a 25-year history of producing and delivering high-quality family
entertainment. In addition, 42West’s CEO, Amanda Lundberg, The Door’s CEO, Charlie Dougiello, and President, Lois O’Neill, Shore
Fire’s President Marilyn Laverty and Elle’s Danielle Finck are all longtime public relations practitioners, with decades of experience, and
are widely recognized as among the top communications strategists in the entertainment, hospitality and music industries, as evidenced by
the market reputation of their companies. Furthermore, The Digital Dept. Co-CEOs, Ali Grant and Sarah Boyd, are widely respected
influencer marketing experts who have built their reputations from the very beginning of the industry 10-15 years ago. Always Alpha’s Co-
Founder Allyson Felix is the most decorated track and field athlete of all-time. Lastly, Nicole Vecchiarelli and Andrea Oliveri, Co-CEOs of
Special Projects, are considered best-in-class in celebrity curation and booking;
·
Our Ability to Offer Interrelated Services—we believe that our ability to offer influencer marketing expertise and experiential marketing for
our 42West, The Door, Shore Fire, Elle and Always Alpha clients, primarily through the services of The Digital Dept., and Special Projects,
will allow us to expand and grow our relationships with existing clients and also attract new ones; and,
·
Our Ability to Offer Services Across Multiple Verticals of Entertainment – we believe that our ability to offer relationship access and
marketing reach across all of the film, television, podcast, music, celebrity chef, hospitality, gaming and e-sports industries will be attractive
to marketers of consumer products who desire a broad campaign across pop culture, which will allow us to expand our client base and grow
the size of our campaigns.
Human Capital Management
Our People and Culture
Because our business is predominantly
service-based, the quality of the personnel we employ is crucial to our success and growth. Our employees
and contractors are our most
valuable assets. We believe our relationship with our employees is great, and we also utilize consultants in the ordinary course
of our
business and hire additional employees on a project-by-project basis in connection with the production of digital media projects or motion
pictures.
We conduct training and development in our subsidiaries to ensure our employees maintain the quality for which we are known.
As of March 17, 2025, we had 269 full-time employees,
all of which are located within the United States.
Diversity and Inclusion
Dolphin and our subsidiaries
are committed to diversity and inclusion, and our culture reinforces these values on a day-to-day basis, beginning
with our leadership
team. Our leadership team, which includes our Chief Executive Officer, Chief Financial and Operating Officer, Vice-President of
Human
Resources and the leaders of our subsidiaries, is composed of 87% women and minorities. Likewise, the Board of Directors is composed of
71%
women and minorities.
5
Other Compensation and Benefits
The Company offers competitive
compensation and benefits packages that meet the needs of its employees, including equity incentive awards,
retirement plans, health,
dental, and vision benefits, basic life insurance and short and long-term disability coverage, among other benefits. The Company
analyzes
market trends and monitors its own compensation practices to attract, retain, and promote employees and reduce turnover and associated
costs.
Regulatory Matters
We are subject to state and
federal work and safety laws and disclosure obligations, under the jurisdiction of the U.S. Occupational Safety and
Health Administration
and similar state organizations.
As a public company, we are
subject to the reporting requirements under Section 13(a) and Section 15(d) of the Exchange Act.
Corporate Offices
Our corporate headquarters
is located at 150 Alhambra Circle, Suite 1200, Coral Gables, Florida 33134. Our telephone number is (305) 774-0407.
We also have offices
located at:
·
600 3rd Avenue, 23rd Floor, New York, New York 10016;
·
1840 Century Park East, Suite 200, Los Angeles, California 90067; and
·
12 Court Street, Suite 1800, Brooklyn, New York 11201
Available Information
The Company’s Annual
Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are
available free of
charge through the “Investor Relations” section of the Company’s website, www.dolphinentertainment.com, as soon as reasonably
practical after they are filed with the Securities and Exchange Commission (“SEC”). The SEC maintains a website, www.sec.gov,
which contains reports,
proxy and information statements, and other information filed electronically with the SEC by the Company. In addition,
you may automatically receive
email alerts and other information when you enroll your email address by visiting the “Investor Relations”
section of our website. The content of any
website referred to in this document is not incorporated by reference into this document.
ITEM 1A. RISK FACTORS
Risks Related to our Business and Financial
Condition
Our results of operations, including our revenues
from our Entertainment and Publicity Marketing segment, are highly susceptible to unfavorable
economic conditions.
The global financial markets
have experienced significant recent volatility, marked by declining economic growth, diminished liquidity and
availability of credit,
declines in consumer confidence, significant concerns about increasing and persistently high inflation and uncertainty about economic
stability. Economic downturns often severely affect the marketing services industry. Some of our corporate clients may respond to weak
economic
performance by reducing their marketing budgets, which are generally discretionary in nature and easier to reduce in the short-term
than other expenses
related to operations. In addition, economic downturns, social or political instability, recessionary concerns, rising
interest rates and increased inflation
could lead to reduced public demand and discretionary spending for varying forms of entertainment
for which we are engaged to provide public relations
and media strategy and promotional services. Such reduced demand for our services
could have a material adverse effect on our revenues and results of
operations.
We have a history of net losses and may
continue to incur net losses.
We have a history of net
losses and may be unable to generate sufficient revenue to achieve profitability in the future. For the fiscal years ended
December 31,
2024 and 2023, our net loss was $12,603,225 and $24,396,725, respectively. Our accumulated deficit was $146,214,429 and $133,611,204 at
December 31, 2024 and 2023, respectively. Our ability to generate net profit in the future will depend on our ability to realize the financial
benefits from
the operations of 42West, The Door, Shore Fire, The Digital Dept., Special Projects, Elle and Always Alpha and the success
of our Dolphin 2.0 initiatives,
as no single project is likely to generate sufficient revenue to cover our operating expenses. If we are
unable to generate net profit at some point, we will
not be able to meet our debt service or working capital requirements. As a result,
we may need to (i) issue additional equity, which could substantially
dilute the value of your share holdings, (ii) sell a portion or
all of our assets, including any project rights which might have otherwise generated revenue, or
(iii) cease operations.
6
We currently have substantial indebtedness
which may adversely affect our cash flow and business operations and may affect our ability to continue to
operate as a going concern.
The table below sets forth
our total principal amount of debt as of December 31, 2024 and 2023.
December 31,
2024
2023
Related party debt (noncurrent)
$
3,225,985 $
1,107,873
Non-convertible promissory notes (current and noncurrent)
$
3,880,000 $
3,880,000
Convertible notes payable (current and noncurrent)
$
5,100,000 $
5,100,000
Convertible note payable – fair value option (noncurrent)
$
320,000 $
355,000
Term loans (current and noncurrent)
$
6,468,289 $
5,482,614
Revolving line of credit (current)
$
400,000 $
400,000
Non-convertible promissory note – Socialyte (current)
$
3,000,000 $
3,000,000
Our indebtedness could have important negative consequences,
including:
·
our ability to obtain additional financing for working capital, capital expenditures, future productions or other purposes may be impaired, or
such financing may not be available on favorable terms or at all;
·
we may have to pay higher interest rates upon obtaining future financing, thereby reducing our cash flows; and
·
we may need a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, reducing
the funds that would otherwise be available for operations and future business opportunities.
Our ability to service our indebtedness
will depend upon, among other things, our future financial and operating performance and our ability to
obtain additional financing, which
will be affected by prevailing economic conditions, the profitability of our content production and entertainment
publicity and marketing
businesses and other factors contained in these Risk Factors, some of which are beyond our control.
If we are not able to generate
sufficient cash to service our current or future indebtedness, we will be forced to take actions such as reducing or
delaying digital
or film productions, delaying Dolphin 2.0 initiatives, selling assets, restructuring or refinancing our indebtedness or seeking additional
debt
or equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms or at all and
our indebtedness may
affect our ability to continue to operate as a going concern.
Our stock price has been volatile and may continue
to be volatile in the future, and as a result, investors in our common stock could incur substantial
losses.
Our stock price has been volatile
and may continue to be volatile in the future. We may incur rapid and substantial increases or decreases in our
stock price in the foreseeable
future that may or may not coincide in timing with the disclosure of news or developments by us. The stock market in
general, and the
market for entertainment companies in particular, has experienced extreme volatility that has often been unrelated to the operating
performance
of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock. The
market
price for our common stock may be influenced by many factors, including the following:
·
announcements of state-of-the-art means of content production and entertainment publicity and marketing, or those of companies that are
perceived to be similar to us;
·
announcements related to any delays in production or rollout of entertainment content;
·
our ability to meet or exceed the rapidly-changing expectations of our clients;
·
news that audience acceptance of and interest in our digital media productions, and therefore the commercial success of our content
production business, is lower or higher than we expected;
·
our ability to adapt to rapid change in technology, forms of delivery, storage, and consumer preferences related to digital content;
·
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our strategic collaboration
partners or our competitors;
·
variations in our financial results or those of companies that are perceived to be similar to us;
·
trading volume of our common stock;
·
developments concerning our collaborations or partners;
·
the impact of any local or global pandemic and its effect on us;
·
the perception of the entertainment publicity and marketing or digital content production by the public, legislatures, regulators and the
investment community;
·
developments or disputes concerning intellectual property rights;
·
significant lawsuits, including patent or shareholder litigation;
·
our ability or inability to raise additional capital and the terms on which we raise it;
·
sales of our common stock by us or our shareholders;
·
declines in the market prices of stocks generally or of companies that are perceived to be similar to us; and
·
general economic, industry and market conditions.
7
Our management has determined that our disclosure controls and procedures
and our internal controls over financial reporting are not effective as we
have identified material weaknesses in our internal controls.
As disclosed in Part II, Item
9A. Controls and Procedures of this Annual Report on Form 10-K, management concluded that for the years ended
December 31, 2024 and 2023,
our internal control over financial reporting was not effective and we identified several material weaknesses. Our
management concluded
that our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial
reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is
a reasonable
possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected
on a timely basis.
We have commenced our remediation
efforts as discussed in Part II, 9A. Controls and Procedures of this Annual Report on Form 10-K to address
the material weaknesses in
internal control over financial reporting and ineffective disclosure controls and procedures. If our remedial measures are
insufficient,
or if additional material weaknesses or significant deficiencies in our internal controls occur in the future, we could be required to
restate our
financial results, which could materially and adversely affect our business, results of operations and financial condition,
restrict our ability to access the
capital markets, require us to expend significant resources to correct the weakness or deficiencies,
harm our reputation and otherwise cause a decline in
investor confidence. In addition, we could be subject to, among other things, regulatory
or enforcement actions by the SEC.
We rely on information technology systems that
are susceptible to cybersecurity risks. In the event of a cybersecurity incident, we could experience
operational interruptions, incur
substantial additional costs, become subject to legal or regulatory proceedings or suffer damage to our reputation.
We rely on information technologies
and infrastructure to manage our businesses, including digital storage of marketing strategies and client
information, films and digital
programming and delivery of digital marketing services for our businesses. Data maintained in digital form is subject to the
risk of intrusion,
tampering and theft. The incidence of malicious technology-related events, such as cyberattacks, computer hacking, computer viruses,
worms
or other destructive or disruptive software, denial of service attacks or other malicious activities is on the rise worldwide. Power outages,
equipment
failure, natural disasters (including extreme weather), terrorist activities or human error may also affect our systems and
result in disruption of our services
or loss or improper disclosure of personal data, business information or other confidential information.
Likewise, data privacy breaches,
as well as improper use of social media, by employees and others may pose a risk that sensitive data, such as
personally identifiable
information, strategic plans and trade secrets, could be exposed to third parties or to the general public. We also utilize third parties,
including third-party “cloud” computing services, to store, transfer or process data, and system failures or network disruptions
or breaches in the systems of
such third parties could adversely affect our reputation or business. Any such breaches or breakdowns could
lead to business interruption, exposure of our
or our clients’ proprietary or confidential information, data corruption, damage
to our reputation, exposure to legal and regulatory proceedings and other
costs. Such events could have a material adverse impact on our
financial condition, results of operations and cash flows. In addition, we could be adversely
affected if any of our significant customers
or suppliers experience any similar events that disrupt their business operations or damage their reputation.
Efforts to develop, implement
and maintain security measures are costly, may not be successful in preventing these events from occurring and require
ongoing monitoring
and updating as technologies change and efforts to overcome security measures become more sophisticated. Although we maintain
monitoring
practices and protections of our information technology to reduce these risks, there can be no assurance that our efforts will prevent
the risk of a
security breach of our databases or systems that could adversely affect our business.
We may require additional
financing, and we may not be able to raise funds on favorable terms or at all.
We had negative working capital of
$6.4 million as of December 31, 2024. With our current cash on hand, expected revenues, and based on our
current average monthly expenses,
we anticipate needing additional funding in order to continue our operations at their current levels, and to pay the costs
associated
with being a public company, for the next 12 months.
The most
likely source of future funds presently available to us is through the sale of equity capital. Any sale of share capital will result in
dilution
to existing shareholders. Furthermore, we may incur debt in the future, and may not have sufficient funds to repay our future
indebtedness or may default
on our future debts, jeopardizing our business viability.
8
Risks Related to Our Entertainment Publicity
and Marketing Business
Our business could be adversely affected if
we fail to retain the principal sellers, and/or other key employees of 42West, The Door, Shore Fire, The
Digital Dept. Special Projects,
Elle and Always Alpha and the clients they serve.
The success of our entertainment
publicity and marketing business operated by 42West, The Door, Shore Fire, The Digital Dept., Special Projects,
Elle and Always Alpha,
our marketing subsidiaries, substantially depends on our ability to retain the services of certain key employees, including some of
the
former owners. If we lose the services of one or more of these individuals, our ability to successfully implement our business plan with
respect to our
entertainment publicity and marketing business and the value of our common stock could be materially adversely affected.
Although we entered into
employment agreements with each of the principal sellers, there can be no assurance that they will serve the
terms of their respective employment
agreements or choose to remain with us following the expiration of such terms. In addition, the employees
of our marketing subsidiaries, and their skills
and relationships with clients, are among our most valuable assets. An important aspect
of the business’ competitiveness is its ability to retain such key
employees. If our marketing subsidiaries fail to hire and retain
a sufficient number of these key employees, it may have a material adverse effect on our
overall business and results of operations.
Our marketing subsidiaries’
talent rosters currently include some of the best known and most highly respected members of the entertainment,
hospitality, and musical
communities. These include major studios and networks, corporations, well-known consumer brands, celebrity chefs, leading
restaurant and
hotel brands, recording artists and social media influencers. These clients often form highly loyal relationships with certain public
relations
and marketing professionals rather than with a particular firm. The employment agreements with the principal sellers currently
contain non-competition
provisions that prohibit the principal sellers from continuing to provide services to such clients should they
leave the Company, however, clients are free to
engage other public relations and marketing professionals and there can be no assurance
that they will choose to remain with the Company. The success of
our marketing subsidiaries, therefore, depends on our ability to continue
to successfully maintain such client relationships should the principal sellers or
other key employees leave the Company. If we are unable
to retain the current marketing subsidiaries’ current clients or attract new clients, then we could
suffer a material adverse effect
on our business and results of operations.
We operate in a highly competitive industry.
The entertainment publicity
and marketing business is highly competitive. Through our marketing subsidiaries, we must compete with other
agencies, and with other
providers of marketing and publicity services, in order to maintain existing client relationships and to win new clients. The client’s
perception of the quality of an agency’s creative work and the agency’s reputation are critical factors in determining its
competitive position.
The success of our entertainment publicity
and marketing business depends on its ability to consistently and effectively deliver marketing and public
relations services to our clients.
Our marketing subsidiaries’
success depends on their ability to effectively and consistently staff and execute client engagements to achieve the
clients’ unique
personal or professional goals. Our marketing subsidiaries work to design customized communications or publicity campaigns tailored to
the particular needs and objectives of particular projects. In some of their engagements, our marketing subsidiaries rely on other third
parties to provide
some of the services to their clients, and we cannot guarantee that these third parties will effectively deliver their
services or that we will have adequate
recourse against these third parties in the event they fail to effectively deliver their services.
Other contingencies and events outside of our control may also
impact our marketing subsidiaries’ ability to provide their services.
Our marketing subsidiaries’ failure to effectively and timely staff, coordinate and
execute their client engagements may adversely
impact existing client relationships, the amount or timing of payments from clients, their reputation in the
marketplace and ability to
secure additional business and our resulting financial performance. In addition, our contractual arrangements with our clients
may not
provide us with sufficient protections against claims for lost profits or other claims for damages.
If we are unable to adapt to changing client
demands, social and cultural trends or emerging technologies, we may not remain competitive and our
business, revenues and operating results
could suffer.
We operate in an industry
characterized by rapidly changing client expectations, marketing technologies, and social mores and cultural trends that
impact our target
audiences. The entertainment industry continues to undergo significant developments as advances in technologies and new methods of
message
delivery and consumption emerge. These developments drive changes in our target audiences’ behavior to which we must adapt in order
to reach
our target audiences. In addition, our success depends on our ability to anticipate and respond to changing social mores and
cultural trends that impact the
entertainment industry and our target audiences. We must adapt our business to these trends, as well as
shifting patterns of content consumption and
changing behaviors and preferences of our target audiences, through the adoption and exploitation
of new technologies. If we cannot successfully exploit
emerging technologies or if the marketing strategies we choose misinterpret cultural
or social trends and prove to be incorrect or ineffective, any of these
could have a material adverse effect on our business, financial
condition, operating results, liquidity and prospects.
9
A significant labor dispute in our clients’
industries could have a material adverse effect on our business.
An industry-wide strike or
other job action by or affecting the Writers Guild, Screen Actors Guild or other major entertainment industry union
could reduce the supply
of original entertainment content, which would in turn reduce the demand for our talent and entertainment marketing services. An
extensive
work stoppage would affect feature film production as well as television and commercial production and could have a material adverse effect
on
our clients and the motion picture production industry in general. Contracts between entertainment industry unions and the Alliance
of Motion Picture and
Television Producers, which we refer to as AMPTP, expire from time to time. The failure to finalize and ratify a
new agreement with the AMPTP or the
failure to enter into new commercial contracts upon expiration of the current contracts could lead
to a strike or other job action. Any such severe or
prolonged work stoppage could have an adverse effect on the television and/or motion
picture production industries and could severely impair our clients’
prospects. Any resulting decrease in demand for our talent
and entertainment marketing and other public relations services would have a material adverse
effect on our cash flows and results of
operations.
Clients may terminate or reduce their relationships
with us on short notice.
As is customary in the industry,
our marketing subsidiaries’ agreements with their respective clients generally provide for termination by either
party on relatively
short notice, usually 30 days. Consequently, these clients may choose to reduce or terminate their relationships with us, on a relatively
short time frame and for any reason. If a significant number of the marketing subsidiaries’ clients were to reduce the volume of
business they conduct with
us or terminate their relationships with us completely, this could have a material adverse effect upon our
business and results of operations. A portion of our
revenue is derived on a project-by-project basis. Clients may decide to use other
creative branding and marketing companies for their projects which would
have an adverse effect upon our business and results of operations.
If our clients experience financial distress,
or seek to change or delay payment terms, it could negatively affect our own financial position and results.
We have a large and diverse client
base, and at any given time, one or more of our clients may experience financial difficulty, file for bankruptcy
protection or go out
of business. Unfavorable economic and financial conditions could result in an increase in client financial difficulties that affect us.
The
direct impact on us may include reduced revenues, write-offs of accounts receivable and expenditures billable to clients, and may
negatively impact our
operating cash flow.
Risks Related to Acquisitions
We are subject to risks associated with acquisitions
and we may not realize the anticipated benefits of such acquisitions.
We regularly undertake acquisitions
that we believe will enhance our service offering to our clients. These transactions can involve significant
challenges and risks, including
that the transaction does not advance our business strategy or fails to produce a satisfactory return on our investment. Our
customary
business, legal and financial due diligence with the goal of identifying and evaluating the material risks involved may be unsuccessful
in
ascertaining or evaluating all such risks. Though we typically structure our acquisitions to provide for future contingent purchase
payments that are based
on the future performance of the acquired entity, our forecasts of the investment’s future performance also
factor into the initial consideration. When actual
financial results differ, our returns on the investment could be adversely affected.
Identifying suitable acquisition candidates can be difficult, time-
consuming and costly, and we may not be able to identify suitable candidates
or complete acquisitions in a timely manner, on a cost-effective basis or at all.
10
Even if we complete an acquisition,
we may not realize the anticipated benefits of such transaction. Our recent acquisitions have required, and any
similar future transactions
may also require, significant efforts and expenditures, including with respect to integrating the acquired business with our
historical
business. We may encounter unexpected difficulties, or incur unexpected costs, in connection with acquisition activities and integration
efforts,
including, without limitation:
·
diversion of management attention from managing our historical core business;
·
potential disruption of our historical core business or of the acquired business;
·
the strain on, and need to continue to expand, our existing operational, technical, financial and administrative infrastructure;
·
inability to achieve synergies as planned;
·
challenges in controlling additional costs and expenses in connection with and as a result of the acquisition;
·
dilution to existing shareholders from the issuance of equity securities;
·
becoming subject to adverse tax consequences or substantial depreciation;
·
difficulties in assimilating employees and corporate cultures or in integrating systems and controls;
·
difficulties in anticipating and responding to actions that may be taken by competitors;
·
difficulties in realizing the anticipated benefits of the transaction;
·
inability to generate sufficient revenue from acquisitions to offset the associated acquisition costs;
·
potential loss of key employees, key clients or other partners of the acquired business as a result of the change of ownership; and
·
the assumption of and exposure to unknown or contingent liabilities of the acquired businesses.
If any of our acquisitions do not perform as anticipated
for any of the reasons noted above or otherwise, there could be a negative impact on our
results of operations and financial condition.
Losses incurred by us subsequent to completion
of an acquisition may not be indemnifiable by the seller or may exceed the seller’s indemnification
obligations.
As discussed above, there
may be liabilities assumed in any acquisition that we did not discover or that we underestimated in the course of
performing our due diligence.
Although a seller generally will have indemnification obligations to us under an acquisition agreement, these obligations are
usually
subject to financial limitations, such as general deductibles and maximum recovery amounts, as well as time limitations. We cannot assure
you that
our right to indemnification from any seller will be enforceable, collectible or sufficient in amount, scope or duration to fully
offset the amount of any
losses that we incur with respect to a particular acquisition. Any such liabilities, individually or in the aggregate,
could have a material adverse effect on
our business, financial condition and operating results.
Risks Related to our Common Stock and Preferred Stock
We have recently issued, and may in the future
issue, a significant amount of equity securities and, as a result, your ownership interest in our Company
has been, and may in the future
be, substantially diluted and your investment in our common stock could suffer a material decline in value.
From January 1, 2023 to December
31, 2024, the number of shares of our common stock issued and outstanding has increased from 6,170,332 to
11,162,026 shares. During this
period, we issued approximately (i) 2.3 million aggregate shares of our common stock as consideration or earnout
consideration for acquisitions;
(ii) 1.1 million shares to Lincoln Park Capital Fund LLC (“Lincoln Park”) related to our purchase agreement with them; (iii)
0.7 million shares through an offering pursuant to a Registration Statement on Form S-3; (iv) 0.2 million shares to certain holders of
convertible notes that
exercised their right to convert all or a portion of their convertible notes; and (v) 0.3 million shares as stock
compensation to certain employees. As of
December 31, 2024, we had outstanding convertible notes payable that as of the date of this report
are still outstanding in the aggregate principal amount of
$5.1 million, which are convertible using a 90-day trading average stock price.
We also have an outstanding convertible note payable with an aggregate
principal amount of $500,000, which is convertible at $7.82 per
share. As a result of these past issuances and potential future issuances, your ownership
interest in the Company has been, and may in
the future be, substantially diluted.
The market price for our common
stock has been volatile, and these issuances could cause the price of our common stock to continue to fluctuate
substantially. Once restricted
stock issued in either private placements or to the sellers of the companies we acquired becomes freely tradable, these
shareholders may
decide to sell their shares of common stock and, if our stock is thinly traded, this could have a material adverse effect on its market
price.
We may need to raise additional
capital and may seek to do so by conducting one or more private placements of equity securities, securities
convertible into equity securities
or debt securities, or through a combination of one or more of such financing alternatives. Such issuances of additional
securities would
further dilute the equity interests of our existing shareholders, perhaps substantially, and may further exacerbate any or all of the
above
risks.
11
The Series C Convertible Preferred Stock has
super voting rights that may adversely affect our shareholders.
The Series C Convertible Preferred
Stock is held by Dolphin Entertainment LLC, an entity owned by Mr. O’Dowd. As of December 31, 2024,
Series C Preferred Stock is
convertible into 2,369,470 shares of our common stock. A stock restriction agreement entered into with Mr. O’Dowd in 2020,
as amended,
prohibits the conversion of Series C Convertible Preferred Stock into common stock unless the majority of the independent directors of
the
Board vote to remove the restriction. The stock restriction agreement will be immediately terminated upon a change of control as defined
in the agreement.
As of December 31, 2024, the Series C Preferred Stock was entitled to 23,694,700 votes which is approximately
68% of our voting securities. On January
21, 2025, the Company’s shareholders approved an amendment to the terms of the Series C
Convertible Preferred Stock included in our Articles of
Incorporation to decrease the number of votes per share of common stock the Series
C is convertible into from ten votes per share to three votes per share
to comply with the Nasdaq voting rights rule (Rule 5640). As of
January 21, 2025, the Series C Preferred Stock is entitled to 7,108,410 votes which was
approximately 39% of the voting securities on
that date. The holder of Series C Convertible Preferred Stock is entitled to vote together as a single class on
all matters upon which
common shareholders are entitled to vote. Your voting rights will be diluted as a result of these super voting rights.
If we are unable to maintain compliance with Nasdaq listing requirements,
our stock could be delisted, and the trading price, volume and marketability
of our stock could be adversely affected.
Our common stock is listed on
the Nasdaq Capital Market. We cannot assure you, that we will be able to maintain compliance with Nasdaq’s
current listing standards,
or that Nasdaq will not implement additional listing standards with which we will be unable to comply.
Failure to maintain compliance
with Nasdaq listing requirements could result in the delisting of our shares from Nasdaq, which could have a
material adverse effect on
the trading price, volume and marketability of our common stock. Furthermore, a delisting could adversely affect our ability to
issue
additional securities and obtain additional financing in the future or result in a loss of confidence by investors or employees.
The sale or issuance of our common stock to
Lincoln Park may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or
the perception that such sales
may occur, could cause the price of our common stock to fall.
On August 10, 2022, the Company
entered into a purchase agreement (the “LP 2022 Purchase Agreement”) with Lincoln Park, pursuant to which
Lincoln Park committed
to purchase up to $25 million of our common stock. Concurrently with the execution of the LP 2022 Purchase Agreement, we
issued 57,313 shares
of common stock to Lincoln Park as a commitment fee.
The purchase shares sold pursuant
to the Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 36-
month period. The purchase price
for shares that we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the price of our
common stock. Depending
on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
We have the right to control the
timing and amount of any sales of our shares to Lincoln Park in our sole discretion, subject to certain limits on the
number of shares
that can be sold on a given date. Sales of shares of our common stock, if any, to Lincoln Park will depend upon market conditions and
other factors to be determined by us. Therefore, Lincoln Park may ultimately purchase all, some or none of the shares of our common stock
that may be
sold pursuant to the Purchase Agreement and, after it has acquired shares, Lincoln Park may sell all, some or none of those
shares. Sales to Lincoln Park by
us could result in substantial dilution to the interests of other holders of our common stock. Additionally,
the sale of a substantial number of shares of our
common stock to Lincoln Park, or the anticipation of such sales, could make it more
difficult for us to sell equity or equity-related securities in the future at
a time and at a price that we might otherwise wish to effect
sales, which could have a materially adverse effect on our business and operations.
12
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
Overview
The Company is not aware of any
cybersecurity threats or incidents to date that have materially affected its strategy, results of operations, or
financial condition.
However, the scope and impact of any future cybersecurity incident cannot be predicted with certainty. More information on how
material
cybersecurity attacks may impact the Company’s business is provided in “Item 1A. Risk Factors”.
Risk management and strategy
We maintain comprehensive policies
and procedures designed to prevent and mitigate the risks posed by cybersecurity threats and incidents and to
identify, analyze, address,
mitigate and remediate those incidents that do occur.
The Company has established clear
lines of communication with key stakeholders, including executives, IT teams, employees, and customers, to
ensure transparency and an
effective response to cybersecurity incidents.
The Director of Information Technology
is tasked with, among other things, assessing, identifying and managing material cybersecurity risks and
overseeing the implementation
of the Company’s cybersecurity strategy. Furthermore, the Director of Information Technology provides cybersecurity
awareness training
to the Company’s employees and regularly communicates updates on best cybersecurity practices and improvements in the
cybersecurity
program.
The Company may use third-party
programs and software and engage assessors, consultants, cybersecurity auditors, or other third parties to
review, test, and advise on
improvements to the Company’s cybersecurity infrastructure.
Governance
Role of the Board of Directors
The Audit Committee oversees the
Company’s risk management and assessment, including its mitigation strategies, and updates the entire Board
on the Company’s
risk profile and exposures on an as needed basis. With respect to cybersecurity, the Company’s Director of Information Technology
updates the Audit Committee on at least an annual basis on matters such as external cybersecurity threats and attack trends, updates to
threat monitoring
processes, the composition of the Company’s information security team, cybersecurity awareness training and testing,
cybersecurity strategy, and
cybersecurity metrics, and assesses the progress of cybersecurity programs, and the potential scope and impact
of cybersecurity risks and incidents on the
Company’s operations and financial condition. The Audit Committee may also meet with
management on an ad hoc basis to discuss and review any
material cybersecurity incidents or threats.
Role of Management
Senior management is responsible
for assessing and managing the Company’s various exposures to risk, including those related to cybersecurity,
on a day-to-day basis,
including the identification of risks and the creation of appropriate risk management programs and policies to address such risks. Our
Director of Information Technology has primary responsibility for managing our cybersecurity program and efforts.
ITEM 2. PROPERTIES
As of the date of this report,
we do not own any real property. For our headquarters and content production business, we lease 4,961 square feet of
office space in Coral
Gables, Florida. For our entertainment publicity and marketing business, we lease one office space in each of Manhattan, New York,
Brooklyn,
New York and Los Angeles, California.
We believe that our properties
are sufficient to meet our current and projected business needs. We periodically review our facility requirements
and may acquire new
facilities, or modify, update, consolidate, dispose of or sublet existing facilities, based on evolving business needs.
ITEM 3. LEGAL PROCEEDINGS
On June 21, 2024, the Company filed a complaint
in Los Angeles County Superior Court against NSL Ventures (“NSL”), the Socialyte seller, and
its principals alleging that
the defendants breached the Socialyte purchase agreement and committed acts of fraud and negligence in connection with that
transaction,
and that the Company is entitled to monetary damages caused by those acts. On September 16, 2024, the defendants answered the Complaint
with a general denial and affirmative defenses. On September 16, 2024 defendant NSL also filed a Cross-complaint against the Company and
Social
Midco, LLC, alleging a single cause of action for breach of contract. The Company and Social Midco answered the cross-complaint
on October 1, 2024.
Trial has been scheduled by the Court for February 2026. Due to the early stage of the litigation, an estimate of
any possible loss or range of loss cannot be
made at this time. The Company is not aware of any other pending litigation as of the date
of this report and, therefore, in the opinion of management and
based upon the advice of its outside counsels, the liability, if any,
from any other pending litigation is not expected to have a material effect in the
Company’s financial position, results of operations
and cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
13
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information and Holders of our Common Stock
Our common stock trades on The
Nasdaq Capital Market under the symbol “DLPN.”
As of March 17, 2025, there were
approximately 307 shareholders of record, of our issued and outstanding shares of common stock based on
information provided by our transfer
agent.
Recent Sales of Unregistered Securities
None.
Company Purchases of Equity Securities
None.
ITEM 6. [Reserved].
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The
objectives of our Management’s Discussion and Analysis of Financial Condition and Results of Operations are to provide users of
our
consolidated financial statements with a narrative explanation from the perspective of management of our financial condition, results
of operations, cash
flows, liquidity and certain other factors that may affect future results. This Management’s Discussion and
Analysis of Financial Condition and Results of
Operations should be read in conjunction with our Consolidated Financial Statements and
related Notes included elsewhere in this Annual Report on Form
10-K. This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties. The forward-looking statements are not
historical facts, but rather are based on current expectations,
estimates, assumptions and projections about our industry, business and future financial
results. Our actual results could differ materially
from the results contemplated by these forward-looking statements due to a number of factors, including
those discussed in other sections
of this Annual Report on Form 10-K. See “Special Note Regarding Forward-Looking Statements” for additional factors
relating
to such statements and see “Risk Factors” included in Item 1A of this Annual Report on Form 10-K. Our past operating results
are not necessarily
indicative of operating results in any future periods.
Overview
We are a leading independent entertainment
marketing and production company. We were first incorporated in the State of Nevada on March 7,
1995 and domesticated in the State of
Florida on December 4, 2014. Our common stock trades on The Nasdaq Capital Market under the symbol “DLPN.”
Through our subsidiaries, 42West
LLC (“42West”), 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 Relations
LLC (“Be Social”) that merged effective
January 1, 2024, Special Projects Media, LLC (“Special Projects”), Always
Alpha Sports Management, LLC (“Always Alpha”) and Elle Communications,
LLC (“Elle”) we provide 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, lifestyle and charitable industries. 42West (Film and Television, Gaming), Shore Fire (Music), The Door
(Culinary,
Hospitality, Lifestyle) and Elle (Impact, Philanthropy, Non-Profit) are each recognized global public relations and marketing leaders
for the
industries they serve. As a group, they were recognized as the #1 PR firm in the country in the prestigious Observer rankings
earlier this year. 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. Always
Alpha is a talent management firm primarily focused on
representing female athletes, broadcasters and coaches. 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, Dolphin
Films, 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.
14
We have established an acquisition
strategy based on identifying and acquiring companies that complement our existing entertainment publicity
and marketing services and
content production businesses. We believe that complementary businesses can create synergistic opportunities and bolster
profits and cash
flow. While we may acquire additional companies in the future, we are not in active negotiations with any such companies, and there is
no
assurance that we will be successful in acquiring any additional companies, whether in 2025 or at all.
We have also established an investment
strategy, “Ventures” or “Dolphin 2.0,” based upon identifying opportunities to develop internally owned
assets,
or acquire ownership stakes in others’ assets, in the categories of entertainment content, live events and consumer products. We
believe these
categories represent the types of assets wherein our expertise and relationships in entertainment marketing most influences
the likelihood of success. We
are in various stages of internal development and outside conversations on a wide range of opportunities
within these Ventures. We intend to enter into
Venture investments during 2025, but there is no assurance that we will be successful in
doing so, whether in 2025 or at all.
Elle Communications Acquisition
On July 15, 2024, we acquired all
of the issued and outstanding membership interests of Elle, a California limited liability company, pursuant to a
membership interest
purchase agreement between us and the seller, Danielle Finck. Elle is a public relations agency specializing in social and
environmental
impact for a client roster of mission-centered brands, nonprofits and philanthropic foundations, social enterprises, sustainability and
ethically made products and activists. Elle is headquartered in Los Angeles, California.
The consideration paid by us in
connection with the acquisition of Elle is approximately $4.7 million. On July 15, 2024, we paid the sellers
$1.9 million cash and
issued the seller 961,000 shares of our common stock. At various dates during the months between July and December 2024, we
paid the Elle’s seller approximately $0.6 million related to cash and working capital adjustments and will pay approximately $0.5
million on March 31,
2025 for the contingent consideration pursuant to the membership interest purchase agreement. As part of the membership
interest purchase agreement, we
entered into employment agreements with Danielle Finck and Silvie Snow Thomas, a key employee, each for
a period of four years.
For more information
on the acquisition of Elle, refer to Note 4 to our consolidated financial statements included elsewhere in this Annual Report on
Form
10-K.
HOW WE ASSESS
THE PERFORMANCE OF OUR BUSINESS
In assessing the performance of
our business, we consider a variety of performance and financial measures. The key indicators of the financial
condition and operating
performance of our business are revenues, direct costs, payroll and benefits, selling, general and administrative expenses, legal and
professional expenses, other income/expense and net income. Other income/expense consists mainly of interest expense, interest income
and non-cash
changes in fair value of liabilities,
We operate in two reportable segments:
our entertainment publicity and marketing segment and our content production segment. The
entertainment publicity and marketing segment
is composed of 42West, The Door, Shore Fire, The Digital Dept., Special Projects, Elle and Always Alpha,
and provides clients with diversified
services, including public relations, entertainment content marketing, strategic communications, influencer marketing,
celebrity booking
and live event production. The content production segment is composed of Dolphin Films and Dolphin Digital Studios, which produce
and
distribute feature films and digital content.
Entertainment Publicity and Marketing (“EPM”)
Our revenue is directly impacted
by the retention and spending levels of existing clients and by our ability to win new clients. We believe that we
have a stable client
base, and we have continued to grow organically through referrals and by actively soliciting new business. We earn revenues primarily
from the following sources: (i) celebrity talent services; (ii) content marketing services under multiyear master service agreements in
exchange for fixed
project-based fees; (iii) individual engagements for entertainment content marketing services for durations of generally
between three and six months; (iv)
strategic communications services; (v) engagements for marketing of special events such as food and
wine festivals; (vi) engagement for marketing of
brands; (vii) arranging strategic marketing agreements between brands and social media
influencers or celebrities and (viii) curating and booking celebrities
for live events. For these revenue streams, we collect fees through
either fixed fee monthly retainer agreements, fees based on a percentage of contracts or
project-based fees.
15
We earn entertainment publicity
and marketing revenues primarily through the following:
·
Talent – We earn fees from creating and implementing strategic communication campaigns for performers and entertainers, including Oscar,
Tony and Emmy winning film, theater and television stars, directors, producers, celebrity chefs and Grammy winning recording artists. Our
services in this area include ongoing strategic counsel, media relations, studio and/or network liaison work, and event and tour support. We
believe that the proliferation of content, both traditional and on social media, will lead to an increasing number of individuals seeking such
services, which will drive growth and revenue in our Talent departments for several years to come.
·
Entertainment Marketing and Brand Strategy – We earn fees from providing marketing direction, public relations counsel and media
strategy for entertainment content (including theatrical films, television programs, DVD and VOD releases, and online series) from virtually
all the major studios and streaming services, as well as content producers ranging from individual filmmakers and creative artists to
production companies, film financiers, DVD distributors, and other entities. In addition, we provide entertainment marketing services in
connection with film festivals, food and wine festivals, awards campaigns, event publicity and red-carpet management. As part of our
services, we offer marketing and publicity services tailored to reach diverse audiences. We also provide marketing direction targeted to the
ideal consumer through a creative public relations and creative brand strategy for hotel and restaurant groups.
·
Strategic Communications – We earn fees by advising companies looking to create, raise or reposition their public profiles, primarily in the
entertainment industry. We also help studios and filmmakers deal with controversial movies, as well as high-profile individuals address
sensitive situations. We believe that growth in the Strategic Communications division will be driven by increasing demand for these varied
services by traditional and non-traditional media clients who are expanding their activities in the content production, branding, and
consumer products PR sectors.
·
Digital Media Influencer Marketing Campaigns – We arrange strategic marketing agreements between brands and social media influencers,
for both organic and paid campaigns. We also offer services for social media activations at events. Our services extend beyond our own
captive influencer network, and we manage custom campaigns targeting specific demographics and locations, from ideation to delivery of
results reports. We expect that our relationship with social media influencers will provide us the ability to offer these services to our existing
clients in the entertainment and consumer products industries and will be accretive to our revenue.
·
Celebrity Booking and Live Event Programming
– We arrange for brands and events to book celebrity and influencer talent. Our services
include the creation of the strategy to
elevate the brand or event through celebrity and/or influencer inclusion, to the booking of celebrities
and influencers for commercial
endorsements or appearances, to the curation of event lists and securing attendance, to the coordination and
production of live events.
We believe the expansion of brands seeking celebrity and/or influencer endorsements, as well as celebrity and/or
influencers to attend
brand-sponsored live events, will drive growth and revenue for the next several years.
16
Content Production (“CPD”)
Project Development and Related Services
We have a team that dedicates
a portion of its time to identifying scripts, story treatments and novels for acquisition, development and production.
The scripts can
be for either digital, television or motion picture productions. We have acquired the rights to certain scripts that we intend to produce
and
release in the future, subject to obtaining financing. We have not yet determined if these projects would be produced for digital,
television or theatrical
distribution.
We have completed development
of several feature films, which means that we have completed the script and can begin pre-production once
financing is obtained. We are
planning to fund these projects through third-party financing arrangements, domestic distribution advances, pre-sales, and
location-based
tax credits, and if necessary, sales of our common stock, securities convertible into our common stock, debt securities or a combination
of
such financing alternatives; however, there is no assurance that we will be able to obtain the financing necessary to produce any of
these feature films.
In June 2022, we 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. IMAX and Dolphin each agreed to fund 50% of the production budget
which was
estimated at approximately $4 million. On November 7, 2023, we agreed to pay and paid an additional $250,000, which represented 50%
of the
estimated additional production costs to complete the documentary. We paid $2,250,000 related to productions costs of The
Blue Angels in connection with
this agreement. 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. We estimate that we will derive approximately
$3.75 million from this agreement. On February 22, 2024, we
received $777,905 from IMAX, as a first installment in connection with the
Amazon Agreement and on July 9, 2024, we received the second installment
from IMAX in the amount of $2,556,452. The Blue Angels documentary
motion picture was released in theatres on May 17, 2024 and began streaming on
Amazon Prime Video on May 23, 2024.
In February, 2025, Dolphin Films
partnered with Aircraft Productions of Toronto, Canada to produce a re-boot of the popular 1986 MGM hockey
movie “Youngblood.”
The film is expected to be completed and ready for delivery in the second half of 2025.
Revenues
For the years ended December 31,
2024 and 2023, we derived substantially all of our revenues from our entertainment publicity and marketing
segment. The entertainment
publicity and marketing segment includes revenues from Elle from July 1, 2024 through December 31, 2024.
During the year ended December
31, 2024, we generated revenue in our content production segment related to The Blue Angels documentary
motion picture. For the year ended
December 31, 2023, our content production segment derived revenues from the domestic distribution of Believe, a
feature film that
was released in 2013.
The table below sets forth the
percentage of total revenue derived from our segments for the years ended December 31, 2024 and 2023:
December 31,
2024
2023
Revenues:
Entertainment publicity and marketing
93.4%
99.9%
Content production
6.6%
0.1%
Total revenue
100%
100%
17
Expenses
Our expenses consist primarily
of:
(1) Direct costs – includes the amortization of film production costs related to The Blue Angels, using the individual film-forecast-computation
method which amortizes film production costs in the same ratio as the current period actual revenue bears to estimated remaining unrecognized
ultimate revenue. Direct costs also include certain costs of services, as well as certain production costs, related to our entertainment publicity and
marketing business.
(2) Payroll and benefits expenses – includes wages, stock-based compensation, payroll taxes and employee benefits.
(3) Selling, general and administrative expenses – includes all overhead costs except for payroll, depreciation and amortization and legal and
professional fees that are reported as a separate expense item.
(4) Acquisition costs – includes legal, consulting and audit fees related to our acquisitions.
(5) Depreciation and amortization – includes the depreciation of our property and equipment and amortization of intangible assets and leasehold
improvements.
(6) Impairment of goodwill – includes an impairment charge related to ceasing operations in Viewpoint and triggering events identified during the
years ended December 31, 2024 and 2023.
(7) Impairment of intangible assets – includes an impairment charge as a result of a rebranding of two of our subsidiaries during the third quarter of
2023.
(8) Impairment of notes receivable – includes the write-off of the notes receivable from Midnight Theatre. Refer to Note 8 to the consolidated
financial statement elsewhere on this Annual Report on Form 10-K for additional information.
(9) Change in fair value of contingent consideration – includes changes in the fair value of the contingent earn-out payment obligations for our
acquisitions. The fair value of the related contingent consideration is measured at every balance sheet date and any changes recorded on our
consolidated statements of operations.
(10)Legal and professional fees – includes fees paid to our attorneys, fees for investor relations consultants, audit and accounting fees and fees for
general business consultants.
Other Income and Expenses
For the years ended December
31, 2024 and 2023, other income and expenses consisted primarily of: (1) changes in the fair values of convertible notes
and warrants;
(2) interest income; and (3) interest expense.
RESULTS OF OPERATIONS
Year ended December 31, 2024 as compared to year ended December 31,
2023
Revenues
For the years ended December 31, 2024 and 2023,
our revenues were as follows:
December 31,
2024
2023
Revenues:
Entertainment publicity and marketing
$
48,263,843 $
43,067,557
Content production
3,421,141
55,518
Total revenue
$
51,684,984 $
43,123,075
Revenues from entertainment publicity
and marketing increased by approximately $5.2 million, or 12.1%, for the year ended December 31, 2024
as compared to the year ended December
31, 2023.
The increase for the year ended
December 31, 2024 is primarily driven by increases across substantially all subsidiaries and inclusion of $4.5
million of Special Projects,
Always Alpha and Elle revenues that were not present for the full year in 2023, offset by the decrease in revenues of Viewpoint.
We decided
to cease the operations of Viewpoint during the year ended December 31, 2024.
Revenues from content production
increased by approximately $3.4 million during the year ended December 31, 2024, compared to the same
period in the prior year, in connection
with revenue generated from The Blue Angels documentary film, which was released in theatres on May 17, 2024.
18
Expenses
For the years ended December 31,
2024 and 2023, our operating expenses were as follows:
December 31,
2024
2023
Expenses:
Direct costs
$
3,266,461 $
946,962
Payroll and benefits
38,123,040
35,030,257
Selling, general and administrative
7,795,610
8,434,549
Acquisition costs
164,044
116,151
Impairment of goodwill
6,671,557
9,484,215
Impairment of intangible assets
—
341,417
Write-off of notes receivables
1,270,000
4,108,080
Change in fair value of contingent consideration
50,000
33,226
Depreciation and amortization
2,382,361
2,253,619
Legal and professional
2,447,083
2,485,096
Total expenses
$
62,170,156 $
63,233,572
Direct costs increased $2.3 million
for the year ended December 31, 2024, as compared to the year ended December 31, 2023. The increase in
direct costs for the year ended
December 31, 2024 is directly attributable to (i) $1.8 million of capitalized production costs being amortized for the
production of The
Blue Angels and (ii) the increase in subsidiaries’ revenues as compared with the same period in the prior year.
Payroll and benefits expenses
increased by approximately $3.1 million for the year ended December 31, 2024, as compared to the year ended
December 31, 2023, primarily
related to an increase of $1.7 million for a full year of Special Projects payroll in 2023 compared to only three months in
2023, $1.2
million of Elle payroll for the period between July 15, 2024 and December 31, 2024, $0.6 million of payroll for Always Alpha for the period
between June 1, 2024 and December 31, 2024, offset by a reduction in Viewpoint payroll of $0.5 million due to ceasing operations.
Selling, general and administrative
expenses decreased by approximately $0.6 million for the year ended December 31, 2024, as compared to the
year ended December 31, 2023.
The decrease is primarily related to a decrease in office rent expense from the expiration of one of the New York office
leases in August
2023, a cost savings of approximately $0.1 million and a reduction of bad debt expense of approximately $0.4 million due to
improvements
in our collection of accounts receivable.
Acquisition costs for the year
ended December 31, 2024 were $0.2 million, related to our acquisition of Elle on July 15, 2024. Acquisition costs
for the year ended December
31, 2023 were $0.1 million, primarily related to our acquisition of Special Projects on October 2, 2023.
Depreciation and amortization
increased $0.1 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023
related primarily to nine
months amortization of Special Projects intangible assets and six months amortization of Elle intangible assets in 2024, in the
amount
of $0.5 million that were not present in the prior year. This increase was offset by a decrease in amortization of intangible assets of
the other
subsidiaries in the amount of $0.4 million related to intangible assets that had previously been impaired or were fully amortized.
Impairment of goodwill was $6.7
million for the year ended December 31, 2024 compared to $9.5 million for the year ended December 31, 2023.
As discussed in Note 5 to
our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, in the third quarter of
2024, we performed
a quantitative assessment driven by triggering events related to declines in our market capitalization combined with decreased revenue
projections for certain of our subsidiaries. The quantitative assessment resulted in the impairment of goodwill in the amount of $6.5
million of three of our
entertainment publicity and marketing segment reporting units, and $0.2 million goodwill impairment as a result
of the closure of one of our reporting
units. During the year ended December 31, 2023, we impaired $9.5 million allocated to several of
our reporting units.
19
Impairment of intangible assets
was $0.3 million for the year ended December 31, 2023. As discussed in Note 5 to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K, during the year ended December 31, 2023, we recognized an impairment
of the
trademarks and trade names of Socialyte and Be Social in connection with the rebranding of both subsidiaries as the new “The
Digital Dept.”. No such
impairment was recorded during the year ended December 31, 2024.
Write-off of notes receivables
was $1.3 million and $4.1 million for the years ended December 31, 2024 and 2023, respectively. As discussed in
Note 8 to
our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, during the third quarter of the year
ended
December 31, 2024, we determined the Midnight Theatre Notes issued during the year ended December 31, 2024 had been impaired, resulting
from a
review of Midnight Theatre’s operating results and projections. As a result, as of December 31, 2024 we wrote off all outstanding
Midnight Theatre Notes.
During the fourth quarter of year ended December 31, 2023, we determined that Midnight Theatre Notes issued in
2021 and 2022 had been impaired and
wrote off the outstanding Midnight Theatre Notes and any accumulated unpaid interest receivable.
Change in fair value of the contingent
consideration was a loss of $50 thousand for the year ended December 31, 2024, compared a loss of $33.2
thousand for the year ended
December 31, 2023. The main components of the change in fair value of contingent consideration were the following:
·
Elle: We recorded a loss of $50 thousand for the year ended December 31, 2024 related to the remeasurement of fair value as of December
31, 2024. During the year ended December 31, 2024, Elle achieved the conditions for earnout consideration, which will be paid and settled
in cash in March 2025. This contingent consideration was not in place during the year ended December 31, 2023.
·
Be Social: We recorded a loss of $33.2 thousand for the year ended December 31, 2023, related to the remeasurement of fair value as of that
date the contingent consideration was settled.
Legal and professional fees had
an insignificant decrease of approximately $38 thousand, or 1.5% for the year ended December 31, 2024 as
compared to the year ended December
31, 2023.
Other Expenses
December 31,
2024
2023
Other (expense) and income:
Change in fair value of convertible note
$
35,000 $
(11,444)
Change in fair value of warrants
5,000
10,000
Interest income
11,462
2,877
Interest expense
(2,081,661)
(2,085,107)
Total
$
(2,030,199) $
(2,083,674)
Change in fair value of Convertible
Note at Fair Value – We elected the fair value option for a convertible note issued in 2020. The fair value of
the convertible
note is re-measured at every balance sheet date and any changes are recorded on our consolidated statements of operations. For the years
ended December 31, 2024 and 2023, we recorded changes in the fair value of the convertible note issued in 2020 in the amount of a gain
of $35.0 thousand
and a loss of $11.4 thousand, respectively. None of the decrease in the value of the convertible note was attributable
to instrument specific credit risk.
20
Change in fair value of warrants – The
warrant issued with the convertible note payable at fair value issued in 2020 was initially measured at fair
value at the time of issuance
and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date, with changes in
estimated fair
value of the warrant liability recognized as other income or expense. The change in fair value of the 2020 warrant that was not exercised
decreased minimally for the year ended December 31, 2024 and 2023.
Interest income – Interest
income increased by $8.6 thousand for the year ended December 31, 2024 as compared to the year ended December 31,
2023, primarily due
to the reversal of interest income in connection with the write-off of the Midnight Theatre Notes receivable during 2023. We did not
record
any interest income in connection with the Midnight Theatre Notes during the year ended December 31, 2024.
Interest expense – Interest
expense remained consistent for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Although, we obtained
new related party nonconvertible notes and an increase in the term loan financing in 2024, the increase in debt was offset by one-
time
interest expenses incurred in 2023 of $79,286 of prepayment penalty and $91,859 write-off of unamortized debt issuance costs in connection
with the
Refinancing Transaction as defined in Note 11 to our consolidated financial statements included elsewhere in this Annual Report
on the Form 10-K.
Equity in losses of unconsolidated affiliates
Equity in earnings or losses of
unconsolidated affiliates includes our share of income or losses from equity investees. We impaired our equity
investments in the unconsolidated
affiliates during the fourth quarter of 2023. Therefore, no income or loss has been recorded during the year ended
December 31, 2024.
Income Tax Expense
We had an income tax expense of
$87.9 thousand for the year ended December 31, 2024, compared to an expense of $53.5 thousand for the year
ended December 31, 2023. The
income tax expense for years ended December 31, 2024 and 2023 reflect the accrual of a valuation allowance in connection
with the limitations
of our indefinite lived tax assets to offset our indefinite lived tax liabilities. To the extent the tax assets are unable to offset the
tax
liabilities, we have recorded a deferred expense for the tax liability (a “naked credit”).
As of December 31, 2024, we have
approximately $58.9 million of pre-tax net operating loss carryforwards for U.S. federal income tax purposes
that begin to expire in
2029; federal net operating losses generated after December 31, 2017 have an indefinite life and do not expire. Additionally, we have
state net operating loss carryforwards amounting to $63.8 million that begin to expire in 2030. A portion of the carryforwards may expire
before being
applied to reduce future income tax liabilities.
In assessing the ability to realize
the deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax
assets will not be
realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods
in
which these temporary differences become deductible. We believe it is more likely than not that the deferred tax asset will not be
realized, and we have
accordingly recorded a full valuation allowance as of both December 31, 2024 and 2023.
Net Loss
Net loss was approximately
$12.6 million or $1.22 per share based on 10,306,904 weighted average shares outstanding for basic and fully diluted
loss per share for
the year ended December 31, 2024.
Net loss was approximately
$24.4 million or $3.39 per share based on 7,206,577 weighted average shares outstanding for basic and fully diluted
loss per share for
the year ended December 2023.
Net loss for the years ended
December 31, 2024 and 2023, respectively, were related to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Year Ended December 31,
2024
2023
Statement of Cash Flows Data:
Net cash used in operating activities
$
(157,851) $
(5,017,167)
Net cash used in investing activities
(2,458,289)
(4,537,174)
Net cash provided by financing activities
4,184,295
9,917,183
Net increase in cash and cash equivalents and restricted cash
1,568,155
362,842
Cash and cash equivalents and restricted cash, beginning of period
7,560,691
7,197,849
Cash and cash equivalents and restricted cash, end of period
$
9,128,846 $
7,560,691
Operating Activities
Net cash used in operating activities
was approximately $0.2 million for the year ended December 31, 2024, a change of $4.9 million from the
year ended December 31, 2023. The
increase in cash flows from operations was primarily as a result a $11.9 million of decreased net loss for the year and a
decrease of
$0.3 million net change in working capital, which was offset by an increase of $7.3 million non-cash items such as depreciation and
amortization,
bad debt expense, share-based compensation, impairment of capitalized production costs, impairment of goodwill and other non-cash losses.
21
Investing Activities
Net cash used in investing activities
for the year ended December 31, 2024 was $2.5 million, which related primarily to:
Outflows:
·
$1.3 million net issuance of notes receivable to Midnight Theatre; and
·
$1.2 million payment related to the acquisition of Elle, net of cash acquired.
Net cash used in investing activities
for the year ended December 31, 2023 was $4.5 million, which related primarily to:
Outflows:
·
$4.5 million payment related to the acquisition of Special Projects, net of cash acquired; and
Financing Activities
Net cash provided by
financing activities for the year ended December 31, 2024 was $4.2 million and mainly related to:
Inflows:
·
$2.1 million proceeds from related party loans;
·
$2.0 million proceeds from the second term loan from Bank United; and
·
$1.2 million proceeds from the Lincoln Park facility.
Outflows:
·
$1.0 million of repayment of the first term loan; and
·
$88 thousand of repayment of finance leases.
Net cash provided by financing
activities for the year ended December 31, 2023 was $9.9 million and mainly related to:
Inflows:
·
$5.8 million proceeds from the first term loan from Bank United;
·
$3.6 million proceeds from convertible and non-convertible note payable;
·
$2.2 million proceeds from and the Lincoln Park facility;
·
$2.0 million proceeds from the sale of common stock through an offering; and
·
$0.4 million net proceeds from the revolving credit facility.
Outflows:
·
$3.2 million of repayment of the first term loan;
·
$0.5 million payment of Be Social contingent consideration;
·
·
$0.2 million payment on convertible and non-convertible notes payable; and
·
$0.2 million payments of debt origination and debt extinguishment costs.
Debt and Financing Arrangements
Total debt amounted to $22.4 million
as of December 31, 2024 compared to $19.3 million as of December 31, 2023, an increase of $3.1 million.
The increase related primarily
to $2.1 million increase in related party nonconvertible promissory notes and $2.0 million of the second term loan that was
entered into
during the year ended December 31, 2024, offset by the repayments of the first term loan.
Our debt obligations in the next
twelve months from December 31, 2024 increased from the obligations as of December 31, 2023. The current
portion of the debt increased
to $5.4 million from $4.9 million, mainly due to an increase in the current portion of the Bank United Credit Facility (defined
below
in “BankUnited Loan Agreements – Refinancing Transaction”) in the amount of $0.6 million as compared to the current
portion of the Bank United
Credit Facility in the prior year. We expect our current cash position, cash expected to be generated from
our operations and other availability of funds, as
detailed below, to be sufficient to meet our debt requirements.
22
2022 Lincoln Park Transaction
On August 10, 2022, we entered
into a purchase agreement (the “LP 2022 Purchase Agreement”) and a registration rights agreement (the “LP
2022 Registration
Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which we could sell and issue to
Lincoln Park,
and Lincoln Park was obligated to purchase, up to $25,000,000 in value of our common stock from time to time over a
36-month period. Pursuant to the
terms of the LP 2022 Registration Rights Agreement, the issuance of shares pursuant to the LP 2022 Purchase
Agreement have been registered pursuant to
our effective registration statement on Form S-1, and the related prospectus dated September
15, 2022.
We may direct Lincoln Park, at
its sole discretion, and subject to certain conditions, to purchase up to 50,000 shares of common stock on any
business day (a “Regular
Purchase”). The amount of a Regular Purchase may be increased under certain circumstances up to 37,500 shares if the closing
price
is not below $15.00 and up to 50,000 shares if the closing price is not below $20.00, provided that Lincoln Park’s committed obligation
for Regular
Purchases on any business day shall not exceed $2,000,000. The purchase price for Regular Purchases (the “Purchase Price”)
shall be equal to 98.75% of
the lesser of: (i) the lowest sale price of our common stock during the Purchase Date, or (ii) the average
of the three (3) lowest closing sale prices of our
common stock during the ten (10) business days prior to the Purchase Date. In
the event we purchase the full amount allowed for a Regular Purchase on
any given business day, we may also direct Lincoln Park to purchase
additional amounts as accelerated and additional accelerated purchases. The purchase
price for the accelerated and additional accelerated
purchases shall be equal to the lesser of 96% of (i) the closing sale price on the accelerated purchase
date, or (ii) such date’s
volume weighted average price.
Pursuant to the terms of the LP
2022 Purchase Agreement, at the time we signed the LP 2022 Purchase Agreement and the LP 2022 Registration
Rights Agreement, we issued 28,657 shares
of common stock to Lincoln Park as consideration for its commitment (“LP 2022 commitment shares”) to
purchase shares of our
common stock under the LP 2022 Purchase Agreement. The commitment shares were recorded as a period expense and included
within selling,
general and administrative expenses in the consolidated statements of operations.
Under
applicable rules of the NASDAQ Capital Market, we could not issue or sell more than 19.99% of the shares of our common stock outstanding
immediately prior to the execution of the LP 2022 Purchase Agreement to Lincoln Park under the LP 2022 Purchase Agreement without shareholder
approval. At a meeting held on September 27, 2022, our shareholders approved the issuance of up to $25 million of shares of our common
stock pursuant
to the LP 2022 Purchase Agreement.
During the year ended December
31, 2024, we sold 475,000 shares of common stock at prices ranging between $2.14 and $3.06 pursuant to the LP
2022 Purchase
Agreement and received proceeds of $1.2 million.
During the year ended December
31, 2023, we sold 575,000 shares of common stock at prices ranging between $3.30 and $4.54 pursuant to the LP
2022
Purchase Agreement and received proceeds of $2.2 million.
We evaluated the contract that
includes the right to require Lincoln Park to purchase shares of common stock in the future (“put right”) considering
the
guidance in ASC 815-40, “Derivatives and Hedging — Contracts on an Entity’s Own Equity” (“ASC 815-40”)
and concluded that it is an equity-linked
contract that does not qualify for equity classification, and therefore requires fair value
accounting. We analyzed the terms of the freestanding put right and
concluded that it has insignificant value as of December 31, 2024
and 2023.
23
Convertible Notes Payable
As of December 31,
2024 and 2023, we had 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 $5.00 per
share, four of the convertible notes payable may not be converted at a price less than $4.00
per share, and three of the convertible notes payable may not be
converted at a price less than $2.00 per share. On November 15, 2023,
we entered into agreements with two noteholders, holding a total of five convertible
notes payable, to extend the maturity date for two
additional years. For one of these noteholders (holding three convertible notes), we agreed to lower the
minimum conversion price to $2.00
per share.
On January 13, 2025, we entered
into a second amendment to three of the convertible notes payable held by the same investor and agreed to
extend the maturity date to
January 13, 2027 and lower the minimum conversion price to $1.00. For the remaining convertible notes payable, three may not
be converted
at a price less than $5.00 per share and four of the convertible notes payable may not be converted at a price less than $4.00 per
share, which
were their original terms.
As of December 31, 2024 and 2023,
the principal balance of the convertible promissory notes was $5,100,000 of which all were recorded as
noncurrent liabilities on our consolidated
balance sheets under the caption convertible notes payable.
We recorded interest expense related
to these convertible notes payable of $510,250 and $543,472 during the year ended December 31, 2024 and
2023, respectively. In addition,
we made cash interest payments amounting to $510,250 and $538,764 during the year ended December 31, 2024 and 2023,
respectively,
related to the convertible notes payable.
During the year ended December
31, 2023, the holder of two convertible notes payable converted the aggregate principal balance of
$900,000 into 225,000 shares
of common stock at a conversion price of $4.00 per share. At the moment of conversion, accrued interest related to these
notes amounted
to $9,500 and was paid in cash.
During the year ended December
31, 2023, we paid $50,000 to a noteholder as partial repayment for the convertible note payable.
In January and February of 2025,
we entered into four convertible notes payable with an aggregate principal balance of $775,000. The convertible
notes payable bear interest
at a rate of 10% per annum with maturity dates ranging between the second and fifth anniversary of their respective issuance
dates. The
conversion price of one $100,000 convertible note payable is the 90-day trailing average trading price of our common stock prior to the
date of
conversion, with a floor price of $1.01. The conversion price of the second $100,000 convertible note payable is the 30-day trailing
average trading price of
our common stock prior to the date of conversion, with a floor price of $1.01. The conversion price of the third
$100,000 convertible note payable is $1.02
per share and the conversion price of the fourth $325,000 convertible note payable is $1.11
per share.
It is our experience that convertible
notes payable, including their accrued interest are converted into shares of our common stock and not settled
through payment of cash.
Although we are unable to predict the noteholder’s intentions, we do not expect any change from our past experience.
Convertible Note Payable
at Fair Value
As of December 31, 2024, we have
one convertible note payable outstanding with an aggregate principal amount of $0.5 million for which we
elected the fair value option.
As such, the estimated fair value of the convertible note payable was recorded on its issue date. At each balance sheet date, we
record
the fair value of the convertible note payable with any changes in the fair value recorded in the consolidated statements of operations.
The
convertible note payable at fair value may be converted at a price of $7.82 per share, matures on March 4, 2030 and as of December
31, 2024, we had a
balance of $0.3 million in noncurrent liabilities related to this convertible promissory note measured at fair value.
We recorded interest expense related
to this convertible note payable at fair value of $39,472 during the years ended December 31, 2024 and 2023.
In addition, we made
cash interest payments amounting to $39,472 during the years ended December 31, 2024 and 2023 related to this convertible note
payable
at fair value.
We recorded a gain in fair value
of $35,000 and a loss of $11,444 for the year ended December 31, 2024 and 2023, respectively, on its
consolidated statements of operations
related to this convertible note payable at fair value.
Similar to the convertible notes
payable discussed above, our historical experience has been that these convertible notes payable at fair value are
converted into shares
of our common stock prior to their maturity date and not settled through payment of cash.
Nonconvertible Promissory
Notes
As of December 31, 2024, we have
outstanding five unsecured nonconvertible promissory notes in the aggregate amount of $3.9 million which
bear interest at a rate of 10% per
annum and mature between June 2025 and March 2029.
As of both December 31, 2024 and
December 31, 2023, we had a balance of $0.8 million and $0.5 million, respectively, recorded as current
liabilities and $3.1 million and
$3.4 million, respectively, in noncurrent liabilities on its consolidated balance sheets related to these unsecured
nonconvertible promissory
notes.
We recorded interest expense related
to these nonconvertible promissory notes of $388,000 and $338,843 for the year ended December 31, 2024
and 2023, respectively. We made
interest payments of $388,000 and $308,044 during the year ended December 31, 2024 and 2023, respectively, related to
the nonconvertible
promissory notes.
On February 28, 2025, we issued
a nonconvertible promissory note in the amount of $250,000 and received $250,000. The note bears interest at a
rate of 10% per annum and
matures on February 10, 2028.
24
Unsecured Nonconvertible
Promissory Notes – Socialyte
As discussed in Note 14 to
our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, as part of the
acquisition of Socialyte,
we entered into an unsecured promissory note amounting to $3.0 million (“Socialyte Promissory Note”). The Socialyte Promissory
Note matured on September 30, 2023 and was payable in two payments: $1.5 million on June 30, 2023 and $1.5 million on September
30, 2023. The
Socialyte purchase agreement allows us to offset a working capital deficit against the Socialyte Promissory Note. As such,
on June 30, 2023, we deferred
these installment payments until the final post-closing working capital adjustment is agreed upon with the
seller of Socialyte. As of December 31, 2024 and
2023, we have a balance of $3,000,000 in current liabilities under the caption notes
payable, current portion in our consolidated balance sheets related to
this note.
We recorded interest expense related
to this Socialyte Promissory Note of $120,000 and $135,000 for the years ended December 31, 2024 and
2023, respectively. No interest payments
were made during the year ended December 31, 2024 and 2023, related to the Socialyte Promissory Note.
Nonconvertible Promissory
Notes from Related Parties
We issued Dolphin Entertainment,
LLC (“DE LLC”), an entity wholly owned by our Chief Executive Officer, William O’Dowd (the “CEO”), a
nonconvertible
promissory note with a principal balance of $1,107,873 which matures on December 31, 2026. On April 29, 2024 and June 10, 2024, we
issued
two nonconvertible promissory notes to DE LLC in the amounts of $1,000,000 and $135,000, respectively, which mature on April 29, 2029
and June
10, 2029, respectively, (collectively, “the DE LLC Notes”). The DE LLC Notes each bear interest at a rate of 10%
per annum.
As of December 31, 2024 and 2023,
we had an aggregate principal balance of $2,242,873 and $1,107,873, respectively, and accrued interest
amounted to $263,767 and $277,423,
respectively, related to the DE LLC Notes. For both the year ended December 31, 2024 and 2023, we did not repay
any principal balance
on the DE LLC Notes. During the year ended December 31, 2024, we made cash interest payments in the amount of $200,000 related
to the
DE LLC Notes.
On January 16, 2024, May 28, 2024
and December 30, 2024, we issued three nonconvertible promissory notes to Mr. Donald Scott Mock, the
brother of Mr. O’Dowd, in the
amount of $900,000, $75,000 and $8,112, respectively, and received proceeds of $983,112 (the “Mock Notes”). The Mock
Notes
bear interest at a rate of 10% per annum and mature on January 16, 2029, May 28, 2029 and December 30, 2029, respectively. As of December
31,
2024, we had a principal balance of $983,112, and accrued interest of $90,417. We did not make cash payments during the year ended
December 31, 2024
related to these loans from related party.
We recorded interest expense of
$276,761 and $110,787 for the year ended December 31, 2024 and 2023, respectively, related to the DE LLC
Notes and Mock Notes. No interest
payments were made during the year ended December 31, 2024 and 2023, related to the Mock Notes.
BankUnited Loan Agreements
– Refinancing Transaction
On September 29, 2023, we entered
into a loan agreement with BankUnited (“BankUnited Loan Agreement”) in which an existing term loan with
BankProv was repaid
(the “Refinancing Transaction”). The BankUnited Loan Agreement includes: (i) $5,800,000 secured term loan (“First
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 First 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 December 6, 2024, we entered
into a second Bank United Loan Agreement (“Second BKU Loan Agreement”) for $2.0 million to finance the
acquisition of Elle
Communications, LLC. The Second BKU Loan Agreement carries a 1.0% origination fee and matures in December 2027. Similar to the
First BKU
Term Loan, the Second BKU Loan Agreement has a declining prepayment penalty equal to 3% in year one, 2% in year two and 1% in year three
of the outstanding balance. (The First BKU Term Loan, Second BKU Term Loan, BKU Line of Credit and BKU Commercial Card are collectively
referred
to as the “Bank United Credit Facility”).
25
Interest accrues at 8.10% fixed
rate per annum on the First BKU Term Loan and 7.10% fixed rate per annum on the Second BKU Term Loan.
Principal and interest are payable
on a monthly basis based on a 5-year amortization for the First BKU Term Loan and 3-year amortization for the Second
BKU Term Loan. 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. During the years ended December 31, 2024 and 2023, we did not used the BKU Commercial
Card.
During the year ended December 31, 2024 and 2023, we made payments in the amount of $1,418,482 and $354,621, inclusive of $421,009
and $117,141 of
interest related to the First BKU Term Loan, respectively. During the year ended December 31, 2023, we also made payments
of $479,745, inclusive of
$158,316 of interest on the Bank Prov term loan that was refinanced with the BKU Term Loan. No payments were
made related to the Second BKU Term
Loan during the year ended December 31, 2024.
Interest on the BKU Line of Credit
is variable based on the Lender’s Prime Rate. During the year ended December 31, 2024 and 2023, we
recorded interest expense and
made payments of $31,722 and $12,311, respectively, related to the BKU Line of Credit.
As of December 31, 2024, we had
a balance of $1,686,018 classified as current liabilities and $4,782,271 classified as noncurrent liabilities, net of
$96,759 of debt
issuance costs, in our consolidated balance sheet related to the First BKU Term Loan and the Second BKU Term Loan. As of December
31,
2023, we had a balance of $980,651 classified as current liabilities and $4,501,963 classified as noncurrent liabilities, net of $79,907
of debt issuance
costs, in our consolidated balance sheet related to the First BKU Term Loan. As of December 31, 2024 and 2023, we had
a balance of $400,000 of principal
outstanding under the BKU Line of Credit.
Amortization of debt origination
costs under the BKU Credit Facility is included as a component of interest expense in the consolidated statements
of operations and amounted
to approximately $16,823 and $4,206 for the year ended December 31, 2024 and 2023, respectively.
The BankUnited Credit Facility
contains financial covenants tested semi-annually, starting on June 30, 2024, on a trailing twelve-month basis that
require us 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 Credit
Facility contains a liquidity covenant that requires us to hold a cash balance at BankUnited with a daily minimum deposit balance of
$2,000,000.
The Refinancing Transaction was
accounted for as an extinguishment of debt. In connection with this extinguishment, we incurred a prepayment
penalty of $79,286 and
wrote-off unamortized debt origination costs of $91,859 related to the Bank Prov term loan, which were both recognized as interest
expense in the consolidated statement of operations for the year ended December 31, 2023.
26
IMAX Agreement
As discussed in Note 25 to
our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, on June 24, 2022, we
entered into
the Blue Angels Agreement with IMAX. Under the terms of this agreement, we paid a total of $2,250,000 related to the production costs
of
The Blue Angels and recorded this amount as capitalized production costs.
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. The Blue Angels documentary motion picture was released in theatres on May 17, 2024 and began streaming on
Amazon Prime
Video on May 23, 2024.
On February 22, 2024, we received
$777,905 from IMAX, as a first installment in connection with the Amazon Agreement and on July 9, 2024,
we received the second installment
from IMAX in the amount of $2,556,452. During the year ended December 31, 2024, we recorded revenue of
$3,421,141 related to the Amazon
Agreement.
Critical Accounting Estimates
The preparation of financial statements
in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) requires
management to make
estimates and assumptions about future events that affect amounts reported in our consolidated financial statements and related notes,
as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Management evaluates its
accounting policies,
estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience
and various other factors that are
believed to be reasonable under the circumstances. Actual results may differ from these estimates under
different assumptions and conditions. Our
significant accounting policies are discussed in Part II, Item 8, Financial Statements and Supplementary
Data, Note 2, “Summary of Significant Accounting
Policies.”
An accounting policy is considered
to be critical if it requires an accounting estimate to be made based on assumptions about matters that are
highly uncertain at the time
the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that
are
reasonably likely to occur, could materially impact the consolidated financial statements.
We consider the fair value estimates,
including those related to acquisitions, valuations of goodwill, intangible assets, acquisition-related
contingent consideration and convertible
debt to be the most critical in the preparation of our consolidated financial statements as they are important to the
portrayal of our
financial condition and require significant or complex judgment and estimates on the part of management. Further details on each item
are
discussed below. See Note 16 to our consolidated financial statements included elsewhere in this Annual
Report on Form 10-K, for information pertaining
to acquisition-related fair value adjustments.
Goodwill
Goodwill results from business
combination acquisitions. Goodwill is recorded as the difference, if any, between the aggregate consideration paid
for an acquisition
and the fair value of the net tangible assets and other intangible assets acquired. As of December 31, 2024, in connection with the
acquisitions
of our subsidiaries, we have a balance of $21.5 million of goodwill on our consolidated balance sheets which management has assigned to
the
entertainment publicity and marketing segment. We account for goodwill in accordance with ASC 350, “Intangibles—Goodwill
and Other” (“ASC 350”).
Goodwill is not amortized; however, it is assessed for impairment at least annually, or
more frequently if triggering events occur. Our annual assessment is
performed in the fourth quarter.
For purposes of the annual assessment,
management initially performs a qualitative assessment, which includes consideration of the economic,
industry and market conditions in
addition to our overall financial performance and the performance of these assets. If our qualitative assessment does not
conclude that
it is more likely than not that the estimated fair value of the reporting unit is greater than the carrying value, we perform a quantitative
analysis. In a quantitative test, the fair value of a reporting unit is determined based on a discounted cash flow analysis. A discounted
cash flow analysis
requires us to make various assumptions, including assumptions about future cash flows, growth rates and discount rates.
The assumptions about future
cash flows and growth rates are based on our long-term projections. Assumptions used in our impairment testing
are consistent with our internal forecasts
and operating plans. If the fair value of the reporting unit exceeds its carrying amount, there
is no impairment. If not, we recognize an impairment equal to
the difference between the carrying amount of the reporting unit and its
fair value, not to exceed the carrying amount of goodwill.
27
During the third quarter of 2024,
our stock price declined and this, in combination with recurring net losses, resulted in our market capitalization to
be less than our
book value. In addition, we adjusted downward the revenue projections of certain subsidiaries. We considered these to be triggering events,
and therefore performed a quantitative analysis of the fair value of goodwill as of August 31, 2024. As a result of this quantitative
analysis, during the third
quarter of 2024, we recorded an impairment of goodwill amounting to $6.5 million, which is included in the
consolidated statement of operations for the
year ended December 31, 2024. During the year ended December 31, 2024, we decided to close
the Viewpoint subsidiary, and therefore we impaired
goodwill for $0.2 million, which is the balance of goodwill attributable to Viewpoint
immediately prior to the decision to shut down. This impairment is
included in the consolidated statement of operations for the year ended
December 31, 2024.
During the second quarter of the
2023 year, our stock price remained constant and did not respond as positively as expected to new information on
our future projects and
forecasts; this, in combination with recurring net losses, resulted in our market capitalization to be less than our book value. We
considered
this to be a triggering event, and therefore performed a quantitative analysis of the fair value of goodwill during the second quarter
of 2023. As
a result of this quantitative analysis, during the second quarter of 2023, we recorded an impairment of goodwill amounting
to $6.5 million, which is
included in the consolidated statement of operations for the year ended December 31, 2023.
In addition, as part of our annual
goodwill impairment review, we performed a quantitative assessment that determined that the fair value was greater
than the carrying value
with the exception of one of the reporting units in the entertainment publicity and marketing segment. For the goodwill value
assigned
to that reporting unit, we concluded the fair value of that reporting unit’s goodwill was below its carrying amount. As a result,
we recorded an
impairment charge amounting to $3.0 million, which is included in the consolidated statement of operations for the year
ended December 31, 2023.
Intangible assets
In connection with the acquisitions
of our subsidiaries, we acquired in aggregate an estimated $23.4 million of intangible assets with finite useful
lives initially estimated
to range from 2 to 13 years. The intangible assets consist primarily of customer relationships, trade names and non-compete
agreements.
Intangible assets are initially
recorded at fair value and are amortized using the straight-line method over their respective estimated useful lives
and reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If a
triggering
event has occurred, an impairment analysis is required. The impairment test first requires a comparison of undiscounted future cash flows
expected to be generated over the useful life of an asset to the carrying value of the asset. If the carrying value of the asset exceeds
the undiscounted cash
flows, the asset would not be deemed recoverable. Impairment would then be measured as the excess of the asset’s
carrying value over its fair value. See
Note 5 to the consolidated financial statements included elsewhere in this Annual Report on Form
10-K for further discussion. Events or circumstances that
might require impairment testing include the loss of a significant client or
clients, the identification of other impaired assets within a reporting unit, loss of
key personnel, the disposition of a significant
portion of a reporting unit, significant decline in stock price or a significant adverse change in business
climate or regulations.
During the year ended December
31, 2023, we recognized an impairment of the trademarks and trade names of Socialyte and Be Social in
connection with the rebranding of
both subsidiaries as the new “The Digital Dept.”. The impairment amount was determined to be the carrying value of
both the
trademark and trade name intangible assets as of September 30, 2023 (the date the rebranding was effective), which amounted to $341,417 during
the year ended December 31, 2023 and is included within impairment of intangible assets in the consolidated statements of operations.
During the year ended December
31, 2024, we amortized $2.3 million that was recorded in our consolidated statement of operations related to our
intangible assets.
Business Combinations and Contingent Consideration
The determination of the fair
value of net assets acquired in a business combination and specifically the estimates of acquisition-related contingent
consideration
requires estimates and judgments of future cash flow expectations for the acquired business and the related identifiable tangible and
intangible assets. Fair values of net assets acquired are calculated using expected cash flows and industry-standard valuation techniques.
Fair values of
earn-out liabilities are estimated using income approaches such as discounted cash flows or option pricing models.
28
Due to the time required to gather
and analyze the necessary data for each acquisition, U.S. GAAP provides a “measurement period” of up to one
year in which
to finalize these fair value determinations. During the measurement period, preliminary fair value estimates may be revised if new
information
is obtained about the facts and circumstances existing as of the date of acquisition, or based on the final net assets and working capital
of the
acquired business, as prescribed in the applicable purchase agreement. Such adjustments may result in the recognition of, or an
adjustment to the fair values
of, acquisition-related assets and liabilities and/or consideration paid, and are referred to as “measurement
period” adjustments. Measurement period
adjustments are recorded to goodwill. Other revisions to fair value estimates for acquisitions
are reflected as income or expense, as appropriate. See Note 4
to our consolidated financial statements
included elsewhere in this Annual Report on Form 10-K, for information pertaining to acquisition-related fair value
adjustments.
Significant changes in the assumptions
or estimates used in the underlying valuations, including the expected profitability or cash flows of an
acquired business, could materially
affect our operating results in the period such changes are recognized.
Convertible debt
The terms of our convertible debt
agreements are evaluated to determine whether the convertible debt instruments contain both liability and equity
components, in which
case the instrument is a compound financial instrument. Convertible debt agreements are also evaluated to determine whether they
contain
embedded derivatives, in which case the instrument is a hybrid financial instrument. Judgement is required to determine the classification
of such
financial instruments based on the terms and conditions of the convertible debt agreements.
Estimation methods are used to
determine the fair values of the liability and equity components of compound financial instruments and to
determine the fair value of
embedded derivatives included in hybrid financial instruments. Fair values of convertible debt are estimated using pricing
models such
as the Monte Carlo Simulation. Evaluating the reasonableness of these estimations and the assumptions and inputs used in the valuation
methods requires a significant amount of judgement and is therefore subject to an inherent risk of error. See Note 13 and Note 16 to
our consolidated
financial statements included elsewhere in this Annual Report on Form 10-K, for information pertaining to fair
value adjustments.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements,
see Note 2 to the consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not required for smaller reporting companies.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item
8 are included at the end of this Report beginning on page F-1 as follows:
Page
Reports of Independent Registered Public Accounting Firm (Auditor Firm ID: 248)
F-2
Consolidated Balance Sheets as of December 31, 2024 and 2023
F-3
Consolidated Statements of Operations for the years ended December 31, 2024 and 2023
F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
F-6
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2024 and 2023
F-8
Notes to Consolidated Financial Statements
F-9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures
are controls and other procedures that are designed to ensure that information required to be disclosed in our
reports filed or submitted
under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules
and
forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required
to be
disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive
Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.
We carried out an evaluation of
the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and
15d-15(e)) as of December 31, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that
our disclosure controls and procedures were not effective due to material weaknesses identified in our internal control over financial
reporting described below.
Management’s Report on Internal Control Over Financial Reporting
We are responsible for establishing
and maintaining adequate internal control over financial reporting as such term is defined by Exchange Act
Rule 13a-15(f). Our internal
controls are designed to provide reasonable assurance as to the reliability of our financial statements for external purposes in
accordance
with accounting principles generally accepted in the United States.
Internal control over financial
reporting has inherent limitations and may not prevent or detect misstatements. Therefore, even those systems
determined to be effective
can provide only reasonable, not absolute, assurance with respect to financial statement preparation and presentation. Further,
because
of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
30
A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Under the supervision and with
the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness
of our internal control
over financial reporting as of December 31, 2023, as required by Exchange Act Rule 13a-15(c). The framework on which such
evaluation was
based is contained in the report entitled “Internal Control — Integrated Framework” issued by the Committee of
Sponsoring Organizations
of the Treadway Commission (2013 Framework) (the “COSO Report”). We concluded that based on our evaluation,
our internal control over financial
reporting was not effective as of December 31, 2024, due to the following material weaknesses:
Control Environment, Risk Assessment, and Monitoring
As previously reported, we did
not maintain appropriately designed entity-level controls impacting the control environment, risk assessment
procedures, and monitoring
activities to prevent or detect material misstatements in the consolidated financial statements. These deficiencies were
attributed to:
(i) lack of structure and responsibility, insufficient number of qualified resources and inadequate oversight and accountability over
the
performance of controls, (ii) ineffective identification and assessment of risks impacting internal control over financial reporting,
including fraud risks, and
(iii) ineffective evaluation and determination as to whether the components of internal control were present
and functioning.
Control Activities and Information and Communication
These material weaknesses contributed
to the following additional material weaknesses within certain business processes and the information
technology environment:
·
We did not fully design, implement and monitor general information technology controls in the areas of user access, and segregation of
duties for systems supporting substantially all of the Company’s internal control processes.
·
We did not design and implement, and retain appropriate documentation of formal accounting policies, procedures and controls across
substantially all of the Company’s business processes to achieve timely, complete and accurate financial accounting, reporting, and
disclosures. Additionally, we did not design and implement adequate controls pertaining to the period-end financial reporting, classification
of contingent consideration, journal entries, completeness and accuracy of underlying data used in the performance of controls and account
reconciliations.
·
We did not appropriately design and implement management review controls at a sufficient level of precision to detect a material
misstatement over complex accounting areas and disclosures including business combinations, complex transactions, revenue recognition,
income tax, and lease accounting.
We are neither an accelerated
filer nor a large accelerated filer, as defined in Rule 12b-2 under the Exchange Act, and are not otherwise including
in this 2024 Form
10-K an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Management’s
report was not required to be attested to by our registered public accounting firm pursuant to Item 308(b) of Regulation S-K.
Management’s Remediation Plan for Material
Weaknesses in Internal Control over Financial Reporting
The Company and its Board are
committed to maintaining a strong internal control environment. We have begun the process of designing and
implementing effective
internal controls measures to improve our internal control over financial reporting and remediate the material weaknesses. Our
internal
control remediation efforts include the following:
·
Developing formal policies and procedures over the Company’s fraud risk assessment and risk management function;
·
Developing policies and procedures to enhance the precision of management review of financial statement information and control impact of
changes in the external environment;
·
We have entered into an agreement with a third-party consultant that assists us in analyzing complex transactions and the appropriate
accounting treatment;
·
We have implemented a new enterprise resource planning systems that will allow us to setup proper review and approval of transactions;
·
We are enhancing our policies, procedures and documentation of period end closing procedures;
·
Implementing policies and procedures to enhance independent review and documentation of journal entries, including segregation of duties;
and
·
Reevaluating our monitoring activities for relevant controls.
31
Management is beginning the process
of implementing and monitoring the effectiveness of these and other processes, procedures and controls and
will make any further changes
deemed appropriate. Management believes our planned remedial efforts will effectively remediate the identified material
weaknesses. As
we continue to evaluate and work to improve our internal control over financial reporting, management may determine it is necessary to
take additional measures to address control deficiencies or determine it necessary to modify the remediation plan described above.
Limitations on Effectiveness of Controls and Procedures
A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s
objectives will be met.
We do not expect that our disclosure controls will prevent or detect all errors and all fraud. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because
of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within the
Company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can
occur because of simple error or mistake. Controls can also be circumvented by
the individual acts of some persons, by collusion of two or more people, or
by management override of the controls. The design of any
system of controls is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls
may become inadequate
because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of
the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Changes in Internal Controls
During the most recently completed
fiscal quarter, there have been no changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f)
under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over
financial
reporting.
ITEM 9B. OTHER INFORMATION
On December 26, 2024, William
O’Dowd, our Chief Executive Officer, adopted a Rule 10b5-1 trading arrangement (as such term is defined in
Item 408(a) of Regulation
S-K) (the “10b5-1 Plan”). The 10b5-1 Plan covers the sale of $5,000 worth of shares of the Company’s common stock per
week,
with no limit price. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the
trading arrangement is
estimated to be from April 1, 2025 until November 15, 2025, or earlier if all transactions under the trading arrangement
are completed.
No other officers or directors,
as defined in Rule 16a-1(f), adopted and/or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1
trading arrangement, as
defined in Regulation S-K Item 408, during the fourth quarter of 2024.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS
THAT PREVENT INSPECTIONS
Not applicable
32
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this
item is incorporated by reference to our Proxy Statement for our 2025 Annual Meeting of Shareholders to be
filed with the SEC within 120
days after the end of the fiscal year ended December 31, 2024 and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this
item is incorporated by reference to our Proxy Statement for our 2025 Annual Meeting of Shareholders to be
filed with the SEC within 120
days after the end of the fiscal year ended December 31, 2024 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER
MATTERS
The information required by this
item is incorporated by reference to our Proxy Statement for our 2025 Annual Meeting of Shareholders to be
filed with the SEC within 120
days after the end of the fiscal year ended December 31, 2024 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this
item is incorporated by reference to our Proxy Statement for our 2025 Annual Meeting of Shareholders to be
filed with the SEC within 120
days after the end of the fiscal year ended December 31, 2024 and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this
item is incorporated by reference to our Proxy Statement for our 2025 Annual Meeting of Shareholders to be
filed with the SEC within 120
days after the end of the fiscal year ended December 31, 2024 and is incorporated herein by reference.
33
PART IV
ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
(1) Financial Statements
See Item 8 for Financial Statements included with this
Annual Report on Form 10-K.
(2) Financial Statement Schedules
None.
(3) Exhibits
The exhibits identified in the Exhibit Index below are included herein
or incorporated by reference.
Exhibit Index
Exhibit
No.
Description
Incorporated by Reference
1.1
Underwriting Agreement, dated October 31, 2023
Incorporated herein by reference to Exhibit 1.1 to the Company’s
Current Report on Form 8-K, filed on November 2, 2023.
2.1
Agreement and Plan of Merger, dated July 5, 2018, by and among the
Company, The Door, Merger Sub and the Members.
Incorporated herein by reference to Exhibit 2.1 to the Company’s
Current Report on Form 8-K, filed on July 11, 2018.
2.3* Membership Interest Purchase Agreement dated as of October 2, 2023, by and
among Dolphin Entertainment, Inc., and the Sellers party thereto.
Incorporated herein by reference to Exhibit 2.1 to the Company’s
Current Report on Form 8-K, filed on October 6, 2023.
2.4
Amendment to Share Purchase Agreement
Incorporated herein by reference to Exhibit 2.1 to Quarterly Report
on Form 10-Q, filed on May 15, 2024.
2.5* Membership Interest Purchase Agreement dated as of July 15, 2024, by and
between Dolphin Entertainment, Inc. and Danielle Finck.
Incorporated herein by reference to Exhibit 2.1 to the Company’s
Current Report on Form 8-K, filed on July 19, 2024.
3.1
Amended and Restated Articles of Incorporation of Dolphin Entertainment,
Inc., as amended (incorporating all amendments through January 22, 2025).
Incorporated herein by reference to Exhibit 3.1 to the Company’s
Annual Report on Form 10-K, filed on March 31, 2023.
3.2
Bylaws of Dolphin Digital Media, Inc., dated as of December 3, 2014.
Incorporated herein by reference to Exhibit 3.2 to the Company’s
Current Report on Form 8-K, filed on December 9, 2014.
4.1
Registration Rights Agreement, dated July 5, 2018, by and among the
Company and the Members party thereto.
Incorporated herein by reference to Exhibit 4.1 to Current Report on
Form 8-K, filed on July 11, 2018.
4.2
Description of Common Stock
Incorporated herein by reference to Exhibit 4.1 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2020
4.3
Form
of Convertible Promissory Note
Incorporated herein by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K filed on January 13, 2023.
4.4
Registration Rights Agreement dated as of October 2, 2023, by and among
Dolphin Entertainment, Inc., and the Sellers party thereto.
Incorporated herein by reference to Exhibit 4.1 to the Company’s
Current Report on Form 8-K, filed on October 6, 2023.
10.1 Dolphin Entertainment Inc., 2017 Equity Incentive Plan.†
Incorporated herein by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-8, filed on August 8, 2017.
34
10.3
Purchase agreement dated August 10, 2022 with Lincoln Park Capital Fund LLC
Incorporated herein by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q, filed on August 15, 2022.
10.4
Registration Rights Agreement dated August 10, 2022 with Lincoln Park Capital
Fund LLC
Incorporated herein by reference to Exhibit 10.2 to Quarterly
Report on Form 10-Q, filed on August 15, 2022.
10.5
Membership Interest Purchase Agreement dated as of November 14, 2022, by and
between Dolphin Entertainment, Inc. and NSL Ventures, LLC.
Incorporated herein by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q, filed on
November 14, 2022.
10.6
Form of Subscription Agreement
Incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on January 13,
2023.
10.7
Form of Second Amendment to Promissory Notes
Incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on January 17,
2025.
19.1
Insider Trading Policies and Procedures
Filed herewith
21.1
List of Subsidiaries of the Company.
Filed herewith.
23.1
Consent of Grant Thornton LLP
Filed herewith.
31.1
Certification of Chief Executive Officer of the Company, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
Filed herewith.
31.2
Certification of Chief Financial Officer of the Company pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
Filed herewith.
32.1
Certification of Chief Executive Officer of the Company pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
Furnished herewith.
32.2
Certification of Chief Financial Officer of the Company pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
Furnished herewith.
97.1
Dolphin Entertainment Clawback Policy
Filed herewith
101.INS
Inline XBRL Instance Document (the instance document does not appear in the
Interactive Data File because its XBRL tags are embedded within the Inline XBRL
document)
Filed herewith.
101.SCH Inline XBRL Taxonomy Extension Schema Document
Filed herewith.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
Filed herewith.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
Filed herewith.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
Filed herewith.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in
Exhibit 101)
† Management contract or compensatory plan or arrangement.
* Schedules (and similar attachments) have been omitted pursuant to Item
601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a
copy of any omitted schedule to the Securities and Exchange
Commission upon request.
ITEM 16 FORM 10-K SUMMARY
None.
35
INDEX TO FINANCIAL STATEMENTS
Dolphin Entertainment, Inc.
Audited Consolidated Financial Statements
Page
Reports of Independent Registered Public Accounting Firm (Auditor (Firm ID: 248)
F-2
Consolidated Balance Sheets as of December 31, 2024 and 2023
F-4
Consolidated Statements of Operations for the years ended December 31, 2024 and 2023
F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2024 and 2023
F-7
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2024 and 2023
F-9
Notes to Consolidated Financial Statements
F-10
F-1
grant
thornton llp
1301 International Parkway, Suite 200
Fort Lauderdale, FL 33323
D +1
954 768 9900
F +1
954 768 9908
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Board of Directors and Stockholders
Dolphin Entertainment, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets
of Dolphin Entertainment, Inc. (a Florida corporation) and subsidiaries (the “Company”) as
of December 31, 2024 and 2023,
the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the two
years in
the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2024 and 2023, and the
results of its operations and its cash flows for each of the two years in the period ended December
31, 2024, in conformity with accounting principles
generally accepted in the United States of America.
Basis for opinion
These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-2
Critical audit matter
The critical audit matter communicated below is a matter arising
from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee
and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit
matter or on the accounts or disclosures to which it relates.
Goodwill Quantitative Impairment Assessment –The Door
Reporting Unit
As described further in note 5 to the financial statements,
management evaluates goodwill for impairment on an annual basis, or more frequently if
impairment indicators exist, at the reporting
unit level. For the quantitative impairment assessment performed during the year, management estimated the
fair values of its reporting
units using a combination of the income and market approaches. The determination of the fair values of the reporting units
requires management
to make significant estimates and assumptions related to the preparation of discounted future cash flows. We identified the goodwill
quantitative
impairment assessment of The Door reporting unit as a critical audit matter.
The principal consideration for our determination that the goodwill
quantitative impairment assessment of The Door reporting unit is a critical audit matter
is that changes in the assumptions related to
the preparation of discounted future cash flows could materially affect the determination of the fair value of the
reporting unit, the
amount of any goodwill impairment charge, or both. Management utilized significant judgment when estimating the fair value of The
Door
reporting unit and auditing management’s judgments regarding forecasts of revenue and the application of a discount rate involved
a high degree of
subjectivity due to the estimation uncertainty.
Our audit procedures related to the goodwill quantitative impairment
assessment of The Door reporting unit included the following, among others:
·
We evaluated management’s process for determining
the fair value of The Door reporting unit.
·
We evaluated the appropriateness of the valuation method
utilized.
·
We evaluated the reasonableness of forecasted revenue and
whether it was consistent with historical performance and third-party market data.
·
We evaluated the reasonableness of the discount rate utilized
in the discounted cash flow model with the assistance of our internal valuation specialists.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2022.
Fort Lauderdale, Florida
March 27, 2025
F-3
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2024 and 2023
2024
2023
ASSETS
Current
Cash and cash equivalents
$
8,203,842 $
6,432,731
Restricted cash
925,004
1,127,960
Accounts receivable:
Trade, net of allowance of $1,327,808 and $1,456,752, respectively
5,113,157
5,817,615
Other receivables
5,451,697
6,643,960
Other current assets
373,399
701,335
Total current assets
20,067,099
20,723,601
Capitalized production costs, net
594,763
2,295,275
Employee receivable
1,007,418
796,085
Right-of-use assets
4,738,997
5,599,736
Goodwill
21,507,944
25,220,085
Intangible assets, net
10,189,026
11,209,664
Property, equipment and leasehold improvements, net
114,011
194,223
Other long-term assets
218,021
216,305
Total Assets
$
58,437,279 $
66,254,974
(Continued)
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
As of December 31, 2024 and 2023
2024
2023
LIABILITIES
Current
Accounts payable
$
2,344,272 $
6,892,349
Term loans, current portion
1,686,018
980,651
Revolving line of credit
400,000
400,000
Notes payable, current portion
3,750,000
3,500,000
Contingent consideration
486,000
—
Accrued interest – related party
1,857,986
1,718,009
Accrued compensation – related party
2,625,000
2,625,000
Lease liabilities, current portion
1,919,672
2,192,213
Deferred revenue
341,153
1,451,709
Other current liabilities
11,104,036
7,694,114
Total current liabilities
26,514,137
27,454,045
Noncurrent
Term loans, noncurrent portion
4,782,271
4,501,963
Notes payable, noncurrent portion
3,130,000
3,380,000
Convertible notes payable
5,100,000
5,100,000
Convertible notes payable at fair value
320,000
355,000
Loans from related party
3,225,985
1,107,873
Lease liabilities
3,306,033
4,068,642
Deferred tax liability
394,547
306,691
Warrant liability
—
5,000
Other noncurrent liabilities
18,915
18,915
Total Liabilities
46,791,888
46,298,129
Commitments and contingencies (Note 26)
STOCKHOLDERS’ EQUITY
Preferred Stock, Series C, $0.001 par value, 50,000 shares authorized, 50,000 shares issued and
outstanding at December 31, 2024 and 2023
1,000
1,000
Common stock, $0.015 par value, 200,000,000 shares authorized, 11,162,026 and 9,109,766 shares
issued and outstanding at December 31, 2024 and 2023, respectively
166,688
136,647
Additional paid in capital
157,692,132
153,430,402
Accumulated deficit
(146,214,429)
(133,611,204)
Total Stockholders’ Equity
11,645,391
19,956,845
Total Liabilities and Stockholders’ Equity
$
58,437,279 $
66,254,974
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 2024 and 2023
2024
2023
Revenues
$
51,684,984 $
43,123,075
Expenses:
Direct costs
3,266,461
946,962
Payroll and benefits
38,123,040
35,030,257
Selling, general and administrative
7,795,610
8,434,549
Acquisition costs
164,044
116,151
Impairment of goodwill
6,671,557
9,484,215
Impairment of intangible assets
—
341,417
Write-off of notes receivables
1,270,000
4,108,080
Change in fair value of contingent consideration
50,000
33,226
Depreciation and amortization
2,382,361
2,253,619
Legal and professional
2,447,083
2,485,096
Total expenses
62,170,156
63,233,572
Loss from operations
(10,485,172)
(20,110,497)
Other (expenses) income:
Change in fair value of convertible note
35,000
(11,444)
Change in fair value of warrant
5,000
10,000
Interest income
11,462
2,877
Interest expense
(2,081,661)
(2,085,107)
Total other expense (income), net
(2,030,199)
(2,083,674)
Loss before income taxes and equity in losses of unconsolidated affiliates
$
(12,515,371) $
(22,194,171)
Income tax expense
(87,854)
(53,504)
Net loss before equity in losses of unconsolidated affiliates
(12,603,225)
(22,247,675)
Equity in losses of unconsolidated affiliates
—
(2,149,050)
Net loss
$
(12,603,225) $
(24,396,725)
Loss per share:
Basic
$
(1.22) $
(3.39)
Diluted
$
(1.22) $
(3.39)
Weighted average number of shares used in per share calculation
Basic
10,306,904
7,206,577
Diluted
10,306,904
7,206,577
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
DOLPHIN ENTERTAINMENT, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2024 and 2023
2024
2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(12,603,225) $
(24,396,725)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
2,382,361
2,253,619
Amortization of deferred production cost
1,781,810
—
Share-based compensation
364,650
354,961
Equity in losses of unconsolidated affiliates
—
2,149,050
Write off of notes receivable
1,270,000
4,583,962
Impairment of intangible assets
—
341,417
Impairment of capitalized production costs
—
74,412
Impairment of goodwill
6,671,557
9,484,215
Bad debt expense
505,173
919,672
Deferred tax expense
87,854
53,504
Write-off of debt origination costs in connection with refinancing
—
91,859
Change in fair value of contingent consideration
50,000
33,226
Change in fair value of warrant
(5,000)
(10,000)
Change in fair value of convertible note
(35,000)
11,444
Amortization of loan fees
16,823
17,436
Changes in operating assets and liabilities:
Accounts receivable, trade and other
1,749,118
(667,173)
Other current assets
327,936
(166,185)
Capitalized production costs
(81,298)
(771,275)
Other long-term assets and employee receivable
(213,050)
(153,230)
Deferred revenue
(1,110,555)
(100,583)
Accounts payable
(4,552,560)
1,518,817
Accrued interest – related party
139,977
(26,714)
Lease liabilities
(86,442)
(55,050)
Other current liabilities
3,182,020
(557,826)
Net cash used in operating activities
(157,851)
(5,017,167)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold improvements
(1,512)
(28,995)
Acquisition of Elle Communications LLC, net of cash acquired
(1,186,777)
—
Acquisition of Special Projects Media, LLC, net of cash acquired
—
(4,508,179)
Issuance of notes receivable
(1,380,000)
—
Proceeds from notes receivable repayment
110,000
—
Net cash used in investing activities
(2,458,289)
(4,537,174)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party note payable
2,118,112
—
Proceeds from convertible notes payable
—
1,000,000
Repayment of convertible note payable
—
(50,000)
Proceeds from non-convertible notes payable
—
2,630,000
Repayment of non-convertible notes payable
—
(118,960)
Proceeds from term loan
2,000,000
5,800,000
Repayment of term loan
(997,474)
(3,209,880)
Proceeds from line of credit
400,000
400,000
Repayment of revolving line of credit
(400,000)
Payment of contingent consideration
—
(506,587)
Debt extinguishment costs
—
(79,286)
Debt origination costs
(33,674)
(84,391)
Principal payments on finance leases
(87,969)
(28,382)
Proceeds from the sale of common stock through an offering
—
2,002,519
Proceeds from Lincoln Park equity line
1,185,300
2,162,150
Net cash provided by financing activities
4,184,295
9,917,183
Net increase in cash and cash equivalents and restricted cash
1,568,155
362,842
Cash and cash equivalents and restricted cash, beginning of period
7,560,691
7,197,849
Cash and cash equivalents and restricted cash, end of period
$
9,128,846 $
7,560,691
(Continued)
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
DOLPHIN ENTERTAINMENT, INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the years ended December 31, 2024 and 2023
2024
2023
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Interest paid
$
1,790,433 $
1,760,096
Lease liability obtained in exchange for right-of-use assets
$
76,321 $
249,893
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
INFORMATION:
Issuance of shares related to conversion of notes payable
$
— $
900,000
Issuance of shares of common stock related to the acquisitions (See Note 4)
$
1,768,792 $
4,577,387
Settlement of Special Projects Media LLC working capital adjustment in shares of common stock
$
886,077
—
Settlement of contingent consideration for Be Social Public Relations LLC in shares of common
stock
$
— $
265,460
Reconciliation of cash and cash equivalents and restricted
cash. The following table provides a reconciliation of cash and cash equivalents and restricted
cash reported within the statements of
cash flows that sum to the total of the same such amounts shown in the statements of cash flows:
2024
2023
Cash and cash equivalents
$
8,203,842 $
6,432,731
Restricted cash
925,004
1,127,960
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows
$
9,128,846 $
7,560,691
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
DOLPHIN ENTERTAINMENT INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’
Equity
For the years ended December 31, 2024 and 2023
Preferred Stock
Common Stock
Additional
Paid-in
Accumulated
Total
Stockholders’
Shares
Amount
Shares
Amount
Capital
Deficit
Equity
Balance December 31, 2022
50,000 $
1,000
6,170,332 $
92,555 $ 143,212,016 $ (109,214,479) $
34,091,092
Net loss
—
—
—
—
—
(24,396,725) (24,396,725)
Issuance of shares related to an employment agreement
—
—
95,648
1,435
353,527
—
354,962
Issuance of shares related to conversion of note payable
—
—
225,000
3,375
896,625
—
900,000
Issuance of shares to Lincoln Park
—
—
575,000
8,625
2,153,525
—
2,162,150
Issuance of shares related to the Be Social acquisition
—
—
72,711
1,091
264,369
—
265,460
Issuance of shares related to the Special Projects acquisition
—
—
1,250,000
18,750
4,506,250
—
4,525,000
Asset acquisition of GlowLab Collective LLC
—
—
—
—
52,387
—
52,387
Issuance of shares through an offering pursuant to a Registration Statement
on Form S-3
—
—
721,075
10,816
1,991,703
—
2,002,519
Balance December 31, 2023
50,000 $
1,000
9,109,766 $
136,647 $ 153,430,402 $ (133,611,204) $
19,956,845
Net loss
—
—
—
—
—
(12,603,225) (12,603,225)
Issuance of shares to Lincoln Park
—
—
475,000
7,125
1,178,175
—
1,185,300
Share based compensation to employees
—
—
183,456
2,752
412,081
—
414,833
Share based compensation to consultant
—
—
12,500
187
36,582
—
36,769
Issuance of shares related to the Special Projects acquisition
—
—
357,289
5,359
880,717
—
886,076
Issuance of shares related to the Elle acquisition
—
—
961,300
14,420
1,754,373
—
1,768,793
Asset acquisition of GlowLab Collective LLC
—
—
14,552
218
(218)
—
—
Roundup shares related to reverse stock split
—
—
48,163
(20)
20
—
—
Balance December 31, 2024
50,000 $
1,000 11,162,026 $
166,688 $ 157,692,132 $ (146,214,429) $
11,645,391
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2024 AND 2023
NOTE 1 — BASIS OF PRESENTATION AND ORGANIZATION
Dolphin Entertainment, Inc., a
Florida corporation (the “Company,” “Dolphin,” “we,” “us” or “our”), is a
leading independent entertainment
marketing and production company. Through our 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 Relations LLC (“Be Social”) that merged effective January 1, 2024,
Special
Projects Media, LLC (“Special Projects”), Always Alpha Sports Management, LLC (“Always Alpha”) and Elle
Communications, LLC (“Elle”), the
Company provides expert strategic marketing and publicity services throughout the United
States of America (“U.S.”) to all of the major film studios and
many of the leading independent and digital content providers,
A-list celebrity talent, including actors, directors, producers, celebrity chefs, social media
influencers and recording artists. The
Company also provides strategic marketing publicity services and creative brand strategies for prime hotel and
restaurant groups and consumer
brands throughout the U.S.
42West (Film and Television, Gaming),
Shore Fire (Music), The Door (Culinary, Hospitality, Lifestyle), and Elle (Impact, Philanthropy, Non-
Profit) are each recognized global
public relations 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. Always Alpha is a talent management firm primarily focused on representing female athletes, broadcasters
and
coaches. 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.
The accompanying consolidated
financial statements have been prepared in accordance accounting principles generally accepted in the with
United States (“US GAAP”)
and include the accounts of Dolphin, and all of its wholly owned subsidiaries, comprising Dolphin Films, Inc. (“Dolphin
Films”),
Dolphin SB Productions LLC, Dolphin Max Steel Holdings, LLC, Dolphin JB Believe Financing, LLC, Dolphin JOAT Productions, LLC, 42West,
The Door, Shore Fire, The Digital Dept., Special Projects, Elle and Always Alpha. All significant intercompany balances and transactions
have been
eliminated in consolidation. The Company applies the equity method of accounting for its investments in entities for which it
does not have a controlling
financial interest, but over which it has the ability to exert significant influence.
On October 16, 2024, the Company
filed an amendment to its Amended and Restated Articles of Incorporation with the Secretary of State of the
State of Florida to effect
a 1-for-2 reverse stock split (the “Reverse Stock Split”) of the authorized, issued and outstanding shares of the
common stock. The
Reverse Stock Split was effective as of 12:01 a.m. (Eastern Time) on October 16, 2024 (the “Effective Time”).
The par value per share of common stock
remains unchanged. As a result, each shareholder’s percentage ownership interest in the
Company and proportional voting power remained unchanged.
Any fractional shares resulting from the Reverse Stock Split were rounded up
to the nearest whole share of common stock. All references to common stock
or common stock price in these consolidated financial statements
have been retroactively adjusted to reflect the Reverse Stock Split.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenue and expenses
during the reporting period. The most significant estimates made by management in the preparation of the financial statements
relate to
the estimates in the fair value of acquisitions, estimates in assumptions used to calculate the fair value of certain liabilities, estimates
in the
assumption of ultimate revenue from film production and impairment assessments for investment in capitalized production costs,
goodwill and long-lived
assets. Actual results could differ materially from such estimates.
Statement of Comprehensive Income
In accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 220, Comprehensive
Income, a statement
of comprehensive income has not been included as the Company has no items of other comprehensive income. Comprehensive loss is
the same
as net loss for all periods presented.
Revenue Recognition
The Company’s revenues are
primarily derived from the following sources: (i) celebrity talent services; (ii) content marketing services under
multiyear master service
agreements in exchange for fixed project-based fees; (iii) individual engagements for entertainment content marketing services for
durations
of generally between three and six months; (iv) strategic communications services; (v) engagements for marketing of special events such
as food
and wine festivals; (vi) engagement for marketing of brands; (vii) arranging strategic marketing agreements between brands and
social media influencers
and (viii) planning and execution of events for clients. For these revenue streams, we collect fees through either
fixed fee monthly retainer agreements, fees
based on a percentage of contracts or project-based fees. In addition, the Company also earns
revenue from content production of feature films. The
Company recognizes revenue when our customer obtains control of promised goods or
services, in an amount that reflects the consideration to which we
expect to receive in exchange for those goods or services.
F-10
To determine recognition, we perform
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 we satisfy the performance obligation. We only apply the five-step model to contracts when it is probable that Dolphin
will
collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception,
we assess the goods or
services promised within each contract and determine those that are distinct performance obligations. We then assess
whether we act as an agent or a
principal for each identified performance obligation. We typically do 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 our 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
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, the performance obligation is typically completed and revenue is recognized at a point in time, typically the date
of publication.
Principal vs. Agent
When a third party is involved
in the delivery of our services to the client, we assess whether or not we are acting as a principal or an agent in the
arrangement. The
assessment is based on whether we control the specified services at any time before they are transferred to the customer. We have
determined
that in our events and public relations businesses, we generally act as a principal as our agencies provide a significant service of integrating
goods or services provided by third parties into the specified deliverable to our clients. In addition, we have determined that we are
responsible for the
performance of the third-parties which are combined with our own services, before transferring those services to the
customer. We have also determined
that we act as principal when providing creative services and media planning services, as we perform
a significant integration service in these transactions.
For performance obligations in which we act as principal, we record the gross
amount billed to the customer within total revenue and the related
incremental direct costs incurred as billable expenses.
When a third party is involved
in the production and execution of an advertising campaign and for media buying services, we have determined that
we act as the agent
and are solely arranging for the third-parties to provide services to the customer. Specifically, we do not control the specified services
before transferring those services to the customer, we are not primarily responsible for the performance of the third-party services,
nor can we redirect those
services to fulfill any other contracts. We do not have inventory risk or discretion in establishing pricing
in our contracts with customers. For performance
obligations for which we act as the agent, we record our revenue as the net amount of
our gross billings less amounts remitted to third parties. In these
types of arrangements, the gross billings are recorded as other receivables
in the consolidated balance sheets and the amounts to be remitted to third parties
are recorded as “talent liability” within
other current liabilities in the consolidated balance sheets. When the cash is received from the customer and is
available to be remitted
to the third parties, the balances are reclassified to accounts payable.
Collaborative Arrangements
The Company analyzes our collaboration
agreements to assess whether such arrangements, or transactions between arrangement participants,
involve joint operating activities performed
by parties that are both active participants in the activities and exposed to significant risks and rewards
dependent on the commercial
success of such activities or are more akin to a vendor-customer relationship. In making this evaluation, the Company
considers whether
the activities of the collaboration are considered to be distinct and deemed to be within the scope of the collaboration guidance and
those
that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customer
guidance. This
assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties
in the arrangement.
For collaboration arrangements
that are in the scope of the collaboration guidance, we may analogize to the revenue from contracts with
customers’ guidance for
some aspects of these arrangements. Revenue from transactions with collaboration participants is presented apart from revenue
with contracts
with customers in our consolidated statements of operations. To date, there has been no revenue generated from collaboration arrangements.
F-11
Cash and Cash Equivalents
Cash and cash equivalents consist
of cash deposits at financial institutions. The Company considers all highly liquid investments with a maturity
of three months or less
when purchased to be cash equivalents.
Restricted Cash
Restricted cash represents amounts
held by banking institutions as collateral for security deposits under leases for office space in New York City
and Los Angeles. As of
December 31, 2024 and 2023 the Company had a balance of $925,004 and $1,127,960, respectively, in restricted cash.
Accounts Receivable
Trade
The Company’s trade accounts
receivable relate to its entertainment publicity and marketing business, and are recorded at their net realizable
value, which is net
of an allowance for credit losses. The carrying amount of accounts receivable is reduced by an allowance for credit losses that reflects
management’s best estimate of the amounts that will not be collected. Management individually reviews all delinquent accounts receivable
balances and
based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected.
When preparing these estimates,
management considers a number of factors, including the age of the receivables, current economic conditions,
historical losses and other information
management obtains regarding the financial condition of customers. The policy for determining
past due status is based on the contractual payment terms
of each customer, which are generally net 30 days. Once collection efforts by
the Company and its collection agency are exhausted, the determination for
charging off uncollectible receivables is made.
Other Receivables
Prior to the Company’s acquisition,
Socialyte entered into a factoring agreement with Peblo LLC (“Peblo”) and agreed to sell trade receivables in
exchange for
a fee of 1% of the trade receivables purchased. The receivables purchased are paid within forty-eight hours of the purchase, net of the
1% fee
(“First Agreement”). The initial term of the First Agreement was for a twenty-four month period through June 1, 2024.
On January 13, 2023, the
Company’s subsidiary entered into a new agreement with Peblo and agreed to sell the trade receivables for
a fee of 0.9% and receive the funds for purchase
of the trade receivables within thirteen days of the sale of the trade receivable (“Second
Agreement”). The initial term of the Second Agreement was for a
period of twenty-four months and upon the purchase of the trade
receivables all rights and obligations of the trade receivable transferred to Peblo and the
Company was not required to repurchase any
trade receivable that were not collected by Peblo. In July 2023, the Second Agreement with Peblo was
terminated.
For the year ended December 31,
2023, Socialyte sold $12,670,021 of trade receivables to Peblo and recorded approximately $107,678 for the
Peblo fee under general and
administrative costs in the Company’s consolidated statement of operations of the year ended December 31, 2023. As the
agreement
with Peblo was terminated in July 2023, there are no outstanding principal balance of receivables as of December 31, 2024 and 2023.
Other receivables also include
gross amounts to be collected from third parties in transactions in which we act as an agent (refer to Revenue
Recognition, “Principal
vs. Agent” section), which amount to $5,451,697 and $6,643,960 as of December 31, 2024 and 2023, respectively.
F-12
Notes Receivable
The notes receivable held by the
Company were convertible notes receivables from JDDC Elemental LLC (“Midnight Theatre”) (the “Midnight
Theatre Notes”).
The Midnight Theatre Notes were recorded at their principal face amount plus accrued interest and were convertible at the option of the
Company into Class A and B Units of Midnight Theatre on their respective maturity dates. The Midnight Theatre Notes each originally had
maturity dates
six months from their issuance date, but the maturity date for all of the Midnight Theatre Notes had been extended to September
30, 2024. During the
fourth quarter of the year ended December 31, 2023, the Company determined the Midnights Theatre Notes had been impaired
including any accumulated
unpaid interest receivable.
In 2024, Midnight Theatre issued
three additional convertible notes receivable with maturity dates between May 2025 and June 2025. Similar to
previously issued convertible
notes receivable, the new Midnight Theatre Notes were recorded at their principal amount plus accrued interest and were
convertible at
the option of the Company into Class A and B Units of Midnight Theatre on their respective maturity dates. During the year ended December
31, 2024, the Company impaired the new Midnight Theatre Notes.
Refer to Note 8 for additional
information on the Midnight Theatre Notes receivable.
Employee Receivable
The Company records receivables
from employees separately on its consolidated balance sheets. During the years ended December 31, 2024 and
2023, the Company made payments
to Amanda Lundberg, the CEO of 42West, in the aggregate amount of $208,000 and $192,000, respectively. On March
23, 2022, the Company
and Ms. Lundberg entered into a Secured Promissory Note (“Lundberg Note”) agreement that provides for additional payments
in
the amount of $16,000 monthly to be made to Ms. Lundberg through December 31, 2027. The Lundberg Note matures on December 31, 2027
and bears
interest of 2% per annum that will accrue and be payable upon maturity. The Lundberg Note also provides for note repayment to
begin on January 31, 2027
through twelve equal consecutive quarterly installments. On the same date as the Lundberg Note and as security
for the balance of the Lundberg Note, Ms.
Lundberg and the Company entered into a Stock Pledge Agreement whereby Ms. Lundberg pledged
common stock of the Company held by her as
collateral for the Lundberg Note.
As of December 31, 2024 and 2023,
employee receivable was $1,007,418 and $796,085, respectively.
Other Current Assets and Other Long-Term Assets
Other current assets consist primarily
of prepaid expenses, interest receivable, and other non-customer receivables. As of December 31, 2024 and
2023, other long-term assets
consist of security deposits.
Capitalized Production Costs
Capitalized production costs include
the Company’s investment in the production costs of The Blue Angels, the first co-produced, co-financed
deal under the IMAX Corporation
(“IMAX”) agreement discussed further in Note 25. Capitalized production costs also include the costs of scripts for
projects
that have not been produced and are in various stages of development. Capitalized productions costs are initially recorded at cost that
is also
deemed to be its fair value and reviewed at each balance sheet date for impairment. Whenever the carrying amount is determined
to be above the fair value,
the capitalized production cost is impaired.
Investments and Strategic Arrangements
From time to time, the Company
may participate in selected investment or strategic arrangements to expand its operations or customer base,
including arrangements that
combine the Company’s skills and resources with those of others to allow for the performance of particular projects.
Management determines whether
each business entity in which it has equity interests, debt, or other investments constitutes a variable interest
entity (“VIE”)
based on the nature and characteristics of such arrangements. If an investment arrangement is determined to be a VIE, then management
determines if the Company is the VIE’s primary beneficiary by evaluating several factors, including the Company’s: (i) risks
and responsibilities; (ii)
ownership interests; (iii) decision making powers; and (iv) financial interests, among other factors. If management
determines the Company is the primary
beneficiary of a VIE, then it would be consolidated, and other parties’ interests in the VIE
would be accounted for as non-controlling interests. The primary
beneficiary consolidating the VIE must normally have both (i) the
power to direct the primary activities of the VIE and (ii) the obligation to absorb losses
of the VIE or the right to receive benefits
from the VIE, which, in either case, could be significant to the VIE. The Company has determined that it is the
primary beneficiary of
JB Believe, LLC, formed on December 4, 2012 in the State of Florida; as such it has included it in its consolidated financial
statements
as of and for the years ended December 31, 2024 and 2023 as a VIE. Refer to Note 17 for additional information on Variable Interest Entities.
The Company’s investments
in entities for which it does not have a controlling interest and is not the primary beneficiary, but for which it has the
ability to
exert significant influence, are accounted for using the equity method of accounting. Under the equity method of accounting, the initial
investment is recorded at cost and the investment is subsequently adjusted for its proportionate share of earnings or losses, including
consideration of basis
differences resulting from the difference between the initial carrying amount of the investment and the underlying
equity in net assets. The equity method
investments are recorded in other long-term assets in the consolidated balance sheets. Refer to
Note 9 for additional information on equity method
investments.
F-13
Intangible Assets
In connection with the acquisitions
of the Company’s subsidiaries and other asset acquisitions, the Company acquired an estimated $23,410,970 of
intangible assets with
finite useful lives initially estimated to range from 2 to 13 years. The finite-lived intangible assets consist primarily of customer
relationships, trade names and non-compete agreements.
Intangible assets are initially
recorded at fair value and are amortized over their respective estimated useful lives (see table below) and reviewed
for impairment whenever
events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If a triggering event has
occurred,
an impairment analysis is required. The impairment test first requires a comparison of undiscounted future cash flows expected to be generated
over the useful life of an asset to the carrying value of the asset. If the carrying value of the asset exceeds the undiscounted cash
flows, the asset would not
be deemed recoverable. Impairment would then be measured as the excess of the asset’s carrying value
over its fair value. See Note 5 for further discussion.
The range of estimated useful
lives to be used to calculate amortization for finite-lived intangibles are as follows:
Intangible Asset
Amortization Method
Amortization Period
(Years)
Customer relationships
Accelerated Method
3 – 13
Trademarks and trade names
Straight-line
2 – 10
Non-compete agreements
Straight-line
2 – 3
Goodwill
Goodwill results from business
combinations and is recorded as the difference, if any, between the aggregate consideration paid for an acquisition
and the fair value
of the net tangible assets and other intangible assets acquired. The Company accounts for goodwill in accordance with FASB ASC No.
350,
“Intangibles—Goodwill and Other” (“ASC 350”). Goodwill is not amortized; however, it is assessed
for impairment at least annually, or more
frequently if triggering events occur. The Company’s annual assessment is performed in
the fourth quarter.
Each period and for each reporting
unit the Company can elect to first assess qualitatively whether it is necessary to perform goodwill impairment
testing. If the Company
believes, as a result of its qualitative assessment, that it is not more likely than not that the fair value of any reporting unit
containing
goodwill is less than its carrying amount, the quantitative goodwill impairment test is unnecessary. If the Company elects to bypass the
qualitative assessment option, or if the qualitative assessment was performed and resulted in the Company being unable to conclude that
it is not more
likely than not that the fair value of a reporting unit containing goodwill is greater than its carrying amount, the Company
will perform the quantitative
goodwill impairment test.
The Company evaluates various
factors affecting a reporting unit in its qualitative assessment, including, but not limited to, macroeconomic
conditions, industry and
market considerations, cost factors, and financial performance. If the Company concludes from its qualitative assessment that
goodwill
impairment testing is required or if the Company bypasses the qualitative test, the fair value of the reporting unit is compared to its
carrying
amount.
Property, Equipment and Leasehold Improvements
Property and equipment are recorded
at cost and depreciated over the estimated useful lives of the assets using the straight-line method. When
items are retired or otherwise
disposed of, income is charged or credited for the difference between net book value and proceeds realized thereon. Ordinary
maintenance
and repairs are charged to expense as incurred, and replacements and betterments are capitalized. Leasehold improvements are amortized
over
the lesser of the term of the related lease or the estimated useful lives of the assets. The range of estimated useful lives to be
used to calculate depreciation
and amortization for principal items of property and equipment are as follows:
Asset Category
Depreciation/Amortization Period
(Years)
Furniture and fixtures
5 - 7
Computers, office equipment and software
3 - 5
Leasehold improvements
5 - 8, not to exceed the lease terms
F-14
The Company periodically reviews
and evaluates the recoverability of property, equipment and leasehold improvements. Where applicable,
estimates of net future cash flows,
on an undiscounted basis, are calculated based on future revenue estimates. If appropriate and where deemed necessary,
a reduction in
the carrying amount is recorded. The Company has not had any material impairments of property, equipment and leasehold improvements.
Business Combinations
The Company evaluates acquisitions
pursuant to ASC 805, “Business Combinations,” to determine whether the acquisition should be classified as
either an
asset acquisition or a business combination. The Company accounts for business combinations under the acquisition method of accounting.
Identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree are recognized and measured as of the
acquisition date at fair
value. Goodwill is recognized to the extent by which the aggregate of the acquisition-date fair value of the
consideration transferred and any noncontrolling
interest in the acquiree exceeds the recognized basis of the identifiable assets acquired,
net of assumed liabilities. Determining the fair value of assets
acquired, liabilities assumed and noncontrolling interest requires management’s
judgment and often involves the use of significant estimates and
assumptions, including assumptions with respect to future cash flows,
discount rates and asset lives among other items.
Contingent Consideration
The Company records contingent
consideration as a result of certain acquisitions (see Note 4). The Company records the fair value of the
contingent consideration liability
in the consolidated balance sheets under the caption contingent consideration and records changes to the liability against
earnings or
loss under the caption change in fair value of contingent consideration in the consolidated statements of operations.
Acquisition Costs
Direct costs related to business
combinations are expensed as incurred and included under the caption acquisition costs in the consolidated
statements of operations. These
costs include all internal and external costs directly related to acquisitions, consisting primarily of legal, consulting,
accounting,
advisory and financing fees.
Asset Acquisitions
The Company evaluates acquisitions
pursuant to ASC 805, “Business Combinations,” to determine whether the acquisition should be classified as
either an
asset acquisition or a business combination. Acquisitions for which substantially all of the fair value of the gross assets acquired are
concentrated
in a single identifiable asset or a group of similar identifiable assets are accounted for as an asset acquisition. For asset
acquisitions, we allocate the
purchase price of these properties on a relative fair value basis and capitalize direct acquisition related
costs as part of the purchase price.
Convertible Debt and Convertible Preferred Stock
When the Company issues
convertible debt or convertible preferred stock, it evaluates the balance sheet classification to determine whether the
instrument should
be classified either as debt or equity, and whether the conversion feature should be accounted for separately from the host instrument.
A
conversion feature of a convertible debt instrument or certain convertible preferred stock would be separated from the convertible instrument
and classified
as a derivative liability if the conversion feature, were it a standalone instrument, meets the definition of an “embedded
derivative” in ASC 815,
“Derivatives and Hedging”. Generally, characteristics that require derivative treatment
include, among others, when the conversion feature is not indexed
to the Company’s equity, as defined in ASC 815-40, or when it
must be settled either in cash or by issuing stock that is readily convertible to cash. When a
conversion feature meets the definition
of an embedded derivative, it would be separated from the host instrument and classified as a derivative liability
carried on the consolidated
balance sheet at fair value, with any changes in its fair value recognized currently in the consolidated statements of operations.
F-15
Fair Value Option (“FVO”) Election
The Company accounts for a convertible
note payable issued during the year ended December 31, 2020 under the fair value option election of
ASC 825, “Financial
Instruments” (“ASC 825”) as discussed below.
The convertible note payable accounted
for under the FVO election is a debt host financial instrument containing embedded features which would
otherwise be required to be bifurcated
from the debt-host and recognized as separate derivative liabilities subject to initial and subsequent periodic
estimated fair value measurements
under ASC 815. Notwithstanding, ASC 825-10-15-4 provides for the “fair value option” (“FVO”) election, to the
extent
not otherwise prohibited by ASC 825-10-15-5, to be afforded to financial instruments, wherein bifurcation of an embedded derivative
is not necessary, and
the financial instrument is initially measured at its issue-date estimated fair value and then subsequently remeasured
at estimated fair value on a recurring
basis at each reporting period date.
The estimated fair value adjustment,
as required by ASC 825-10-45-5, is recognized as a component of other comprehensive income (“OCI”) with
respect to the portion
of the fair value adjustment attributed to a change in the instrument-specific credit risk, with the remaining amount of the fair value
adjustment recognized as other income (expense) in the accompanying consolidated statement of operations. With respect to the above note,
as provided for
by ASC 825-10-50-30(b), the estimated fair value adjustment is presented in a respective single line item within other
income (expense) in the
accompanying consolidated statements of operations, since the change in fair value of the convertible note payable
was not attributable to instrument
specific credit risk.
Warrants
When the Company issues warrants,
it evaluates the proper balance sheet classification of the warrant to determine whether it should be classified
as equity or as a derivative
liability on the consolidated balance sheets. In accordance with ASC 815-40, “Derivatives and Hedging-Contracts in the
Entity’s
Own Equity” (“ASC 815-40”), the Company classifies a warrant as equity so long as it is “indexed to the Company’s
equity” and several specific
conditions for equity classification are met. A warrant is not considered indexed to the Company’s
equity, in general, when it contains certain types of
exercise contingencies or adjustments to the exercise price. If a warrant is not
indexed to the Company’s equity or it has net cash settlement that results in
the warrants to be accounted for under ASC 480, “Distinguishing
Liabilities from Equity”, or ASC 815-40, it is classified as a derivative liability which is
carried on the consolidated balance
sheet at fair value with any changes in its fair value recognized currently in the statement of operations. As of
December 31, 2024 and
2023, the fair value of the Company’s outstanding warrant was next to nil.
Fair Value Measurements
Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement
date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market
and the degree
that the inputs are observable. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability,
including assumptions about risk. Observable inputs are based on market data obtained from sources independent of the Company. Unobservable
inputs
reflect the Company’s own assumptions based on the best information available in the circumstances.
The fair value hierarchy prioritizes
the inputs used to measure fair value into three broad levels, defined as follows:
Level 1 — Inputs are quoted prices in active markets for identical assets or liabilities as of the reporting date.
Level 2 — Inputs other than quoted prices included within Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted
prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated
with observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.
This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.
Unobservable inputs for the asset or liability that reflect management’s own assumptions about the assumptions that market participants
would use in pricing the asset or liability as of the reporting date.
To account for the acquisitions
of 42West, The Door, Shore Fire, The Digital Dept., Special Projects and Elle the Company made a number of fair
value measurements related
to the different forms of consideration paid and of the identified assets acquired and liabilities assumed. In addition, the
Company makes
fair value measurements of its contingent consideration. See Notes 4 and 16 for further discussion and disclosures.
F-16
Right-of-Use Asset and Lease Liability
The Company accounts for leases
under ASC 842, “Leases”. The Company reviews all agreements to determine if a leasing arrangement exists.
The Company
determines if an arrangement is a lease at the lease commencement date. In addition to the Company’s lease agreements, the Company
reviews all material new vendor arrangements for potential embedded lease obligations. The asset balance related to operating leases is
presented within
right-of-use asset on the Company’s consolidated balance sheets. The current and noncurrent balances related to
operating leases are presented as lease
liability, in their respective classifications, on the Company’s consolidated balance sheets.
The lease liability is recognized
based on the present value of the remaining fixed lease payments discounted using the Company’s incremental
borrowing rate on the
date of the lease. The asset is calculated based on the lease liability adjusted for any lease payments paid to the lessor at or before
the
commencement date (i.e. prepaid rent) and initial direct costs incurred by the Company and excluding any lease incentives received
from the lessor. If a
lease does not provide a discount rate and the rate cannot be readily determined, an incremental borrowing rate
is used to determine the present value of
future lease payments. For operating leases, the lease expense is recognized on a straight-line
basis over the lease term. The Company accounts for its lease
and non-lease components as a single component, and therefore both are included
in the calculation of lease liability recognized on the consolidated
balance sheets.
Income Taxes
Deferred taxes are recognized
for the future tax effects of temporary differences between the financial statement carrying amounts of existing
assets and liabilities
and their respective tax bases using tax rates in effect for the years in which the differences are expected to reverse. The effects of
changes in tax laws on deferred tax balances are recognized in the period the new legislation in enacted. Valuation allowances are recognized
to reduce
deferred tax assets to the amount that is more likely than not to be realized. In assessing the likelihood of realization, management
considers estimates of
future taxable income. We calculate our current and deferred tax position based on estimates and assumptions that
could differ from the actual results
reflected in income tax returns filed in subsequent years. Adjustments based on filed returns are
recorded when identified.
Tax benefits from an uncertain
tax position are only recognized if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities,
based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are
measured
based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and
penalties
related to unrecognized tax benefits are recorded as incurred as a component of income tax expense.
Earnings (Loss) Per Share
Basic earnings (loss) per share
is computed by dividing income (loss) attributable to the shareholders of common stock (the numerator) by the
weighted-average number
of shares of common stock outstanding (the denominator) for the period.
Diluted earnings (loss) per share
equals net income (loss) available to shareholders of common stock divided by the weighted-average number of
common shares outstanding,
plus any additional common shares that would have been outstanding if potentially dilutive shares had been issued. Diluted
earnings (loss)
per share reflects the potential dilution that would occur if certain potentially dilutive instruments were exercised. The potential issuance
of
common stock is assumed to occur at the beginning of the year (or at the time of issuance of the potentially dilutive instrument, if
later), under the if-
converted method. Incremental shares are also included using the treasury stock method. The proceeds utilized in
applying the treasury stock method
consist of the amount, if any, to be paid upon exercise. These proceeds are then assumed to be used
to purchase common stock at the average market price
of the Company’s common stock during the period. The incremental shares (difference
between the shares assumed to be issued and the shares assumed to
be purchased), to the extent they would have been dilutive, are included
in the denominator of the diluted earnings per share calculation. Potentially dilutive
instruments are not included in the computation
of diluted loss per share because their inclusion is anti-dilutive.
Concentration of Risk
The Company maintains its cash
and cash equivalents with financial institutions, which at times, may exceed federally insured limits. The
Company has not incurred any
losses on these accounts.
F-17
Reclassification
Certain prior year amounts have
been reclassified to conform with current year presentation.
Recent Accounting Pronouncements
Accounting guidance adopted in fiscal year
2024
In November 2023, the FASB issued
new guidance on segment reporting (Accounting Standards Update “ASU” 2023-08, “Segment Reporting
(Topic 280): Improvements
to Reportable Segment Disclosures”) (“ASU 2023-08”). The amendments in ASU 2023-08 are intended to improve reportable
segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The guidance is effective for
fiscal years
beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company
retrospectively adopted this
guidance effective January 1, 2023 and the adoption is reflected in Note 22.
Accounting guidance not yet adopted
In December 2023, the FASB issued
new guidance on income tax disclosures (ASU 2023-09, “Income Taxes (Topic 740): Improvements to
Income Tax Disclosures”) (“ASU
2023-09”). Among other requirements, this update adds specific disclosure requirements for income taxes, including: (1)
disclosing
specific categories in the rate reconciliation and (2) providing additional information for reconciling items that meet quantitative thresholds.
The
guidance is effective for fiscal years beginning after December 15, 2024, including interim periods within those fiscal years. Early
adoption is permitted.
The Company is in the process of evaluating the impact of the adoption of ASU 2023-09 on the Company’s consolidated
financial statements and
disclosures.
In November 2024, the FASB issued
ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40) (“ASU 2024-03”). ASU
2024-03 requires the disaggregated
disclosure of specific expense categories, including employee compensation, depreciation, and amortization, within
relevant income statement
captions. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal
years beginning
after December 15, 2027. Adoption of ASU 2024-03 can either be applied prospectively to consolidated financial statements issued for
reporting
periods after the effective date of ASU 2024-03 or retrospectively to any or all prior periods presented in the consolidated financial
statements.
Early adoption is also permitted. ASU 2024-03 will likely result in the required additional disclosures being included in
our consolidated financial
statements once adopted. We are currently evaluating the provisions of ASU 2024-03.
NOTE 3 – 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 22.
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.
F-18
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 or web series 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 right 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 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 year ended December 31, 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 year ended December 31, 2023, no revenues
were recognized from the content
licensing arrangement.
For the year ended December
31, 2023, the Company derived $55,518 in revenues from its motion picture Believe released in 2013.
The revenues recorded by
each segment is detailed below:
December 31,
2024
2023
Entertainment publicity and marketing
$
48,263,843 $
43,067,557
Content production
3,421,141
55,518
Total Revenues
$
51,684,984 $
43,123,075
Contract Balances
Contract assets are comprised
of services provided for which consideration has not been received and are transferred to accounts receivable when
the right to payment
becomes unconditional. Contract assets are presented within other current assets in the consolidated balance sheets. There were no
contract
assets as of December 31, 2024 or 2023.
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.
The opening and closing balances
of our liability balance from contracts with customers as of December 31, 2024 and 2023 were as follows:
Contracts
Liabilities
Balance as of December 31, 2023
$
1,641,459
Balance as of December 31, 2024
341,153
Change
$
(1,300,306)
Revenues for the years ended December
31, 2024 and 2023, include the following:
December 31,
2024
2023
Amounts included in the beginning of year contract liability balance
$
1,249,754 $
1,518,113
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.
F-19
NOTE 4 —ACQUISITIONS
Business Acquisitions
Elle Communications, LLC
On July 15, 2024, (the “Elle
Closing Date”), the Company acquired all of the issued and outstanding membership interests of Elle
Communications, LLC, a California
limited liability company (“Elle”), pursuant to a membership interest purchase agreement (the “Elle Purchase
Agreement”)
between the Company and Danielle Finck (“Elle Seller”). Headquartered in Los Angeles with offices in New York, Elle is an
entertainment
public relations agency specializing in social and environmental impact for a client roster of mission-centered brands,
nonprofits and philanthropic
foundations, social enterprises, sustainability and ethically made products and activists.
The total consideration paid by
the Company in connection with the acquisition of Elle was approximately $4.7 million. On the Elle Closing Date,
the Company paid the
Elle Seller $1,863,000 cash and issued the Elle Seller 961,300 shares of the Company’s common stock. At various dates during the
months between July and December 2024, the Company paid the Elle Seller approximately $0.6 million related to cash and excess working
capital
adjustments pursuant to the Elle Purchase Agreement.
The
Elle Seller has the right to earn up to an additional $450,000 consideration (the “Contingent Consideration”) for the acquisition,
contingent on
achieving certain financial targets in 2024 as specified in the Elle Purchase Agreement. The Contingent Consideration is
payable in cash on March 31,
2025 and the Company calculated a preliminary fair value for the contingent consideration of $436,000. The
Company utilized a Monte Carlo Simulation
model to estimate the fair value of the Contingent Consideration, which incorporates significant
inputs that are not observable in the market and thus
represents a Level 3 measurement as defined in ASC 320. The unobservable inputs
utilized for measuring fair value of the Contingent Consideration reflect
management assumptions about the assumptions market participants
would use in valuing the Contingent Consideration.
As part of the Elle Purchase Agreement,
the Company entered into employment agreements with Danielle Fink and Silvie Snow Thomas, a key
employee, each for a period of four years.
The following table summarizes
the fair value of the consideration transferred:
Cash paid to sellers at closing
$
1,863,000
Working capital and excess cash adjustment
630,635
Fair value of common stock issued to the Elle Seller
1,768,792
Contingent consideration
436,000
Fair value of the consideration transferred
$
4,698,427
The following table summarizes the fair values of
the assets acquired and liabilities assumed by the acquisition of Elle on the Elle Closing Date.
Amounts in the table are estimates that
may change, as described below. The measurement period of the acquisition of Elle concludes no later than July 15,
2025.
July 15, 2024
(As initially reported)
Measurement Period
Adjustments(1)
December 31, 2024
(As adjusted)
Cash
$
676,223 $
— $
676,223
Accounts receivable
357,570
—
357,570
Intangibles
1,280,000
—
1,280,000
Total identifiable assets acquired
2,313,793
—
2,313,793
Accounts payable
(4,483)
—
(4,483)
Accrued expenses and other current liabilities
(388,613)
—
(388,613)
Total liabilities assumed
(393,096)
—
(393,096)
Net identifiable assets acquired
1,920,697
1,920,697
Goodwill
2,892,065
(114,335)
2,777,730
Fair value of the consideration transferred
$
4,812,762 $
(114,335) $
4,698,427
(1) Pursuant to the Elle Purchase Agreement, during the fourth quarter of 2024, the Company and
the Elle Seller agreed on the working capital and cash
adjustments which resulted in a $114,335 decrease to the purchase price from the
initial purchase price recorded on the Elle Closing Date.
F-20
Due to the characteristics of
the industry and services Dolphin provides, the acquisitions typically do not have significant amounts of physical
assets since the principal
assets acquired are client relationships, talent and trade names. As a result, a substantial portion of the purchase price is primarily
allocated to intangibles assets and goodwill. Elle provided an additional customer vertical in which Dolphin did not have a presence and
was interested in
expanding. Goodwill resulting from the acquisition of Elle is not deductible for tax purposes.
Intangible assets acquired in
the Elle acquisition amounted to:
·
Customer relationships:
$1,080,000. The customer relationships intangible asset was valued using the multi-period excess earnings method,
which was based on
the estimate of future revenues and net income attributable to the existing customers, as well as any expected increases
from
existing customers and potential loss of customer relationships. The historical and estimated customer retention rate utilized was
88%
and the assigned useful life for this asset was 7 years representing the period we expect to benefit from the asset.
·
Trade name: $200,000. Trade name refers to the Elle brand, which is well recognized in the target market. The fair value for the trade name
was determined using the Royalty Relief Method based on the Profit Split Method, which is based on the Company’s expected revenues and
a royalty rate estimated using comparable industry and market data. As a result of the acquisition, the Company determined it was
appropriate to assign a finite useful life of 5 years to the trade name. The Company decided that a finite life would be more appropriate,
providing better matching of the amortization expense during the period of expected benefits.
The weighted-average useful life of the intangible
assets acquired was 6.7 years.
Special Projects Media LLC
On October 2, 2023, (the “Special
Projects Closing Date”), the Company acquired all of the issued and outstanding membership interest 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”). Special Projects is a talent booking and events agency that elevates media, fashion, and lifestyle brands. Special
Projects has headquarters in New
York and Los Angeles.
The total consideration paid
by the Company in connection with the acquisition of Special Projects is approximately $10.4 million, which was
subject to
adjustments based on a customary post-closing cash consideration adjustment. On the Special Projects Closing Date, the Company paid
the
Sellers $5
million cash and issued the Sellers 1,125,000
shares of the Company’s common stock. The Company partially financed the cash portion of the
consideration with the
Refinancing Transaction described in Note 11. Acquisition-related costs for the acquisition of Special Projects amounted to $116,151
and are included in acquisition costs in the consolidated statement of operations for the year ended December 31, 2023. The consolidated statement of
operations for the
year ended December 31, 2023, includes revenues and net loss from Special Projects amounting to $961,875
and $15,037,
respectively.
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 fair value of the consideration transferred:
Cash paid to sellers at closing
$
5,000,000
Working capital adjustment
886,077
Fair value of common stock issued to the Special Projects Sellers
4,525,000
Fair value of the consideration transferred
$
10,411,077
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
concluded on October 2, 2024.
October 2, 2023
(As initially reported)
Measurement Period
Adjustments (1)
December 31, 2024
(As adjusted)
Cash
$
521,821 $
— $
521,821
Accounts receivable
1,155,871
—
1,155,871
Other current assets
11,338
—
11,338
Right-of-use asset
90,803
—
90,803
Other assets
30,453
—
30,453
Intangibles
3,740,000
—
3,740,000
Total identifiable assets acquired
5,550,286
—
5,550,286
Accounts payable
(764,641)
—
(764,641)
Accrued expenses and other current liabilities
(15,000)
—
(15,000)
Lease liability
(90,803)
—
(90,803)
Deferred revenue
(30,000)
—
(30,000)
Total liabilities assumed
(900,444)
—
(900,444)
Net identifiable assets acquired
4,649,842
4,649,842
Goodwill
5,579,547
181,688
5,761,235
Fair value of the consideration transferred
$
10,229,389 $
181,688 $
10,411,077
(1)
On May 14, 2024, the Company entered into an agreement with the sellers of Special Projects to amend the Special Projects Purchase Agreement
to revise the working capital mechanism to provide that the working capital surplus, as defined in the Special Projects Purchase Agreement, plus a
ten percent premium be paid to the sellers of Special Projects by issuing 714,578 shares of its common stock on May 15, 2024. The adjustment
resulted in an increase to the purchase price and an increase to goodwill.
F-21
Due to the characteristics of
the industry and services Dolphin provides, the acquisitions typically do not have significant amounts of physical
assets since the principal
assets acquired are client relationships, talent and trade names. As a result, a substantial portion of the purchase price is primarily
allocated to intangibles assets and goodwill. Special Projects provided an additional customer vertical in which Dolphin did not have
a presence and was
interested in expanding. Goodwill resulting from the acquisition of Special Projects is not deductible for tax purposes.
Intangible assets acquired in
the Special Projects acquisition amounted to:
·
Customer relationships: $3,110,000. The customer relationships intangible asset was valued using the multi-period excess earnings method,
which was based on the estimate of future revenues and net income attributable to the existing customers, as well as any expected increases
from existing customers and potential loss of customer relationships. The historical and estimated customer retention rate utilized was 88%
and the assigned useful life for this asset was 12 years representing the period we expect to benefit from the asset.
·
Trade name: $630,000. Trade name refers to the Special Projects brand, which is well recognized in the target market. The fair value for the
trade name was determined using the Royalty Relief Method based on the Profit Split Method, which is based on the Company’s expected
revenues and a royalty rate estimated using comparable industry and market data. As a result of the acquisition, the Company determined it
was appropriate to assign a finite useful life of 7 years to the trade name. The Company decided that a finite life would be more appropriate,
providing better matching of the amortization expense during the period of expected benefits.
The weighted-average useful life of the intangible
assets acquired was 11.2 years.
.
Unaudited Pro Forma Consolidated Statements
of Operations
The following presents the unaudited
pro forma consolidated operations as if Elle and Special Projects had been acquired on January 1, 2023:
2024
2023
Revenues
$
53,401,154 $
53,082,845
Net loss
$
(12,538,100) $
(23,601,904)
The pro forma amounts for 2024
have been calculated after applying the Company’s accounting policies and adjusting the results of the
acquisition of Elle to reflect
(a) the amortization that would have been charged, assuming the intangible assets resulting from the acquisition had been
recorded on
January 1, 2024 and (b) include interest expense on the Second BKU Term Loan (see Note 11) in the amount of $78,480 for the year ended
December 31, 2024. Special Projects was included in the Company’s consolidated statement of operations for the full year of 2024
so there were no
adjustments to the pro forma financial information related to Special Projects for the year ended December 31, 2024.
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 acquisitions had been recorded on
January
1, 2023, (b) include interest expense on the First and Second BKU Term Loans (see Note 11) in the amount of $156,203 for the years ended
December 31, 2023, and (c) eliminate $340,610 of revenue and expenses related to work performed by Special Projects for Dolphin for the
year ended
December 31, 2023.
The impact of the acquisition
of Special Projects and Elle 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.
F-22
Asset Acquisition
Glow Lab
On October 2, 2023, the Company
entered into an agreement with GlowLab Collective, LLC (“GlowLab”) in which it acquired GlowLab’s
influencer management
client roster. As consideration, the Company agreed to issue shares of its common stock valued at $52,387, based on the 30-day
trailing
closing sale price for the Company’s common stock, and recorded such amount as an intangible asset. The shares related to the GlowLab
acquisition were issued during the second quarter of 2024. There were no acquisitions costs recorded from this acquisition.
The Company assessed the acquisition
under the guidance of ASC 805 and concluded it was an asset acquisition.
NOTE 5 — GOODWILL AND INTANGIBLE ASSETS
As of December 31, 2024, the Company
has a balance of $21,507,944 of goodwill on its consolidated balance sheet resulting from its acquisitions
of 42West, The Door, Shore
Fire, Special Projects and Elle. All goodwill has been assigned to the entertainment publicity and marketing segment.
Goodwill
Changes in the carrying value
of goodwill were as follows:
Balance as of December 31, 2022
$
29,314,083
Acquisitions(1)
5,579,547
Measurement period adjustment(3)
(189,330)
Goodwill impairment(2)
(9,484,215)
Balance as of December 31, 2023
$
25,220,085
Acquisitions(1)
2,892,065
Measurement period adjustment(3)
67,351
Goodwill impairment(4)
(6,671,557)
Balance as of December 31, 2024
$
21,507,944
(1) Acquisition of Special Projects in October 2023 and Elle in July 2024.
(2) The Company recorded impairments of goodwill during 2023. See below for further information.
(3) The Company recorded a measurement period adjustment related to Socialyte in 2023 and Special Projects and Elle in 2024. Refer
to Note 4.
(4) The Company recorded impairments of goodwill during 2024. See below for further information.
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 the business climate, (2) unanticipated competition, (3) significant
decline in market capitalization or (4) an adverse action or assessment by a regulator. During the third quarter of 2024, the Company’s
stock price declined
and this, in combination with recurring net losses, resulted in the Company’s market capitalization to be less
than the Company’s book value. The
Company considered this, in addition to downward adjustments to revenue projections for certain
subsidiaries to be triggering events and therefore
performed a quantitative analysis of the fair value of goodwill as of August 31, 2024.
As a result of this quantitative analysis, during the third quarter of
2024, the Company recorded an impairment of goodwill amounting
to $6,480,992, which is included in the consolidated statement of operations for the
year ended December 31, 2024. Additionally, during
the second quarter in 2024, the Company decided to close the Viewpoint subsidiary, and therefore the
Company impaired goodwill for $190,565,
which is the balance of goodwill attributable to Viewpoint immediately prior to the decision to shut down. This
impairment is included
in the consolidated statement of operations for the year ended December 31, 2024.
During the three months ended
June 30, 2023, the Company’s stock price remained constant and did not respond as positively as expected to new
information on the
Company’s future projects and forecasts. This, in combination with recurring net losses, has resulted in the Company’s market
capitalization to be less than the Company’s book value. The Company considered this to be a triggering event and therefore performed
a quantitative
analysis of the fair value of goodwill as of June 30, 2023. As a result of this quantitative analysis, the Company recorded
an impairment of goodwill
amounting to $6,517,400, for the goodwill value of one of the reporting units in the entertainment publicity
and marketing segment, which is included in
the consolidated statement of operations for the year ended December 31, 2023.
In addition, as part of the Company’s
annual goodwill impairment review, management performed a quantitative assessment that determined that
the fair value was greater than
the carrying value with the exception of one of the reporting units in the entertainment publicity and marketing segment. For
the goodwill
value assigned to that reporting unit, management concluded the fair value of that reporting unit’s goodwill was below its carrying
amount. As
a result, an impairment charge amounting to $2,966,815 was recorded, which is included in the consolidated statement of operations
for the year ended
December 31, 2023.
F-23
Intangible Assets
Intangible assets consisted of
the following as of December 31, 2024 and 2023:
December
31, 2024
December
31, 2023
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Intangible assets subject to amortization:
Customer relationships
$ 17,592,387 $
9,236,609 $ 8,355,778 $ 16,512,387 $
7,445,973 $ 9,066,414
Trademarks and trade names
5,128,583
3,295,335
1,833,248
4,928,583
2,785,333
2,143,250
Non-compete agreements
690,000
690,000
—
690,000
690,000
—
$ 23,410,970 $ 13,221,944 $ 10,189,026 $ 22,130,970 $ 10,921,306 $ 11,209,664
The following table presents the
changes in intangible assets for the years ended December 31, 2024 and 2023:
Balance as of December 31, 2022
$
9,884,336
Intangible assets from Special Projects acquisition
3,740,000
Intangible assets from GlowLab acquisition
52,387
Amortization expense
(2,125,642)
Impairment of intangible assets
(341,417)
Balance as of December 31, 2023
$
11,209,664
Intangible assets from Elle acquisition
1,280,000
Amortization expense
(2,300,638)
Balance as of December 31, 2024
$
10,189,026
During the year ended December
31, 2023, the Company recognized an impairment of the trademarks and trade names of Socialyte and Be Social
in connection with the rebranding
of both subsidiaries as the new “The Digital Dept.” of the Company. The impairment amount was determined to be the
carrying
value of both the trademark and trade name intangible assets as of September 30, 2023 (the date the rebranding was effective), which amounted
to
$341,417 during the year ended December 31, 2023 and is included within impairment of intangible assets in the consolidated statements
of operations. No
such impairment was recorded during the year ended December 31, 2024.
Amortization expense related to
intangible assets for the next five years is as follows:
2025
$
2,290,418
2026
2,091,505
2027
1,406,262
2028
1,064,106
2029
906,886
Thereafter
2,429,849
Total
$
10,189,026
NOTE 6 — CAPITALIZED PRODUCTION COSTS
The Company amortizes capitalized
production costs (included as direct costs) in the consolidated statements of operations using the individual
film forecast computation
method. During the year ended December 31, 2024, the Company amortized $1,781,810 of capitalized production costs in
connection with The
Blue Angels documentary film that was released in May 2024. The Company did not amortize any capitalized production costs during
the year
ended December 31, 2023. In total, the Company capitalized $2,250,000 of production costs related to The Blue Angels documentary film,
as
discussed in Note 25.
F-24
The Company purchases
scripts and incurs other costs, such as preparation of budgets, casting, etc., for other motion picture or digital productions.
During the years ended December 31, 2024 and 2023, the Company recorded impairments of $0
and $74,412 related to costs of projects it does not intend
to produce. The Company intends to produce the remaining
projects, but they were not yet in production as of December 31, 2024 or 2023. The Company
has assessed events and changes in
circumstances that would indicate whether the Company should assess if the fair value of the productions is less than
the
unamortized costs capitalized and, aside from the ones mentioned above, did not identify other indicators of impairment.
As of December 31, 2024 and 2023,
the Company had total, net capitalized production costs of $594,763 and $2,295,275, respectively, on its
consolidated balance sheets.
NOTE 7 — PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS
Property, equipment and leasehold
improvement consists of:
December 31,
2024
2023
Furniture and fixtures
$
1,256,682 $
1,232,798
Computers, office equipment and software
2,680,697
3,075,480
Leasehold improvements
784,403
784,403
Property plant and equipment gross
4,721,782
5,092,681
Less: accumulated depreciation and amortization
(4,607,771)
(4,898,458)
Property plant and equipment net
$
114,011 $
194,223
The Company recorded depreciation
expense of $81,723 and $230,626, respectively, for the years ended December 31, 2024 and 2023.
NOTE 8 — NOTES RECEIVABLE
Midnight Theatre
On various dates during the year
ended December 31, 2024, Midnight Theatre issued five unsecured convertible promissory notes to the Company
with an aggregate principal
of $1,380,000, each with a ten percent (10%) per annum simple coupon rate, which matured between May 2025 and August
2025.
During the year ended December
31, 2024, Midnight Theatre repaid the Company a $110,000 unsecured convertible promissory note.
During the year ended December
31, 2024, the Company determined that the remaining Midnight Theatre unsecured convertible promissory notes
(“Midnight Theatre Notes”)
had been impaired, resulting from a review of Midnight Theatre’s operating results and projections. As a result, as of
December
31, 2024, the Company wrote off all outstanding Midnight Theatre Notes. The write-off amounted to $1,270,000 of principal, which
is recorded
within write-off of notes receivable in the consolidated statements of operations. As a result of the impairment, the Company
did not record any interest
income in connection with the Midnight Theatre Notes during the year ended December 31, 2024.
During the fourth quarter of the
year ended December 31, 2023, the Company determined that previously issued Midnight Theatre Notes had been
impaired, resulting from a
review of Midnight Theatre’s operating results and projections. As a result, as of December 31, 2023, the Company wrote off all
outstanding Midnight Theatre Notes and any accumulated unpaid interest receivable. The write-off amounted to $4,108,080 million of principal
and
$475,882 of accumulated interest receivable; the write-off of the principal amount is recorded within write-off of notes receivable
in the consolidated
statements of operations and the accumulated interest was recorded as a reversal of interest income in the consolidated
statements of operations to the
extent of interest income for the year, with the remainder in the amount of $168,620 recorded to interest
expense.
During the year ended December
31, 2023, Midnight Theatre made interest payments amounting to $127,500 related to the Midnight Theatre
Notes.
NOTE 9 — EQUITY METHOD INVESTMENTS
The Company’s equity method
investment consisted of: (1) Class A and Class B units of Midnight Theatre and (2) Series 2 common interest of
Stanton South LLC (“Crafthouse
Cocktails”).
F-25
The Company evaluated these investments
under the VIE guidance and determined the Company was not the primary beneficiary of either
Midnight Theatre or Crafthouse Cocktails,
however it does exercise significant influence over Midnight Theatre and Crafthouse Cocktails; as a result, it
accounted for these investments
under the equity method of accounting.
Midnight Theatre
As part of the Company’s
ongoing monitoring of its equity method investments, during the fourth quarter of the year ended December 31, 2023,
the Company determined
their investment in Midnight Theatre was impaired and therefore recorded an impairment for the entire balance of its investment
as of
December 31, 2023. This determination was made resulting from a review of Midnight Theatre’s operating results and projections and
the Company
concluded the resulting decline in the carrying value of this investment was determined to be other than temporary in nature.
The impairment amounted to
$681,694 and is recorded within equity in losses of unconsolidated affiliates in the consolidated statements
of operations.
Prior to the impairment
recognition, the Company recorded losses in connection with its equity method investment in Midnight Theatre amounting
to $209,800
during the year ended December 31, 2023. The Company’s balance (prior to impairment) as of December 31, 2023 represented an
ownership
percentage of approximately 13%. The Company’s equity investment in Midnight Theatre was nil as of December
31, 2024 and 2023.
Crafthouse Cocktails
As part of the Company’s
ongoing monitoring of its equity method investments, during the three months ended September 30, 2023, the Company
determined their investment
in Crafthouse Cocktails was impaired and therefore recorded an impairment for the entire balance of its investment as of
September 30,
2023. This determination was made after Crafthouse was unable to secure their latest round of funding and the Company concluded the
resulting
decline in the carrying value of this investment was determined to be other than temporary in nature. The impairment amounted to $1,169,587
and
is recorded within equity in losses of unconsolidated affiliates in the consolidated statements of operations.
Prior to the impairment
recognition, the Company recorded losses in connection with its equity method investment in Crafthouse Cocktails
amounting to $87,970
during the year ended December 31, 2023. The Company’s equity investment in Crafthouse Cocktails was nil as of December 31,
2024 and 2023.
NOTE 10 — OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
December 31,
2024
2023
Accrued funding under Max Steel marketing agreement
$
620,000 $
620,000
Accrued audit, legal and other professional fees
369,347
310,797
Accrued commissions
1,285,751
697,106
Accrued bonuses
1,207,829
971,276
Talent liability
5,595,816
2,983,577
Accumulated customer deposits
937,766
432,552
Other
1,087,527
1,678,806
Other current liabilities
$
11,104,036 $
7,694,114
NOTE 11 — DEBT
Total debt of the Company was
as follows as of December 31, 2024 and 2023:
December 31,
Debt Type
2024
2023
Convertible notes payable (see Note 12)
$
5,100,000 $
5,100,000
Convertible notes payable - fair value option (see Note 13)
320,000
355,000
Non-convertible promissory notes (see Note 14)
3,880,000
3,880,000
Non-convertible promissory note – Socialyte (see Note 14)
3,000,000
3,000,000
Loans from related party (see Note 15)
3,225,985
1,107,873
Revolving line of credit (see Note 11)
400,000
400,000
First BKU Term Loan, (see Note 11)
4,565,048
5,562,521
Second BKU Term Loan, (see Note 11)
2,000,000
—
Debt issuance costs
(96,759)
(79,907)
Total debt obligation
22,394,274
19,325,487
Less current portion of debt
(5,836,018)
(4,880,651)
Noncurrent portion of debt
$
16,558,256 $
14,444,836
F-26
The table below details the maturity
dates of the principal amounts for the Company’s debt as of December 31, 2024:
Debt Type
Maturity Date
2025
2026
2027
2028
2029
Thereafter
Convertible notes
payable
Between October
2026 and March
2030
$
—
$
1,750,000 $
3,350,000 $
— $
— $
500,000
Nonconvertible
promissory notes
Ranging between
June 2025 and
March 2029
750,000
500,000
—
2,215,000
415,000
—
Nonconvertible
unsecured
promissory
note –
Socialyte
Ranging between
June and
September 2023
3,000,000(A)
—
—
—
—
—
Revolving line of
credit
October 2, 2025
(mandatory 30-
day
annual
clearing of the
line of credit
balance)
400,000
—
—
—
—
—
BKU First Term
Loan
September 2028
1,083,866
1,176,307
1,276,631
1,028,244
—
—
Second BKU
Term Loan
December 2027
618,974
665,501
715,525
—
—
—
Loan from
related
party
December 2026
and June 2029
—
1,107,873
—
—
2,118,112
—
$
5,852,840
$
5,199,681 $
5,342,156 $
3,243,244 $
2,533,112 $
500,000
(A) As discussed in Note 14, 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 Socialyte Seller.
F-27
BankUnited Term Loans
On September 29, 2023, the Company
entered into a loan agreement with BankUnited (“BankUnited Loan Agreement”) in which an existing term
loan with BankProv was
repaid (the “Refinancing Transaction”). The BankUnited Loan Agreement includes: (i) $5,800,000 secured term loan (“First
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”) (collectively, the “BankUnited Credit Facility”). The First 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 First 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 December 6, 2024, the Company
entered into a second Bank United Loan Agreement (“Second BKU Loan Agreement”) for $2.0 million to
finance the acquisition
of Elle Communications, LLC. The Second BKU Loan Agreement carries a 1.0% origination fee and matures in December 2027.
Similar to the
First BKU Term Loan, the Second BKU Loan Agreement has a declining prepayment penalty equal to 3% in year one, 2% in year two and
1% in
year three of the outstanding balance. (The First BKU Term Loan, Second BKU Term Loan, BKU Line of Credit and BKU Commercial Card are
collectively referred to as the “Bank United Credit Facility”).
Interest accrues at 8.10% fixed
rate per annum on the First BKU Term Loan and 7.10% fixed rate per annum on the Second BKU Term Loan.
Principal and interest are payable
on a monthly basis based on a 5-year amortization for the First BKU Term Loan and 3-year amortization for the Second
BKU Term Loan. 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. During the years ended December 31, 2024 and 2023, the Company did not used the BKU
Commercial
Card. During the year ended December 31, 2024 and 2023, the Company made payments in the amount of $1,418,482 and $354,621, inclusive
of $421,009 and $117,141 of interest related to the First BKU Term Loan, respectively. During the year ended December 31, 2023, the Company
also made
payments of $479,745, inclusive of $158,316 of interest on the Bank Prov term loan that was refinanced with the BKU Term Loan.
Interest on the BKU Line of Credit
is variable based on the Lender’s Prime Rate. During the year ended December 31, 2024 and 2023, the
Company recorded interest expense
and made payments of $31,722 and $12,311, respectively, related to the BKU Line of Credit.
As of December 31, 2024, the Company
had a balance of $1,686,018 classified as current liabilities and $4,782,271 classified as noncurrent
liabilities, net of $96,759 of debt
issuance costs, in its consolidated balance sheet related to the First BKU Term Loan and the Second BKU Term Loan. As
of December 31,
2023, the Company had a balance of $980,651 classified as current liabilities and $4,501,963 classified as noncurrent liabilities, net
of
$79,907 of debt issuance costs, in its consolidated balance sheet related to the First BKU Term Loan. As of December 31, 2024 and 2023,
the Company
had a balance of $400,000 of principal outstanding under the BKU Line of Credit.
Amortization of debt origination
costs under the Bank United Credit Facility is included as a component of interest expense in the consolidated
statements of operations
and amounted to approximately $16,823 and $4,206 for the year ended December 31, 2024 and 2023, respectively.
The BankUnited Credit Facility
contains financial covenants tested semi-annually, starting on June 30, 2024, 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
Credit Facility contains a liquidity covenant that requires the Company to hold a cash balance at BankUnited with a daily minimum deposit
balance of $2,000,000.
The Refinancing Transaction was
accounted for as an extinguishment of debt. In connection with this extinguishment, the Company incurred a
prepayment penalty of $79,286 and
wrote-off unamortized debt origination costs of $91,859 related to the Bank Prov term loan, which were both
recognized as interest
expense in the consolidated statement of operations for the year ended December 31, 2023.
F-28
NOTE 12 — CONVERTIBLE NOTES PAYABLE
The following is a summary of
the Company’s convertible notes payable as of December 31, 2024 and 2023:
December 31,
2024
2023
Principal
Amount
Net
Carrying
Amount
Principal
Amount
Net
Carrying
Amount
Maturity Date
10% convertible notes due in October 2026
$
800,000 $
800,000 $
800,000 $
800,000
10% convertible notes due in November 2026
300,000
300,000
300,000
300,000
10% convertible notes due in December 2026
650,000
650,000
650,000
650,000
10% convertible notes due in January 2027
800,000
800,000
800,000
800,000
10% convertible notes due in June 2027
150,000
150,000
150,000
150,000
10% convertible notes due in August 2027
2,000,000
2,000,000
2,000,000
2,000,000
10% convertible notes due in September 2027
400,000
400,000
400,000
400,000
$
5,100,000 $
5,100,000 $
5,100,000 $
5,100,000
As of December 31, 2024 and 2023,
the Company had 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. On November 15, 2023, the Company entered into agreements
with two noteholders,
holding a total of five convertible notes payable, to extend the maturity date for two years from the original maturity
date. For one of these noteholders
(holding three convertible notes payable), the Company agreed to lower the minimum conversion price
to $2.00 per share. On January 13, 2025, the
Company entered into a second amendment to three of the convertible notes payable held by
the same investor and agreed to extend the maturity date to
January 13, 2027 and lower the minimum conversion price to $1.00. For the
remaining convertible notes payable, three may not be converted at a price less
than $5.00 per share and four of the convertible
notes payable may not be converted at a price less than $4.00 per share, which were their original terms.
As of December 31, 2024 and 2023,
the principal balance of the convertible notes payable of $5,100,000 of which all were recorded as noncurrent
liabilities on the Company’s
consolidated balance sheets under the caption convertible notes payable.
The Company recorded interest
expense related to these convertible notes payable of $510,250 and $543,472 during the year ended December 31,
2024 and 2023, respectively.
In addition, the Company made cash interest payments amounting to $510,250 and $538,794 during the year ended December
31, 2024 and
2023, respectively, related to the convertible notes payable.
During the year ended December
31, 2024, there were no convertible note repayments made or convertible notes converted.
During the year ended December
31, 2023, the holder of two convertible notes payable converted the aggregate principal balance of
$900,000 into 250,000 shares
of common stock at a conversion price of $4.00 per share. At the moment of conversion, accrued interest related to these
notes amounted
to $9,500 and was paid in cash.
During the year ended December
31, 2023, the Company paid $50,000 to a noteholder as partial repayment for the convertible note payable.
In January and February of 2025,
the Company entered into four convertible notes payable with an aggregate principal balance of $775,000. The
convertible notes payable
bear interest at a rate of 10% per annum with maturity dates ranging between the second and fifth anniversary of their respective
issuance
dates. The conversion price of one $100,000 convertible note payable is the 90-day trailing average trading price of the Company’s
common stock
prior to the date of conversion, with a floor price of $1.01. The conversion price of the second $100,000 convertible note
payable is the 30-day trailing
average trading price of the Company’s common stock prior to the date of conversion, with a floor
price of $1.01. The conversion price of the third
$100,000 convertible note payable is $1.02 per share and the conversion price of the
fourth $325,000 convertible note payable is $1.11 per share.
F-29
NOTE 13 — CONVERTIBLE NOTE PAYABLE AT FAIR
VALUE
The following is a summary of
convertible note payable for which the Company elected the fair value option as of December 31, 2024 and 2023:
Fair Value Outstanding as of December 31,
2024
2023
March 4th Note
$
320,000 $
355,000
Total convertible notes payable at fair value(a)
$
320,000 $
355,000
(a)
All amounts as of December 31, 2024 and 2023 are recorded
in noncurrent liabilities.
The Company recorded interest
expense related to this convertible note payable at fair value of $39,472 during each of the years ended December
31, 2024 and 2023. In
addition, the Company made cash interest payments amounting to $39,472 during each of the years ended December 31, 2024 and
2023,
related to this convertible note payable at fair value.
March 4th Note
On March 4, 2020, the Company
issued a convertible promissory note to a third-party investor and in exchange received $500,000 (the “March 4th
Note”).
The Company also agreed to issue a warrant (“Series I Warrant”) to purchase up to 10,000 shares of our common stock at a purchase
price of $7.82
per share with an expiration date of September 4, 2025. The March 4th Note bears interest at a rate of 8% per
annum and matures on March 4, 2030. The
Company elected the fair value option to account for the March 4th Note and determined
that the Series I Warrant met the criteria to be accounted for as a
derivative liability due to its net cash settlement provision upon
a fundamental transaction. As such, the Company recorded the fair value on issuance of the
March 4th Note and Series I Warrant
as $460,000 and $40,000, respectively. The balance of the March 4th Note and any accrued interest may be converted
at the noteholder’s
option at any time at a purchase price of $7.82 per share of our common stock.
For the years ended December 31,
2024 and 2023, the fair value of the March 4th Note decreased by $35,000 and increased by $11,444,
respectively, which were
recognized as current period other income/(expense) in the Company’s consolidated statement of operations under the caption
change
in fair value of convertible note (as no portion of such fair value adjustment resulted from instrument-specific credit risk).
For the years ended December 31,
2024 and 2023, the fair value of the Series I Warrant decreased by $5,000 and $10,000, respectively, which was
recognized as current period
other income in the Company’s consolidated statement of operations under the caption change in fair value of warrant.
As of both December 31, 2024 and
2023, the principal balance of the March 4th Note was $500,000. As of December 31, 2024 and 2023, the fair
value of the March
4th Note was $320,000 and $355,000, respectively, and the fair value of the Series I Warrant was nominal. For the years ended
December 31, 2024 and 2023, the Company recorded interest expense in the amount of $39,452 in its consolidated statement of operations.
NOTE 14 — NONCONVERTIBLE PROMISSORY NOTES
Nonconvertible Promissory Notes
As of December 31, 2024 and 2023,
the Company had five nonconvertible promissory notes outstanding. These nonconvertible promissory notes
bear interest at a rate of 10%
per annum and mature between June 2025 and March 2029.
F-30
In November 2024, one unsecured
nonconvertible promissory note amounting to $500,000 matured and was extended for an additional period of
two years, now maturing on November
22, 2026. In June and November 2023, two unsecured nonconvertible promissory note amounting to
$750,000 matured and were extended
for an additional period of two years, now maturing on June 14, 2025 ($400,000) and November 4, 2025 ($350,000).
During the year ended
December 31, 2023, the Company made repayments on an unsecured nonconvertible promissory note with a maturity date of
December 11, 2023
in the amount of $118,960.
During the years ended
December 31, 2024 and 2023, the Company recorded interest expense on its consolidated statements of operations
amounting to $388,000
and $338,843 respectively, and paid interest of $388,000 and $308,044, respectively related to these unsecured nonconvertible
promissory
notes. As of December 31, 2024 and 2023, the Company had a balance of $750,000 and $500,000, respectively, recorded as current liabilities
and $3,130,000 and $3,380,000 respectively, in noncurrent liabilities on its consolidated balance sheets related to these unsecured nonconvertible
promissory notes.
On February 28, 2025, the Company
issued an unsecured nonconvertible promissory note in the amount of $250,000 and received $250,000. The
note bears interest at a rate
of 10% per annum and matures on February 10, 2028.
Unsecured nonconvertible promissory note–
Socialyte
On November 14, 2022, pursuant
to a membership interest purchase agreement between NSL Ventures LLC (the “Socialyte Seller”) and the
Company, (the “Socialyte
Purchase Agreement”), the Company acquired all of the issued and outstanding membership interests of Socialyte (the “Socialyte
Purchase”). As part of the Socialyte Purchase, the Company issued the Socialyte Seller an unsecured nonconvertible promissory note
in the amount of $3
million (the “Socialyte Promissory Note”) that was to be repaid in two equal installments on June 30,
2023 and 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 Promissory Note is recorded on the Company’s consolidated
balance sheets in current liabilities under the caption notes payable, current
portion.
The Socialyte Purchase Agreement
allows the Company to offset a working capital deficit against the Socialyte Promissory Note. As such, on
June 30, 2023, the Company deferred
these installment payments until the final post-closing working capital adjustment is agreed upon with the Socialyte
Seller. The Company
has filed a lawsuit against the Socialyte Seller and certain of its principals related to the Socialyte Purchase Agreement. See Note 26.
The Company recorded interest
expense related to the Socialyte Promissory Note of $120,000 and $135,000 for the years ended December 31,
2024 and 2023, respectively.
NOTE 15 — LOANS FROM RELATED PARTY
On June 1, 2021, the Company exchanged
a promissory note that had been issued on October 1, 2016, for a nonconvertible promissory note with a
principal balance of $1,107,873
that matures on December 31, 2026 and bears interest at a rate of 10% per annum. The nonconvertible promissory note was
issued to Dolphin
Entertainment, LLC (“DE LLC”), an entity wholly owned by the Company’s Chief Executive Officer, William O’Dowd
(the “CEO”). On
April 29, 2024 and June 10, 2024, the Company issued two additional nonconvertible promissory notes to DE
LLC in the amounts of $1,000,000 and
$135,000, respectively, which mature on April 29, 2029 and June 10, 2029, respectively, (collectively
and with the June 1, 2021 note, “the DE LLC
Notes”). The DE LLC Notes each bear interest at a rate of 10% per annum.
As of December 31, 2024 and December
31, 2023, the Company had an aggregate principal balance of $2,242,873 and $1,107,873, respectively,
and accrued interest amounted
to $263,767 and $277,423, respectively, related to the DE LLC Notes. For the years ended December 31, 2024 and 2023, the
Company
did not repay any principal balance on the DE LLC Notes. During the year ended December 31, 2024, the Company made cash interest payments
in the amount of $200,000 related to the DE LLC Notes. The Company did not make cash interest payments during the year ended December
31, 2023,
related to this loan from related party.
On January 16, 2024, May 28, 2024
and December 30, 2024, the Company issued three nonconvertible promissory notes to Mr. Donald Scott
Mock, brother of Mr. O’Dowd,
in the amount of $900,000, $75,000, and $8,112, respectively, and received proceeds of $983,112 (the “Mock Notes”). The
Mock
Notes bear interest at a rate of 10% per annum and mature on the fourth anniversary of their respective issuance dates. As of
December 31, 2024, the
Company had a principal balance of $983,112, and accrued interest of $90,417. The Company did not make cash payments
during the year ended
December 31, 2024 related to the Mock Notes.
The Company recorded interest
expense of $276,761 and $110,787 for the year ended December 31, 2024 and 2023, respectively, related to the
DE LLC Notes and Mock
Notes.
NOTE 16 — FAIR
VALUE MEASUREMENTS
The Company’s non-financial
assets measured at fair value on a nonrecurring basis include goodwill and intangible assets. The determination of
our intangible fair
values includes several assumptions and inputs (Level 3) that are subject to various risks and uncertainties. Management believes it has
made reasonable estimates and judgments concerning these risks and uncertainties. All other financial assets and liabilities are carried
at amortized cost.
The Company’s cash balances
are representative of their fair values, as these balances are comprised of deposits available on demand. The
carrying amounts of accounts
receivable, notes receivable, prepaid and other current assets, accounts payable and other non-current liabilities approximate
their fair
values because of the short turnover of these instruments.
Financial Disclosures about Fair Value of Financial
Instruments
The tables below set forth information
related to the Company’s consolidated financial instruments:
Level in
December 31, 2024
December 31, 2023
Fair Value
Carrying
Fair
Carrying
Fair
Hierarchy
Amount
Value
Amount
Value
Assets:
Cash and cash equivalents
1
$
8,203,842 $
8,203,842 $
6,432,731 $
6,432,731
Restricted cash
1
925,004
925,004
1,127,960
1,127,960
Liabilities:
Convertible notes payable
3
$
5,100,000 $
5,065,000 $
5,100,000 $
4,875,000
Convertible note payable at fair value
3
320,000
320,000
355,000
355,000
Warrant liability
3
—
—
5,000
5,000
Contingent consideration
3
486,000
486,000
—
—
F-31
Convertible notes payable
As of December 31, 2024, the Company
has ten outstanding convertible notes payable with aggregate principal amount of $5,100,000. See Note
12 for further information on the
terms of these convertible notes and the respective carrying amounts and fair values.
The following is a summary of
the Company’s convertible notes payable as of December 31, 2024 and 2023:
December 31,
2024
2023
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
Maturity Date
10% convertible notes due in October 2026
$
800,000 $
793,000 $
800,000 $
817,000
10% convertible notes due in November 2026
300,000
298,000
300,000
285,000
10% convertible notes due in December 2026
650,000
643,000
650,000
649,000
10% convertible notes due in January 2027
800,000
839,000
800,000
821,000
10% convertible notes due in June 2027
150,000
148,000
150,000
140,000
10% convertible notes due in August 2027
2,000,000
1,955,000
2,000,000
1,808,000
10% convertible notes due in September 2027
400,000
389,000
400,000
355,000
$
5,100,000 $
5,065,000 $
5,100,000 $
4,875,000
The convertible notes payable are
categorized within Level 3 of the fair value hierarchy. The estimated fair value of the convertible notes was
computed using a Monte Carlo
Simulation, using the following assumptions:
December 31,
Fair Value Assumption – Convertible Debt
2024
2023
Stock Price
$
1.07 $
3.42
Minimum Conversion Price
$
4.00 – 5.00 $
4.00 – 5.00
Annual Asset Volatility Estimate
65%
80%
Risk Free Discount Rate (based on U.S. government treasury obligation with a term similar to that of
the convertible note)
4.23% – 4.26%
3.95% - 5.01%
Fair Value Option (“FVO”) Election
– Convertible note payable and freestanding warrants
Convertible note payable at fair value
As of December 31, 2024, the Company
has one outstanding convertible note payable with a face value of $500,000, the March 4th Note, which is
accounted for under the ASC 825-10-15-4
FVO election. Under the FVO election, the financial instrument is initially measured at its issue-date estimated
fair value and subsequently
remeasured at estimated fair value on a recurring basis at each reporting period date. The estimated fair value adjustment is
presented
as a single line item within other (expenses) income in the accompanying consolidated statements of operations under the caption change
in fair
value of convertible notes.
F-32
The March 4th Note is measured
at fair value and categorized within Level 3 of the fair value hierarchy. The following is a reconciliation of the fair
values from December
31, 2022 to December 31, 2024:
March 4th Note
Fair value as of December 31, 2022
$
343,556
Loss on change of fair value reported in the consolidated statements of operations
11,444
Fair value as of December 31, 2023
355,000
Gain on change of fair value reported in the consolidated statements of operations
(35,000)
Fair value as of December 31, 2024
$
320,000
The estimated fair value of the
March 4th Note as of December 31, 2024 and 2023, was computed using a Black-Scholes simulation of the present
value of its cash flows
using a synthetic credit rating analysis and a required rate of return, using the following assumptions:
December 31,
2024
2023
Face value principal payable
$
500,000 $
500,000
Original conversion price
$
7.82 $
7.82
Value of common stock
$
1.07 $
1.71
Expected term (years)
5.18
6.16
Volatility
90%
90%
Risk free rate
5.18%
4.41%
Warrants
In connection with the March 4th
Note, the Company issued the Series I Warrant, which is exercisable for 10,000 shares. The Series I Warrant is
measured at fair value
and categorized within Level 3 of the fair value hierarchy. The fair value of the Series I Warrant was nominal as of December 31,
2024
and December 31, 2023. The Series I Warrant expires on September 4, 2025.
F-33
Contingent consideration
The Company records the fair value
of the contingent consideration liability in the consolidated balance sheets under the caption contingent
consideration and records changes
to the liability against earnings or loss under the caption change in fair value of contingent consideration in the
consolidated statements
of operations.
For the contingent consideration
related to Be Social and Elle, the Company utilized a Monte Carlo Simulation model, which incorporates
significant inputs that are not
observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs utilized
for measuring
the fair value of the contingent consideration reflect management’s own assumptions about the assumptions that market participants
would
use in valuing the contingent consideration as of the acquisition date.
For the contingent consideration,
which is measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a
reconciliation of the fair
values from December 31, 2022 to December 31, 2024:
Be Social(1)
Elle(2)
Ending fair value balance reported in the consolidated balance sheet at December 31, 2022
$
705,000 $
—
Reclassified to additional paid in capital
33,821
Loss on change of fair value reported in the consolidated statements of operations, as revised
33,226
—
Settlement of contingent consideration
(772,047)
—
Ending fair value balance reported in the consolidated balance sheet at December 31, 2023
—
—
Contingent consideration entered into from Elle Acquisition
—
436,000
Loss on change of fair value reported in consolidated statements of operations, as revised
—
50,000
Ending fair value balance reported in the consolidated balance sheet at December 31, 2024
$
— $
486,000
(1)
During the year ended December 31, 2023, the Company settled the contingent consideration liability related to Be Social through payment of
$500,000 in cash and issuance of 145,422 shares of the common stock, with a value of $272,047 on April 25, 2023.
(2)
During the year ended December 31, 2024, Elle achieved the conditions for the earnout consideration, which will be paid in cash and settled in
March 2025.
NOTE 17 — VARIABLE INTEREST ENTITIES
VIEs are entities that, by design,
either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated
financial support from
other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s
operations
through voting rights, or do not have the obligation to absorb the expected losses or the right to receive the residual returns
of the entity.
The primary beneficiary of a VIE
is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both
(1) the power to
direct the activities of an entity that most significantly impact the VIE’s economic performance; and (2) through its interests
in the VIE, the
obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the
VIE. To assess whether the Company has
the power to direct the activities of a VIE that most significantly impact the VIE’s economic
performance, the Company considers all the facts and
circumstances, including its role in establishing the VIE and its ongoing rights
and responsibilities.
To assess whether the Company
has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be
significant to the VIE, the
Company considers all of its economic interests, including debt and equity investments, servicing fees, and derivative or other
arrangements
deemed to be variable interests in the VIE. This assessment requires that the Company apply judgment in determining whether these
interests,
in the aggregate, are considered potentially significant to the VIE.
F-34
The Company evaluated the entities
in which it did not have a majority voting interest and determined that it had (1) the power to direct the
activities of the entities
that most significantly impact their economic performance and (2) had the obligation to absorb losses or the right to receive benefits
from these entities. As such the financial statements of JB Believe, LLC are consolidated in the consolidated balance sheets as of December
31, 2024 and
2023, and in the consolidated statements of operations and statements of cash flows presented herein for the years ended
December 31, 2024 and 2023.
This entity was previously under common control and has been accounted for at historical costs for all periods
presented.
JB Believe LLC
As of and for the years ended December 31,
2024
2023
Assets
$
20,950 $
7,354
Liabilities
$
(6,504,910) $
(6,491,314)
Revenues
$
— $
55,518
Expenses
$
— $
—
The Company performs ongoing reassessments
of (1) whether entities previously evaluated under the majority voting-interest framework have
become VIEs, based on certain triggering
events, and therefore would be subject to the VIE consolidation framework, and (2) whether changes in the facts
and circumstances regarding
the Company’s involvement with a VIE cause the Company’s consolidation conclusion to change. The consolidation status of
the
VIEs with which the Company is involved may change as a result of such reassessments. Changes in consolidation status are applied prospectively
with
assets and liabilities of a newly consolidated VIE initially recorded at fair value unless the VIE is an entity which was previously
under common control,
which in that case is consolidated based on historical cost. A gain or loss may be recognized upon deconsolidation
of a VIE depending on the amounts of
deconsolidated assets and liabilities compared to the fair value of retained interests and ongoing
contractual arrangements.
JB Believe LLC, an entity owned
by Believe Film Partners LLC, of which the Company owns a 25% membership interest, was formed for the
purpose of recording the production
costs of the motion picture Believe. The Company was given unanimous consent by the members to enter into
domestic and international distribution
agreements for the licensing rights of the motion picture, Believe, until such time as the Company had been repaid
$3,200,000 for the
investment in the production of the film and $5,000,000 for the publicity and advertising expenses to market and release the film in the
US. The Company has not been repaid these amounts and as such is still in control of the distribution of the film. The capitalized production
costs related to
Believe were either amortized or impaired in years prior to 2022. JB Believe LLC’s primary liability is to the
Company for $6,241,314, which eliminates in
consolidation.
NOTE 18 — STOCKHOLDERS’ EQUITY
Preferred Stock
The Company’s Amended and
Restated Articles of Incorporation authorize the issuance of 10,000,000 shares of preferred stock. The Company’s
Board
of Directors (the “Board”) has the power to designate the rights and preferences of the preferred stock and issue the preferred
stock in one or more
series.
Pursuant to the Second Amended
and Restated Articles of Incorporation dated July 6, 2017, each share of Series C Preferred Stock (“Series C”) is
convertible
into one share of common stock, subject to adjustment for each issuance of common stock (but not upon issuance of common stock
equivalents)
that occurred, or occurs, from the date of issuance of the Series C (the “issue date”) until the fifth (5th) anniversary of
the issue date (i) upon
the conversion or exercise of any instrument issued on the issued date or thereafter issued (but not upon the
conversion of the Series C), (ii) upon the
exchange of debt for shares of common stock, or (iii) in a private placement, such that the
total number of shares of common stock held by an “Eligible
Class C Preferred Stock Holder” (based on the number of shares
of common stock held as of the date of issuance) will be preserved at the same percentage
of shares of common stock outstanding held by
such Eligible Class C Preferred Stock Holder on such date. An Eligible Class C Preferred Stock Holder
means any of (i) DE LLC for so long
as Mr. O’Dowd continues to beneficially own at least 90% and serves on the board of directors or other governing
entity, (ii) any
other entity in which Mr. O’Dowd beneficially owns more than 90%, or a trust for the benefit of others, for which Mr. O’Dowd
serves as
trustee and (iii) Mr. O’Dowd individually. Series C will only be convertible by the Eligible Class C Preferred Stock Holder
upon the Company satisfying
one of the “optional conversion thresholds.” Specifically, a majority of the independent directors
of the Board, in its sole discretion, must determine that the
Company accomplished any of the following (i) EBITDA of more than $3.0 million
in any calendar year, (ii) production of two feature films, (iii)
production and distribution of at least three web series, (iv) theatrical
distribution in the United States of one feature film, or (v) any combination thereof
that is subsequently approved by a majority of the
independent directors of the Board based on the strategic plan approved by the Board. At a meeting of
the Board on November 12, 2020,
a majority of the independent directors of the Board approved that the “optional conversion threshold” had been met.
F-35
At a meeting of the Board on November
12, 2020, the Board and Mr. O’Dowd agreed to restrict the conversion of the Series C until the Board
approved its conversion. Therefore,
on November 16, 2020, the Company and DE, LLC entered into a Stock Restriction Agreement pursuant to which the
conversion of the Series
C is prohibited until such time as a majority of the independent directors of the Board approves the removal of the prohibition. The
Stock
Restriction Agreement also prohibits the sale or other transfer of the Series C until such transfer is approved by a majority of the independent
directors of the Board. The Stock Restriction Agreement shall terminate upon a Change of Control (as such term is defined in the Stock
Restriction
Agreement) of the Company.
On September 27, 2022, the Company’s
shareholders approved an amendment to the terms of the Series C included in our Articles of
Incorporation to increase the number of votes
per share of common stock the Series C is convertible into from three votes per share to five votes per share.
As a result, DE LLC, as
the holder of the Series C was entitled to 11,847,350 votes, which was equal to approximately 57% of the voting securities of the
Company
as of December 31, 2023.
On September 24, 2024, the Company’s
shareholders approved an amendment to the terms of the Series C included in our Articles of
Incorporation to increase the number of votes
per share of common stock the Series C is convertible into from five votes per share to ten votes per share.
As a result, DE LLC, as the
holder of the Series C was entitled to 23,694,700 votes, which was equal to approximately 68% of the voting securities of the
Company
as of that date.
On November 6, 2024, the Company
received a letter (the “Letter”) from the Listing Qualifications staff (the “Staff”) of the Nasdaq Stock Market
LLC (“Nasdaq”) notifying the Company that the Staff has determined that the Company violated Nasdaq’s voting rights
rule set forth in Listing Rule 5640
(the “Voting Rights Rule”) due to the Company’s filing of shareholder-approved amendments
to the Company’s articles of incorporation modifying the
terms of the Company’s Series C Convertible Preferred Stock (the
“Series C”) to increase the number of votes per share of common stock the Series C is
convertible into (i) from three votes
per share to five votes per share, filed on September 29, 2022 (the “2022 Amendment”) and (ii) from five votes per
share to
ten votes per share, filed on September 25, 2024 (the “2024 Amendment” and, together with the 2022 Amendment, the “Amendments”).
As agreed with the Nasdaq, on
January 21, 2025, the Company held a special shareholder meeting and the shareholders approved the adoption of
the Articles of Amendment
that would modify the terms of the Series C to decrease the number of votes per share of common stock the Series C is
convertible into
from ten votes per share to three votes per share. On January 24, 2025, the Company filed those Articles of Amendment to its Amended
and
Restated Articles of Incorporation with the Secretary of State of the State of Florida.
The holder of Series C is entitled
to vote together as a single class on all matters upon which common stockholders are entitled to vote.
The Certificate of Designation
also provides for a liquidation value of $0.001 per share and dividend rights of the Series C on parity with the
Company’s
common stock.
Common Stock
The Company’s Amended and
Restated Articles of Incorporation authorize the issuance 200,000,000 shares of common stock.
On October 31, 2023, the Company
entered into an Underwriting Agreement (the “Underwriting Agreement”) with Maxim Group LLC (the
“Underwriter”),
pursuant to which the Company agreed to issue and sell to the Underwriter in an underwritten public offering (the “Offering”)
an aggregate
of 700,000 shares of the Company’s common stock at a price of $3.30 per share. Under the terms of the Underwriting
Agreement, the Company granted the
Underwriter an option, exercisable for 45 days, to purchase up to an additional 105,000 shares of the
Company’s common stock. On November 30, 2023,
the Underwriter exercised this option and purchased an additional 21,075 shares. The
Company received gross proceeds of approximately $2,380,000
before deducting underwriting discounts and commissions and estimated offering
expenses that are payable by the Company. The Company used the net
proceeds for working capital and other general corporate purposes.
The Offering closed November 2, 2023.
Reverse Stock Split
Effective October 16, 2024, the
Company amended its Amended and Restated Articles of Incorporation to effectuate a 1:2 reverse stock split. All
shares and per share
amounts discussed in these consolidated financial statements have been retrospectively adjusted for the Reverse Stock Split.
2022 Lincoln Park Transaction
On August 10, 2022, the Company
entered into a purchase agreement (the “LP 2022 Purchase Agreement”) and a registration rights agreement
(the “LP 2022
Registration Rights Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which the Company
could sell and
issue to Lincoln Park, and Lincoln Park was obligated to purchase, up to $25,000,000 in value of its shares of common
stock from time to time over a 36-
month period. Pursuant to the terms of the LP 2022 Registration Rights Agreement, the issuance of shares
pursuant to the LP 2022 Purchase Agreement
have been registered pursuant to our effective registration statement on Form S-1, and the
related prospectus dated September 15, 2022.
The Company may direct Lincoln
Park, at its sole discretion, and subject to certain conditions, to purchase up to 25,000 shares of common stock
on any business day (a
“Regular Purchase”). The amount of a Regular Purchase may be increased under certain circumstances up to 37,500 shares if
the
closing price is not below $15.00 and up to 50,000 shares if the closing price is not below $20.00, provided that Lincoln Park’s
committed obligation for
Regular Purchases on any business day shall not exceed $2,000,000. The purchase price for Regular Purchases (the
“Purchase Price”) shall be equal to
98.75% of the lesser of: (i) the lowest sale price of the Company’s common stock
during the purchase date, or (ii) the average of the three (3) lowest
closing sale prices of the Company’s common stock during the
ten (10) business days prior to the purchase date. In the event we purchase the full amount
allowed for a Regular Purchase on any
given business day, we may also direct Lincoln Park to purchase additional amounts as accelerated and additional
accelerated purchases.
The purchase price for the accelerated and additional accelerated purchases shall be equal to the lesser of 96% of (i) the closing sale
price on the accelerated purchase date, or (ii) such date’s volume weighted average price.
F-36
Pursuant to the terms of the LP
2022 Purchase Agreement, at the time the Company signed the LP 2022 Purchase Agreement and the LP 2022
Registration Rights Agreement,
the Company issued 28,657 shares of common stock to Lincoln Park as consideration for its commitment (“LP 2022
commitment
shares”) to purchase shares of our common stock under the LP 2022 Purchase Agreement. The commitment shares were recorded as a period
expense and included within selling, general and administrative expenses in the consolidated statements of operations.
Under
applicable rules of the NASDAQ Capital Market, the Company could not issue or sell more than 19.99% of the shares of its common stock
outstanding immediately prior to the execution of the LP 2022 Purchase Agreement to Lincoln Park under the LP 2022 Purchase Agreement
without
shareholder approval. At a meeting held on September 27, 2022, our shareholders approved the issuance of up to $25 million of
shares of our common
stock pursuant to the LP 2022 Purchase Agreement.
During
the year ended December 31, 2024, the Company sold 475,000 shares of its common stock at prices ranging between $2.14 and
$3.06 and
received proceeds of $1,185,300.
During
the year ended December 31, 2023, the Company sold 575,000 shares of common stock at prices ranging between $3.30 and
$4.54 pursuant
to the LP 2022 Purchase Agreement and received proceeds of $2,162,150.
The Company evaluated the contract
that includes the right to require Lincoln Park to purchase shares of common stock in the future (“put right”)
considering
the guidance in ASC 815-40, “Derivatives and Hedging — Contracts on an Entity’s Own Equity” (“ASC
815-40”) and concluded that it is an
equity-linked contract that does not qualify for equity classification, and therefore requires
fair value accounting. The Company has analyzed the terms of
the freestanding put right and has concluded that it has insignificant value
as of December 31, 2024 and 2023.
NOTE 19 — LOSS PER SHARE
The following table sets forth
the computation of basic and diluted loss per share:
Year ended December 31,
2024
2023
Numerator
Net loss
$
(12,603,225) $
(24,396,725)
Net income attributable to participating securities
—
—
Net loss attributable to Dolphin Entertainment Common Stockholders and numerator for basic loss per
share and diluted loss per share
$
(12,517,219) $
(24,396,725)
Denominator
Denominator for basic and diluted loss weighted-average shares
10,306,904
7,206,577
Basic loss per share
$
(1.22) $
(3.39)
Diluted loss per share
$
(1.22) $
(3.39)
Basic loss per share is computed
by dividing loss attributable to the shareholders of common stock (the numerator) by the weighted-average
number of shares of common stock
outstanding (the denominator) for the period. Diluted (loss) earnings per share assume that any dilutive equity
instruments, such as convertible
notes payable and warrants were exercised and outstanding common stock adjusted accordingly, if their effect is dilutive.
The March 4th
Note, the Series I Warrant and the Series C have clauses that entitle the holder to participate if dividends are declared to the
common
stock shareholders as if the instruments had been converted into shares of common stock. As such, the Company uses the two-class method
to
compute earnings per share and attribute a portion of the Company’s net income to these participating securities. These securities
do not contractually
participate in losses. For the years ended December 31, 2024 and 2023, the Company had net losses and as such the
two-class method is not presented.
For the year ended December 31,
2024, the Company excluded 2,683,195 common stock equivalents, including the March 4th Note that may be
converted into 63,939
shares of common stock, the outstanding Series I Warrant that may be converted into 10,000 shares of common stock and other
convertible
notes payable carried at their principal loan amount that are convertible based at a 90-day trailing trading average closing price (2,609,256
shares of common stock at December 31, 2024), in the calculation of diluted loss per share as their effect would be anti-dilutive.
For the year ended December 31, 2023, the Company excluded 1,414,091 common
stock equivalents, such as March 4th Note that may be
converted into 63,939 shares of common stock, the outstanding Series
I Warrant that may be converted into 10,000 shares of common stock and other
convertible notes payable carried at their principal loan
amount that are convertible based on a 90-day trailing trading average closing price (1,340,152
shares of common stock at December 31,
2023), in the calculation of diluted loss per share as their effect would be anti-dilutive.
NOTE 20 — WARRANT
A summary of Series I Warrant
activity during the years ended December 31, 2024 and 2023 is as follows:
Warrant:
Shares
Weighted Avg.
Exercise Price
Balance at December 31, 2022
10,000 $
7.82
Issued
—
—
Exercised
—
—
Expired
—
—
Balance at December 31, 2023
10,000 $
7.82
Issued
—
—
Exercised
—
—
Expired
—
—
Balance at December 31, 2024
10,000 $
7.82
F-37
Series I Warrant
On March 4, 2020, in connection
with the issuance of the March 4th Note, the Company issued the Series I Warrant to purchase up to 10,000
shares of common
stock at a purchase price of $7.82 per share. The Series I Warrant became exercisable on the six-month anniversary and for a period of
five years thereafter. If a resale registration statement covering the shares of common stock underlying the Series I Warrant is not effective
and available at
the time of exercise, the Series I Warrant may be exercised by means of a “cashless” exercise formula. The
Company determined that the Series I Warrant
should be classified as a freestanding financial instrument that meets the criteria to be
accounted for as a derivative liability and recorded a fair value at
issuance of $40,000.
The Company recorded $5,000 and
$10,000 of other income due to change in fair value of the Series I Warrant during the years ended December
31, 2024 and 2023, respectively.
The fair value of the Series I Warrant was nominal as of December 31, 2024 and 2023. The Series I Warrant expires on
September 4, 2025.
NOTE 21 — RELATED PARTY TRANSACTIONS
As part of the employment agreement
with its CEO, the Company provided a $1,000,000 signing bonus in 2012, which has not been paid and is
recorded in accrued compensation
on the consolidated balance sheets, along with unpaid base salary of $1,625,000 in aggregate attributable for the period
from 2012 through
2018. Any unpaid and accrued compensation due to the CEO under his employment agreement will accrue interest on the principal
amount at
a rate of 10% per annum from the date of his employment agreement until it is paid. Even though the employment agreement expired and has
not
been renewed, the Company has an obligation under the agreement to continue to accrue interest on the unpaid balance.
As of December 31, 2024 and 2023,
the Company had accrued $2,625,000 of compensation as accrued compensation and had balances of
$1,503,805 and $1,440,586, respectively,
in accrued interest in current liabilities on its consolidated balance sheets, related to the CEO’s employment
agreement. Amounts
owed under this arrangement are payable on demand. The Company recorded interest expense related to the accrued compensation in
the consolidated
statements of operations amounting to $263,219 and $262,500, respectively, for the years ended December 31, 2024 and 2023. The
Company
paid interest amounting to $200,000 and $400,000 in connection with the accrued compensation to the CEO during years ended December 31,
2024 and 2023, respectively.
The Company entered into the DE
LLC Note with an entity wholly owned by our CEO and the Mock Notes with our CEO’s brother. See Note 15
for further discussion.
NOTE
22 — SEGMENT INFORMATION
The Company operates in two reportable
segments, Entertainment Publicity and Marketing Segment (“EPM”) and Content Production Segment
(“CPD”).
•
The Entertainment Publicity and Marketing segment is composed of 42West, The Door, Shore Fire, The Digital Dept., Special Projects,
Always Alpha and Elle. This segment primarily provides clients with diversified marketing services, including public relations,
entertainment and hospitality content marketing, strategic marketing consulting and content production of marketing materials.
•
The Content Production segment is composed of Dolphin Entertainment and Dolphin Films. This segment engages in the production and
distribution of digital content and feature films. The activities of our Content Production segment also include all corporate overhead
activities.
The Company’s chief operating
decision maker (“CODM”) is its CEO. The profitability measure employed by our CODM for allocating resources
to operating segments
and assessing operating segment performance is adjusted operating income (loss) which is the Loss from operations on the
Company’s
consolidated statements of operations adjusted for depreciation and amortization, impairment of goodwill, acquisition costs, change in
fair
value of contingent consideration, stock compensation, bad debt and write-off of notes receivable. All segments follow the same accounting
policies as
those described in Note 2.
The following tables present revenue
and significant expenses by segment that are regularly provided to the CODM. Other segment items that the
CODM does not consider in assessing
segment performance are presented to reconcile to Adjusted loss from operations.
Year
ended December 31, 2024
EPM
CPD
Total
Segment revenue
$
48,263,843 $
3,421,141 $
51,684,984
Significant expenses:
Segment direct costs
1,442,851
1,823,610
3,266,461
Segment payroll and benefits
35,995,180
2,127,860
38,123,040
Segment selling, general and administrative (1)
6,276,752
1,013,685
7,290,437
Segment legal and professional
1,690,394
756,689
2,447,083
Adjusted income (loss) from operations
$
2,901,524 $
(2,300,703) $
557,963
Reconciliation to consolidated loss from operations:
Bad debt expense
—
—
505,173
Acquisition costs
—
—
164,044
Impairment of goodwill
—
—
6,671,557
Write off of notes receivable
—
—
1,270,000
Change in fair value of contingent consideration
—
—
50,000
Depreciation and amortization
—
—
2,382,361
Loss from operations
$
(10,485,172)
—
—
(1) Excludes bad debt expense
F-38
Year ended December 31, 2023
EPM
CPD
Total
Segment revenue
$
43,067,557 $
55,518 $
43,123,075
Significant expenses:
Segment direct costs(1)
843,631
78,331
921,962
Segment payroll and benefits
32,472,637
2,557,620
35,030,257
Segment selling, general and administrative (2)
6,037,922
1,476,955
7,514,877
Segment legal and professional
1,303,187
1,181,909
2,485,096
Adjusted operating loss
$
2,410,180 $
(5,239,297) $
(2,829,117)
Reconciliation to consolidated loss from operations
Bad debt expense
—
—
919,672
Acquisition costs
—
—
116,151
Impairment of deferred production costs
—
—
25,000
Impairment of goodwill
—
—
9,484,215
Impairment of intangible assets
—
—
341,417
Write off of notes receivable
—
—
4,108,080
Change in fair value of contingent consideration
—
—
33,226
Depreciation and amortization
—
—
2,253,619
Loss from operations
—
— $
(20,110,497)
(1) Excludes impairment of deferred production costs
(2) Excludes bad debt expense
The CODM does not review assets
on a segment basis. In connection with the acquisitions of its wholly owned subsidiaries, as of December 31,
2024 the Company had assigned
$10,189,026 of intangible assets, net of accumulated amortization of $13,221,945, and goodwill of $21,507,944, net of
impairments,
to the EPM segment. The amounts reflected for the year ended December 31, 2024 for EPM segment only include the activity of Elle for the
period between the acquisition date (July 15, 2024) and December 31, 2024. The amounts reflected for the year ended December 31, 2023
for EPM
segment only include the activity of Special Projects for the period between the acquisition date (October 2, 2023) and December
31, 2023. Equity method
investments are included within the EPM segment.
During the years ended December
31, 2024 and 2023, the Company impaired goodwill in the amount of $6,671,557 and $9,484,215, respectively,
because the carrying value
of some of its reporting units in the EPM segment was greater than its fair value. In addition, during the years ended December
31, 2024
and 2023, the Company impaired the Midnight Theatre Notes in the amount of $1,270,000 and $4,108,080 respectively. (See Note 8 for further
discussion).
NOTE 23 — INCOME TAXES
The Company’s current and
deferred income tax provision (benefits) are as follows:
December 31,
2024
2023
Current income tax expense (benefit)
Federal
$
— $
—
State
—
—
Current
$
— $
—
Deferred income tax expense (benefit)
Federal
$
(1,971,524) $
(5,161,523)
State
(812,753)
(1,600,131)
Deferred
$
(2,784,277) $
(6,761,654)
Change in valuation allowance
Federal
$
1,995,089 $
5,184,815
State
877,042
1,630,343
Change in valuation allowance
$
2,872,131 $
6,815,158
Income tax expense (benefit)
$
87,854 $
53,504
F-39
At December 31, 2024 and 2023,
the Company had deferred tax assets and liabilities as a result of temporary differences between financial
statement carrying amounts
and the tax basis of assets and liabilities. Deferred income taxes at December 31, 2024 and 2023 are as follows:
December 31,
2024
2023
Deferred Tax Assets:
Accrued expenses
$
1,151,704 $
1,319,752
IRC 163(j)
1,966,053
1,405,195
Lease liability
1,415,747
1,696,189
Accrued compensation
711,164
711,164
Intangibles
5,125,534
4,557,382
Other assets
356,519
417,380
Capitalized production costs
541,025
541,025
Net operating losses and credits
16,967,044
15,398,216
Equity investments
2,235,034
1,890,966
Total Deferred Tax Assets
$
30,469,824 $
27,937,269
Deferred Tax Liabilities:
Fixed assets
—
(18,531)
Right of use asset
(1,283,888)
(1,517,079)
Total Deferred Tax Liability
$
(1,283,888) $
(1,535,610)
Subtotal
$
29,185,936 $
26,401,659
Valuation Allowance
$
(29,580,483) $
(26,708,350)
Net Deferred Tax Liability
$
(394,547) $
(306,691)
The Company had the following
net operating loss (“NOL”) carry-forwards, gross, as of December 31, 2024:
Jurisdiction
NOL Amount
Expires
U.S. Federal(1)
$
58,853,146
2028
Florida
26,647,676
2029
California
21,367,106
2032
New York State
6,278,894
2039
New York City
7,198,585
2039
Illinois
745,341
2031
Massachusetts
1,536,336
2038
Total
$
122,627,084
(1)
Federal net operating losses
generated after December 31, 2017 have an indefinite life and do not expire.
Utilization of net operating losses
and tax credit carryforwards may be subject to an annual limitation provided by the Internal Revenue Code of
1986, as amended, and similar
state provisions. Further, a portion of the carryforwards may expire before being applied to reduce future income tax
liabilities.
In assessing the ability to realize
the deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will
not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during
the
periods in which these temporary differences become deductible. Management believes it is more likely than not that the deferred tax asset
will not be
realized and has recorded a net valuation allowance of $29,580,483 and $26,708,350 as of December 31, 2024 and 2023, respectively.
A reconciliation of the federal
statutory tax rate with the effective tax rate from continuing operations is as follows:
December 31,
2024
2023
Federal statutory tax rate
21.0%
21.0%
Goodwill impairment
(4.9)%
0.0%
Change in fair value of contingent consideration
0.0%
Change in fair value of derivative liabilities
0.0%
State income taxes, net of federal income tax benefit
6.5%
6.6%
Change in state tax rate
0.0)%
Return to provision adjustment
(0.2)%
0.3%
Other
(0.1)%
(0.1)%
Change in valuation allowance
(23.0)%
(28.0)%
Effective tax rate
(0.7)%
(0.2)%
F-40
As of December 31, 2024 and 2023,
the Company does not have any material unrecognized tax benefits and accordingly has not recorded any
interest or penalties related to
unrecognized tax benefits. The Company does not believe that unrecognized tax benefits will significantly change within the
next twelve
months. The Company and its subsidiaries file Federal, California, Florida, Illinois, Massachusetts, New York State, and New York City
income tax returns. These returns remain subject to examination by taxing authorities for all years with net operating loss carryforwards.
Income taxes are provided for
the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred
taxes related primarily
to differences between the basis of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the
future
tax consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled.
NOTE 24 — LEASES
The Company and its subsidiaries
are party to various office leases with terms expiring at different dates through February 2032. The amortizable
life of the right-of-use
assets is limited by the expected lease term. Although certain leases include options to extend the Company did not include these in
the
right-of-use assets or lease liabilities calculation because it is not reasonably certain that the options will be executed.
December 31,
Operating Leases
2024
2023
Assets
Right-of-use assets
$
4,606,431 $
5,469,734
Liabilities
Current
Lease liabilities
$
1,839,323 $
2,141,240
Noncurrent
Lease liabilities
$
3,247,291 $
3,986,787
Total lease liabilities
$
5,086,614 $
6,128,027
December 31,
Finance Leases
2024
2023
Assets
Right-of-use assets
$
132,566 $
129,993
Liabilities
Current
Lease liabilities
$
80,349 $
50,973
Noncurrent
Lease liabilities
$
58,742 $
81,855
Total lease liabilities
$
139,091 $
132,828
F-41
The table below shows the lease
expenses recorded in the consolidated statements of operations incurred during the years ended December 31,
2024 and 2023.
December 31,
Operating Lease Costs
Classification
2024
2023
Operating lease costs
Selling, general and administrative expenses
$
2,751,175 $
2,109,576
Sublease income
Selling, general and administrative expenses
(414,741)
(330,189)
Net operating lease costs
$
2,336,434 $
1,779,387
December 31,
Finance Lease Costs
Classification
2024
2023
Amortization of right-of-use assets
Selling, general and administrative expenses
$
78,995 $
29,098
Interest on lease liabilities
Selling, general and administrative expenses
10,273
6,480
Total finance lease costs
$
89,268 $
35,578
Lease Payments
For the years ended December 31,
2024 and 2023, the Company made cash payments related to its operating leases in the amount of $2,621,073
and $2,640,164, respectively.
Future minimum lease payments
for leases in effect at December 31, 2024 were as follows:
Year
Operating Leases
Finance Leases
2025
$
2,227,017 $
88,073
2026
2,054,617
54,567
2027
918,827
6,112
2028
155,710
—
2029
159,255
—
Thereafter
355,077
—
Total
$
5,870,503 $
148,752
Less: Imputed interest
(783,889)
(9,661)
Present value of lease liabilities
$
5,086,614 $
139,091
As of December 31, 2024, the Company’s
weighted average remaining lease terms on its operating and finance leases is 4.29 and 1.80 years,
respectively, and the Company’s
weighted average discount rate related to its operating and finance leases is 8.84% and 8.39%, respectively.
NOTE 25 — COLLABORATIVE ARRANGEMENT
IMAX Co-Production Agreement
On June 24, 2022, the Company
entered into an agreement with 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 (“Blue Angels Agreement”). IMAX and Dolphin have each agreed to fund 50%
of
the production budget. The Company paid an aggregate of $2,250,000 pursuant to the Blue Angels Agreement.
We have evaluated the Blue Angels
Agreement and have determined that it is a collaborative arrangement under ASC 808 “Collaborative
Arrangements”. We
will reevaluate whether an arrangement qualifies or continues to qualify as a collaborative arrangement whenever there is a change in
either the roles of the participants or the participants’ exposure to significant risks and rewards, dependent upon the ultimate
commercial success of
documentary motion picture.
On April 25, 2023, IMAX entered
into the Amazon Agreement for the distribution rights of The Blue Angels. The Amazon Agreement was
determined to be entity-customer relationship,
and the revenue recognized from the agreement was recorded separately as revenue from a customer. The
Blue Angels documentary motion picture
was released in theatres on May 17, 2024 and began streaming on Amazon Prime Video on May 23, 2024.
During the year ended December
31, 2024, the Company recorded net revenues of $3,421,141 from the Amazon Agreement. On February 22,
2024, the Company received $777,905 from
the Amazon Agreement upon delivery of the film by IMAX to Amazon Content Services LLC, the Company’s
single performance obligation
under the Amazon Agreement. On July 9, 2024, the Company received a second installment from IMAX in the amount of
$2,556,452.
F-42
NOTE 26 — COMMITMENTS AND CONTINGENCIES
Litigation
On June 21, 2024, the Company
filed a complaint in Los Angeles County Superior Court against the Socialyte Seller, and its principals alleging
that the defendants breached
the Socialyte Purchase Agreement and committed acts of fraud and negligence in connection with that transaction, and that the
Company
is entitled to monetary damages caused by those acts. On September 16, 2024, Defendants answered the Complaint with a general denial and
affirmative defenses. On September 16, 2024, defendant NSL also filed a Cross-complaint against the Company and Social Midco, LLC, alleging
a single
cause of action for breach of contract. The Company and Social Midco answered the Cross-complaint on October 1, 2024. Trial has
been scheduled by the
Court for February 2026. Due to the early stage of the litigation, an estimate of any possible loss or range of
loss cannot be made at this time. The
Company is not aware of any other pending litigation as of the date of this report and, therefore,
in the opinion of management and based upon the advice
of its outside counsels, the liability, if any, from any other pending litigation
is not expected to have a material effect in the Company’s financial position,
results of operations and cash flows.
Letter of Credit
Pursuant to the lease agreement
of 42West’s New York office location, the Company is required to issue a letter of credit to secure the leases. On
July 24, 2018,
the Company renewed the letter of credit issued by City National Bank for the 42West office space in New York. The original letter of
credit
was for $677,354 and originally expired on August 1, 2018. This letter of credit renews automatically annually unless City National
Bank notifies the
landlord 60 days prior to the expiration of the Bank’s election not to renew the letter of credit. In connection
with the annual renewals in 2021 and 2023,
the letter of credit was reduced to $541,883 and $338,677, respectively. The Company granted
City National Bank a security interest in bank account funds
totaling $338,677 pledged as collateral for the letter of credit. The letter
of credit commits the issuer to pay specified amounts to the holder of the letter of
credit under certain conditions. If this were to
occur, the Company would be required to reimburse the issuer of the letter of credit. The letter of credit for
the New York office was
automatically renewed in 2024.
Pursuant to the sublease agreement
of Dolphin’s Los Angeles office location, the Company issued the sublessor a letter of credit from City
National Bank in the amount
of $586,077 to secure the sublease. The letter of credit, issued on September 15, 2022, expires a year after issuance and is
deemed automatically
extended for one year from the expiration date unless City National Bank notifies the landlord 90 days prior to the expiration of the
Bank’s election not to renew the letter of credit. On September 15, 2024, this letter of credit was automatically renewed without
any changes in terms. The
Company granted City National Bank a security interest in bank account funds totaling $586,077 pledged as collateral
for the letter of credit. The letter of
credit commits the issuer to pay specified amounts to the holder of the letter of credit under
certain conditions. If this were to occur, the Company would be
required to reimburse the issuer of the letter of credit.
The Company is not aware of any
claims relating to its outstanding letters of credit as of December 31, 2024.
NOTE 27 — EMPLOYEE BENEFIT PLAN AND EQUITY
INCENTIVE PLAN
The Company and its wholly owned
subsidiaries have 401(k) profit sharing plans that covers substantially all of its employees. The Company’s
401(k) plan matches
dollar for dollar the first 3% of the employee’s contribution and then 50% of contributions for the next 2%, for a maximum match
of
4%. There are certain limitations for highly compensated employees. The Company’s contributions to these plans for the years
ended December 31, 2024
and 2023, were approximately $803,510 and $798,931, respectively.
Equity Incentive Plan
On June 29, 2017, the shareholders
of the Company approved the Dolphin Digital Media, Inc. 2017 Equity Incentive Plan (the “2017 Plan”).
There are 1,000,000
shares available to grant under the 2017 Plan. During the year ended December 31, 2024, the Company granted Restricted Stock Units
(“RSUs”)
to certain employees under the 2017 Plan, as detailed in the table below. During the year ended December 31, 2023 the Company did not
issue
any awards under the 2017 Plan. The fair value of the RSUs granted is determined using the fair value of the Company’s common
stock on the date of the
grant, which was $2.88.
The RSUs granted during the year
ended December 31, 2024, under the 2017 Plan to the Company’s employees vest in four equal installments on
the following dates:
March 15, 2024, June 15, 2024, September 15, 2024 and December 15, 2024. The Company recognized compensation expense for
RSUs of $17,181 for
the year ended December 31, 2024, respectively, which is included in payroll and benefits in the consolidated statements of
operations.
The related income tax benefit for the year ended December 31, 2024, was inconsequential. There was no share-based compensation under
the
2017 Plan recognized for the year ended December 31, 2023. As of both December 31, 2024 and 2023, all RSUs were vested and there is
no unrecognized
compensation expense.
F-43
The following table sets forth
the activity for the RSUs:
Number of
Shares
Weighted Average
Grant Date
Fair Value
Outstanding (nonvested), December 31, 2023
— $
—
Granted
6,784
2.88
Forfeited
(819)
2.88
Vested
(5,966)
2.88
Outstanding (nonvested), December 31, 2024
— $
—
The Company accounts for its
share-based compensation expense related to equity instruments under U.S. GAAP, which requires the
measurement and recognition of compensation
costs for all equity-based payment awards made to employees based on estimated fair values. The Company
uses the value of its common
stock on the grant date to establish the grant date fair value of the RSUs granted. We have elected to account for forfeitures as
they
occur. The Company uses authorized and unissued shares to meet share issuance requirements.
Shares issued related to employment agreements
Pursuant to the employment agreement
between the Company and Mr. Anthony Francisco, he is entitled to receive share awards amounting to
$25,000 at each of certain dates
in 2023 and 2024, in the aggregate amounting to $100,000. The shares are issued based on the 30-day trailing closing sale
price for the
common stock on the respective dates the shares were issued. Relating to this agreement:
·
on January 11, 2023, the Company issued to Mr. Francisco 3,183 shares of common stock at a price of $4.48 per share.
·
on July 28, 2023, the Company issued to Mr. Francisco 3,983 shares of common stock at a price of $4.02 per share.
·
on January 11, 2024, the Company issued to Mr. Francisco 4,505 shares of common stock at a price of $3.20 per share.
·
on June 28, 2024, the Company issued to Mr. Francisco 6,145 shares of common stock at a price of $2.92 per share.
Mr. Francisco’s employment
agreement expired in September 2024 and was not renewed.
During the year ended December
31, 2024 and 2023, the Company paid the salary of certain employees at one if its subsidiaries in fully vested
shares of the Company’s
common stock. During the year ended December 31, 2024 and 2023, the Company issued an aggregate of and 96,581 and
89,982 shares,
respectively, amounting to $186,032 and $324,960, respectively, in the aggregate on different dates though the year ended December 31,
2024 and 2023, following the normal payroll cycle.
During the year ended December
31, 2024, the Company issued 47,257 shares of common stock in satisfaction of a change of control clause in the
employment agreement of
a key employee of Elle. The Company also issued 24,630 shares of common stock as bonuses for certain employees.
F-44
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOLPHIN ENTERTAINMENT, INC.
Dated: March 27, 2025
By: /s/ William O’Dowd, IV
William O’Dowd, IV
Chief Executive Officer
Dated: March 27, 2025
By: /s/ Mirta A Negrini
Mirta A Negrini
Chief Financial and Operating Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates
indicated.
Signature
Title
Date
/s/ William O’Dowd, IV
Chairman, President and Chief Executive Officer
March 27, 2025
William O’Dowd, IV
(Principal Executive Officer)
/s/ Mirta A Negrini
Chief Financial and Operating Officer and Director
March 27, 2025
Mirta A Negrini
(Principal Financial Officer and Principal Accounting Officer)
/s/ Michael Espensen
Director
March 27, 2025
Michael Espensen
/s/ Nelson Famadas
Director
March 27, 2025
Nelson Famadas
/s/ Hilarie Bass
Director
March 27, 2025
Hilarie Bass
/s/ Nicholas Stanham
Director
March 27, 2025
Nicholas Stanham
/s/ Claudia Grillo
Director
March 27, 2025
Claudia Grillo
36
Exhibit 19.1
DOLPHIN
ENTERTAINMENT, INC.
STATEMENT
OF POLICIES AND PROCEDURES GOVERNING STOCK TRADING IN
GENERAL,
MATERIAL
NON-PUBLIC INFORMATION AND
THE
PREVENTION OF INSIDER TRADING
This
Statement consists of four sections:
Section
I provides an overview; Section II sets forth the policies of Dolphin Entertainment Inc. (“Dolphin”), prohibiting insider
trading; Section III
explains insider trading; and Section IV consists of various procedures which have been put in place by Dolphin
to prevent insider trading.
I.
SUMMARY
Preventing
insider trading is necessary to comply with securities laws and to preserve the reputation and integrity of Dolphin and its subsidiaries,
including 42West LLC, The Door Marketing Group, LLC, Shore Fire Media, Ltd, The Digital Dept., Elle Communications, LLC, Always Alpha
Sports
Management, LLC and Dolphin Films, Inc. (collectively, the "Company") as well as that of all persons affiliated with
it. As explained in Section III below,
"insider trading" occurs when any person purchases or sells a security while in possession
of inside information relating to the security. Insider trading is a
crime and the penalties for violating the law include imprisonment,
disgorgement of profits, civil fines of up to three times the profit gained or loss avoided,
and criminal fines of up to $5,000,000 for
individuals and $25,000,000 for entities. Insider trading is also prohibited by this Statement and could result in
serious sanctions,
including termination of employment. Persons violating this Statement will be subject to immediate dismissal from the Company.
This
Statement applies to all officers, directors and employees of the Company and extends to all activities within and outside an individual's
duties at
the Company. The Company requires the full cooperation of all officers, directors and employees and, in particular, management
and supervisory
personnel, in the implementation and enforcement of this Statement. Every officer, director and employee must review
this Statement. Questions regarding
the Statement should be directed to the compliance officer of the Company (the “Compliance
Officer”) at (305) 774-0407 or
mirta@dolphinentertainment.com. The current Compliance Officer is Mirta A Negrini.
II.
STATEMENT
OF POLICIES PROHIBITING INSIDER TRADING
A.
Prohibited
Activities
No
officer, director or employee shall purchase or sell any type of security while in possession of material non-public information relating
to the
security, whether the issuer of such security is the Company or any other company. Additionally, except for the exercise of options
that does not involve the
sale of Company securities (e.g., the cashless exercise of a Company stock option does involve the sale of
Company securities and therefore would not
qualify under this exception), for planned trades described below, and for certain limited
exceptions provided by the securities rules, no officer, director or
designated employee shall purchase or sell any security of the Company
during the blackout period beginning on the last day of any fiscal quarter and
ending two business days after the public release of earnings
data for such fiscal quarter (the "Blackout Period"). The Company's fiscal quarters end on
March 31, June 30, September 30
and December 31. For purposes of this statement, "designated employee" refers to any person who is designated as such
by the
Compliance Officer based upon their regular access to sensitive, non-public, material information.
No
officer, director or employee shall directly or indirectly tip material non-public information to anyone while in possession of such
information. In
addition, material non-public information should not be communicated to anyone outside the Company under any circumstances,
or to anyone within the
Company other than on a need-to-know basis.
B.
Exception
for Trades Pursuant to an Established Plan of Sales
Upon
approval by the Compliance Officer, an insider may enter into a fixed contract for the purchase or sale of the Company's securities or
establish a
plan for programmatic purchases or sales which may provide for purchases or sales, as the case may be, of the Company's securities
on a future date or
dates, which may be during the applicable Blackout Periods, but only in accordance with the procedures set forth
in Section IV(E) below.
1
III.
EXPLANATION
OF INSIDER TRADING
As
noted above, "insider trading" refers to the purchase or sale of a security while in possession of "material" "non-public"
information relating to the
security. "Securities" include not only stocks, bonds, notes and debentures, but also options,
warrants and similar instruments. "Purchase" and "sale" are
defined broadly under the federal securities law. "Purchase"
includes not only the actual purchase of a security, but any contract or instruction to purchase
or otherwise acquire a security. "Sale"
includes not only the actual sale of a security, but any contract or instruction to sell or otherwise dispose of a
security. These definitions
extend to a broad range of transactions including conventional cash-for-stock transactions, conversions, a sale of a security upon
a
cashless exercise and acquisitions and exercises of warrants or puts, calls or other options related to a security. However, there are
certain limited
exemptions in the securities laws to this broad prohibition, for which the Compliance Officer can provide additional
details. It is generally understood that
insider trading includes the following:
·
Trading
by insiders while in possession of material non-public information;
·
Trading
by persons other than insiders while in possession of material non-public information where
the information either was
given in breach of an insider's fiduciary duty to keep it confidential
or was misappropriated; or
·
Communicating
or tipping material non-public information to others, including recommending the purchase
or sale of a security
while in possession of such information.
A.
What
Facts are Material?
The
materiality of a fact depends upon the circumstances. A fact is considered "material" if there is a substantial likelihood
that a reasonable investor
would consider it important in making a decision to buy, sell or hold a security or where the fact is likely
to have a significant effect on the market price of
the security. Material information can be positive or negative and can relate to
virtually any aspect of a company's business or to any type of security, debt
or equity. Examples of material information include (but
are not limited to) the information listed on Attachment A. Moreover, material information does
not have to be related to a company's
business. For example, the contents of a forthcoming newspaper column that is expected to affect the market price of
a security can be
material.
2
A
GOOD GENERAL RULE OF THUMB: WHEN IN DOUBT, DO NOT TRADE.
B.
What
is Non-Public?
Information
is "non-public" if it is not available to the general public. In order for information to be considered public, it must be
widely disseminated
in a manner making it generally available to investors through such media as Dow Jones, Reuters Economic
Services, The Wall Street Journal, Associated
Press, or United Press International. The circulation of rumors,
even if accurate and reported in the media, does not constitute effective public
dissemination.
In
addition, even after a public announcement, a reasonable period of time must lapse in order for the market to react to the information.
Generally,
you should allot approximately 48 hours following publication as a reasonable waiting period before such information is deemed
to be public.
C.
Who
is an Insider?
"Insiders"
include officers, directors, and employees of a company and anyone else who has material inside information about a company. Insiders
have independent fiduciary duties to their company and its stockholders not to trade on material non-public information relating to the
company's
securities. All officers, directors and employees of the Company should consider themselves insiders with respect to material
non-public information about
business, activities and securities. Officers, directors and all employees may not trade the Company's securities
while in possession of material non-public
information relating to the Company nor tip (or communicate except on a need-to-know basis)
such information to others. This applies even if you are not a
"designated employee."
It
should be noted that trading by members of an officer's, director's or employee's household can be the responsibility of such officer,
director or
employee under certain circumstances and could give rise to legal and Company-imposed sanctions.
D.
Trading
by Persons Other than Insiders
Insiders
may be liable for communicating or tipping material non-public information to a third party ("tippee"), and insider trading
violations are not
limited to trading or tipping by insiders. Persons other than insiders also can be liable for insider trading, including
tippees who trade on material non-
public information tipped to them or individuals who trade on material non-public information which
has been misappropriated.
Tippees
inherit an insider's duties and are liable for trading on material non-public information illegally tipped to them by an insider. Similarly,
just as
insiders are liable for the insider trading of their tippees, so are tippees who pass the information along to others who trade.
In other words, a tippee's
liability for insider trading is no different from that of an insider. Tippees can obtain material non-public
information by receiving overt tips from others or
through, among other things, conversations at social, business, or other gatherings.
3
E.
Penalties
for Engaging in Insider Trading
Penalties
for trading on or tipping material non-public information can extend significantly beyond any profits made or losses avoided, both for
individuals engaging in such unlawful conduct and their employers. Employers and other controlling persons who are not directly engaged
in insider
trading are at risk. The term "controlling persons" includes a person who might be in a supervisory position over
an individual violator. Controlling persons
may also face substantial civil penalties if they recklessly fail to take preventative steps
to control insider trading. The Securities and Exchange
Commission ("SEC") can pursue more than one controlling person for
failing to prevent a single violation and may seek to obtain a judgment against each
controlling person as well as the individual violator
for the full penalty. The SEC and Department of Justice have made the civil and criminal prosecution of
insider trading violations a
top priority. Enforcement remedies available to the government or private plaintiffs under the federal securities laws include:
•
SEC
administrative sanctions;
•
Securities
industry self-regulatory organization sanctions;
•
Civil
injunctions;
•
Damage
awards to private plaintiffs;
•
Disgorgement
of all profits;
•
Civil
fines for the violator of up to three times the amount of profit gained or loss avoided;
•
Civil
fines for the employer or other controlling person of a violator (i.e., where the violator
is an employee or other controlled
person) of up to the greater of $1,000,000 or three times
the amount of profit gained or loss avoided by the violator;
•
Criminal
fines for individual violators of up to $5,000,000 ($25,000,000 for an entity); and
•
Jail
sentences of up to 20 years.
In
addition, insider trading is proper grounds for serious sanctions by the Company, including termination of employment. Insider trading
violations
are not limited to violations of the federal securities laws. Other federal and state civil or criminal laws, such as the
laws prohibiting mail and wire fraud
and the Racketeer Influenced and Corrupt Organizations Act (RICO), also may be violated upon the
occurrence of insider trading.
F.
Examples
of Insider Trading
Examples
of insider trading cases include actions brought against: corporate officers, directors, and employees who traded a company's securities
after
learning of significant confidential corporate developments; friends, business associates, family members, and other tippees of
such officers, directors, and
employees who traded the securities after receiving such information; government employees who learned
of such information in the course of their
employment; and other persons who misappropriated, and took advantage of, confidential information
from their employers.
The
following are illustrations of insider trading violations. These illustrations are hypothetical and, consequently, not intended to reflect
on the actual
activities or business of the Company or any other entity.
Trading
by Insider
An
officer of X Corporation learns that earnings to be reported by X Corporation will increase dramatically. Prior to the public announcement
of such
earnings, the officer purchases X Corporation's stock. The officer, an insider, is liable for all profits as well as penalties
of up to three times the amount of
all profits. The officer also is subject to, among other things, criminal prosecution, including up
to $5,000,000 in additional fines and 10 years in jail.
Depending upon the circumstances, X Corporation and the individual to whom the
officer reports also could be liable as controlling persons.
Trading
by Tippee
An
officer of X Corporation tells a friend that X Corporation is about to publicly announce that it has concluded an agreement for a major
acquisition.
This tip causes the friend to purchase X Corporation's stock in advance of the announcement. The officer is jointly liable
with his friend for all of the
friend's profits and each is liable for all penalties of up to three times the amount of the friend's
profits. In addition, the officer and his friend are subject to,
among other things, criminal prosecution, as described above.
4
G.
Insider
Reporting Requirements, Short-Swing Profits and Short Sales Reporting
(1)
Obligations
Under Section 16(a)-SEC Forms 3, 4 and 5
Section
16(a) of the 1934 Act generally requires all officers, directors and 10% stockholders ("insiders") to file with the SEC an
"Initial Statement of
Beneficial Ownership of Securities" on SEC Form 3, within 10 days after the insider becomes an officer,
director, or 10% stockholder. The Form 3 requires
that the insider list the amount of the Company's Common Stock ("Company Common
Stock") which the insider beneficially owns and the amount of
derivative securities (as the term is defined in Rule 16a-1), including
stock options, restricted stock units, warrants, convertible notes and any other
securities with an exercise or conversion privilege
at a price related to Company Common Stock or with a value derived from the value of Company
Common Stock, which the insider beneficially
owns. Not all of the Company's officers meet the Section 16 definition of officer. If you are not sure whether
or not you are an officer
as defined under Section 16, you need to ask the Compliance Officer.
Following
the initial filing on SEC Form 3, every change in the beneficial ownership of Company Common Stock, stock options, restricted stock
units,
and other derivative securities must be reported to the SEC on a Form 4 report. Under the Sarbanes-Oxley Act, these Form 4 reports must
be filed
within 2 business days after the date of sale or purchase. The SEC modified the calculation of the two-business day period for
the two types of transactions
where the reporting person does not select the date of execution: 1) transactions executed pursuant to
a Rule 10b5-1 trading plan and 2) discretionary
transactions pursuant to an employee benefit plan. For these two types of transactions,
Form 4 reports must be filed within two business days of the date the
reporting person is notified of the date of the transaction; provided,
that the broker or plan administrator is required to notify the reporting person within
three business days following the trade date.
Consequently, you may be required to file multiple Form 4 reports for activity during a month. Specific
transactions that do not give
rise to concerns about insider trading, such as gifts, may still be reported on a Form 5 report within 45 days after fiscal year
end.
Form 4 reports must be filed even if, as a result of balancing transactions, there has been no net change in holdings. For purposes of
determining the
date that the purchase or sale on the open market occurred, the trade date rather than the settlement date is ordinarily
determinative.
All
transactions by either the insider or any immediate family member in Company Common Stock, any exercise of options, or any other transaction
that would have the effect of changing the insider's beneficial ownership must be "pre-cleared" in writing with the Compliance
Officer, which will enable
us to quickly facilitate the preparation of the Form 4 report. This requirement for written "pre-clearance"
applies to gifts and transfers to, from or between
trusts, family limited partnerships or between family members. In addition, immediately
upon completion of such transaction, you must immediately advise
the Compliance Officer of the terms of the transaction. Based upon your
information, we will prepare a Form 4 report and transmit it to you for your
approval.
Due
to the reduced time frame for Form 4 filings, each insider is requested to execute a power of attorney, which will permit the Company
or its legal
counsel to file on your behalf the appropriate Form 4 report. Although the Company will still endeavor to receive your signature
on a Form 4 report, this
will allow the Form 4 to be filed on a timely basis. Note, however, that the Company's possession of and ability
to use such Power of Attorney does not
relieve you of your primary liability to file the Form 4.
Filings
by insiders that are not filed with the SEC on a timely basis must be reported in next year's proxy statement. In addition, the SEC has
been
granted broad authority to seek “any equitable relief that may be appropriate or necessary for the benefit of investors”
for violations of any provisions of
the securities laws.
5
(2)
Recovery
of Profits Under Section 16(b)
For
the purpose of preventing the unfair use of information which may have been obtained by an insider, any profits realized by an insider
from any
"purchase" and "sale" of Company Common Stock or a derivative security during a six-month period, so called
"short-swing profits," may be recovered by
the Company. When such a purchase and sale occurs, good faith is no defense. The
insider is liable even if compelled to sell for personal reasons, and even
if the sale takes place after full disclosure and without
the use of any inside information.
The
liability of an insider under Section 16(b) of the 1934 Act is only to the Company itself. The Company, however, cannot waive its right
to short swing
profits, and any Company stockholder can bring suit in the name of the Company. In this connection it must be remembered
that reports of ownership filed
with the SEC on Form 3, Form 4 or Form 5 pursuant to Section 16(a) (discussed above) are readily available
to the public and certain attorneys carefully
monitor these reports for potential Section 16(b) violations. In addition, liabilities
under Section 16(b) may require separate disclosure in the Company's
annual report to the SEC on Form 10-K or its proxy statement for
its annual meeting of stockholders. No suit may be brought more than two years after the
date the profit was realized. However, if the
insider fails to file a report of the transaction under Section 16(a), as required, the two-year limitation period
does not begin to
run until after the transactions giving rise to the profit have been disclosed. Failure to report transactions and late filing of reports
require
separate disclosure in the Company's proxy statements.
Officers
and directors should consult the attached "Short-Swing Profit Rule 16(b) Checklist" attached hereto as Attachment B in addition
to consulting the
Compliance Officer prior to engaging in any transactions involving the Company's securities, including without limitation,
Company Common Stock,
options, warrants, restricted stock units or any other derivative security.
(3)
Special
and Prohibited Transactions
Short
Sales. Section 16(c) of the 1934 Act prohibits insiders absolutely from making short sales of Company Common Stock, i.e., sales of
shares which the
insider does not own at the time of sale, or sales of stock against which the insider does not deliver the shares within
20 days after the sale, either directly or
indirectly. Under certain circumstances, the purchase or sale of put or call options, or the
writing of such options, can result in a violation of Section 16(c).
Insiders violating Section 16(c) face criminal liability. By operation
of this Statement, the Company hereby prohibits any officer, director or employee from
making a short sale of Company Common Stock which
would be prohibited by Section 16(c) if such employee were an insider. Sales "against the box" are
also prohibited. A sale
"against the box" is a sale of securities which are owned but are not delivered after the sale. A sale "against the box"
has the same
effect as a short sale. The Compliance Officer should be consulted if you have any questions regarding reporting obligations,
short-swing profits or short
sales under Section 16.
Hedging
Transactions. Certain forms of hedging or monetization transactions, such as zero-cost collars and forward sale contracts, allow
an officer, director
or employee to lock in much of the value of his or her stock holdings, often in exchange for all or part of the
potential for upside appreciation in the stock.
No executive officer or director of the Company may enter into any such transaction involving
Company Common Stock. Any other employee who wishes
to engage in a transaction of this type must comply with the preclearance procedures
set forth in Section IV(D) below. Additionally, these transactions, like
all transactions in derivative securities, are subject to the
same Blackout Periods as transactions in Company Common Stock.
Margin
Account and Pledges. Securities held in a margin account may be sold by a broker without the customer's consent if the customer fails
to meet a
margin call. Similarly, securities pledged as collateral for a loan may be sold in foreclosure if the borrower defaults on
the loan. Because a margin sale or
foreclosure sale may occur at a time when the pledgor is aware of material non-public information
or otherwise is not permitted to trade in Company
Common Stock or derivative securities, insiders should take special precautions when
placing Company Common Stock or derivative securities in a margin
account or when pledging Company Common Stock or derivative securities
as collateral for a loan. Any such arrangement must be structured to ensure that
the executive and any documentation regarding the arrangement
are in compliance with applicable securities laws. In order for the Company to comply
with its securities disclosure requirements, and
to ensure that margin accounts are structured in a manner to minimize inside trading concerns in the case of
a margin call during a Blackout
Period, it is important that the Company is aware of any Company Common Stock or derivative securities held in a margin
account or pledged
as collateral. Any insider who wishes to place Company Common Stock or derivative securities in a margin account or pledge
Company Common
Stock or derivative securities as collateral for a loan should provide the Compliance Officer written notice of his or her intent to
margin
or pledge Company Common Stock, accompanied by a copy of the proposed documentation, at least two business days prior to the margin
or pledge.
6
H.
Prohibition
of Records Falsifications and False Statements
Section
13(b)(2) of the 1934 Act requires companies subject to the Act to maintain proper internal books and records and to devise and maintain
an
adequate system of internal accounting controls. The SEC has supplemented the statutory requirements by adopting rules that prohibit
(1) any person from
falsifying records or accounts subject to the above requirements and (2) officers or directors from making any materially
false, misleading, or incomplete
statement to any accountant in connection with any audit or filing with the SEC. These provisions reflect
the SEC's intent to discourage officers, directors
and other persons with access to the Company's books and records from taking action
that might result in the communication of materially misleading
financial information to the investing public.
IV.
STATEMENT
OF PROCEDURES PREVENTING INSIDER TRADING
The
following procedures have been established, and will be maintained and enforced, by the Company to prevent insider trading. Every officer,
director
and employee is required to follow these procedures.
A.
Identifying
Material Non-public Information
Prior
to directly or indirectly trading any security of the Company, every officer, director and designated employee is required to contact
the Compliance
Officer (as part of the pre-clearance procedure discussed below in Section D) and make an initial determination whether
the Company and/or such officer,
director or designated employee is in possession of material non-public information relating to such
security. In making such assessment, the explanations
of "material" and "non-public" information set forth above
should be of assistance. If after consulting with the Compliance Officer it is determined that the
Company and/or such officer, director
or designated employee is in possession of material non-public information, there may be no trading in such security.
B.
Information
Relating to the Company
(1)
Access
to Information
Access
to material non-public information about the Company, including the Company's business, earnings or prospects, should be limited to officers,
directors and employees of the Company on a need-to- know basis. In addition, such information should not be communicated to anyone outside
the
Company under any circumstances or to anyone within the Company on an other than need-to-know basis.
In
communicating material non-public information to employees of the Company, all officers, directors and employees must take care to emphasize
the
need for confidential treatment of such information and adherence to the Company's policies with regard to confidential information.
(2)
Inquiries
From Third Parties
Inquiries
from third parties, such as industry analysts or members of the media, about the Company should be directed to Mirta A Negrini, the Company’s
Chief Financial and Operating Officer, at (305) 774-0407 or mirta@dolphinentertainment.com. If the person making the inquiry persists,
the officer,
director or employee being contacted should state that he or she is not at liberty to discuss Company information outside
the Company. Anyone receiving
such an inquiry should contact Ms. Negrini immediately and inform Ms. Negrini of the name of the person
making the inquiry and the nature of the inquiry.
C.
Limitations
on Access to the Company Information
The
following procedures are designed to maintain confidentiality with respect to the Company's business operations and activities.
All
officers, directors and employees should take all steps and precautions necessary to restrict access to, and secure, material non-public
information
by, among other things:
•
Maintaining
the confidentiality of Company related transactions;
•
Conducting
their business and social activities so as not to risk inadvertent disclosure of confidential
information.
Review of confidential documents should not be done in public places;
•
Restricting
access to documents and files (including computer files) containing material non-public information
to
individuals on a need-to-know basis (including maintaining control over the distribution
of documents and drafts of
documents);
•
Promptly
removing and cleaning up all confidential documents and other materials from conference rooms
following
the conclusion of any meetings;
•
Disposing
of all confidential documents and other papers, after there is no longer any business or
other legally required
need, through shredders when appropriate;
•
Restricting
access to areas likely to contain confidential documents or material non-public information;
and
•
Avoiding
the discussion of material non-public information in places where the information could be
overheard by
others such as in elevators, restrooms, hallways, restaurants, airplanes or
taxicabs.
Personnel
involved with material non-public information, to the extent feasible, should conduct their business and activities in areas separate
from
other Company activities.
7
D.
Pre-Clearance
of All Trades by All Officers, Directors and Designated Employees and Blackout Periods
Prior
to conducting any transactions in Company securities (including without limitation, acquisitions and dispositions of Company Common Stock,
the exercise of stock options and the sale of Company Common Stock issued upon exercise of stock options), an officer, director or designated
employee
must request, and obtain, in each case in writing or by e-mail, pre-clearance of such transaction from the Compliance Officer.
In the case of the Compliance
Officer, pre-clearance of such transaction must be requested and obtained, in each case in writing or by
e-mail, from the Company’s outside legal counsel.
This
pre-clearance procedure has been established:
•
to
provide assistance in preventing inadvertent violations of applicable securities laws;
•
to
avoid the appearance of impropriety in connection with the purchase and sale of the Company
securities; and
•
to
insure timely compliance by all Company insiders with the strict time requirements for the
filings of Form 4 reports.
Additionally,
except for the exercise of options that does not involve the sale of Company securities (e.g., the cashless exercise of a Company stock
option does involve the sale of Company securities and therefore would not qualify under this exception), and pursuant to the exception
for planned trades
described in Section II(B), neither the Company nor any of its officers, directors or designated employees may trade
in any securities of the Company
during a Blackout Period. Also, please consult the "Insider Trading Reminders" attached hereto
as Attachment C.
E.
Pre-Clearance
of Planned Trades
The
Compliance Officer may, on a case-by-case basis, authorize an insider to enter into fixed contracts for the purchase or sale of the Company's
securities or establish a plan for programmatic trades which may provide for purchases or sales of the Company's securities on a future
date or dates, which
may be during Blackout Periods, after:
(1)
such
person has notified the Compliance Officer in writing of the details of the contract or plan.
In order for a
contract or plan to be approved, it must meet the following criteria:
(a)
the
contract or instructions to a third person must be binding upon the insider and be in writing;
(b)
the
contract, instructions or plan must either: (i) expressly specify the amount, price and date;
(ii)
provide a written formula, algorithm or computer program for determining amounts, prices
and dates,
or (iii) designate a third person who will have sole power to determine how, when
or whether a
purchase or sale is consummated;
(c)
the
insider may not have any authority to subsequently influence how, when or whether a purchase
or
sale is consummated; and
(d)
comply
with all other requirements of Rule 10b5-1 of the 1934 Act.
(2)
such
person has certified to the Compliance Officer in writing that at the time of entering into
such contract or
plan: (i) he or she is not in possession of material non-public information
concerning the Company; (ii) he or
she has not entered into any other transaction that would
have the effect of hedging the purchase or sale of the
securities that are the subject of
the contract or plan; and (iii) the proposed trade does not violate the trading
restrictions
of Section 16 of the 1934 Act or Rule 144 of the 1933 Act; and
(3)
such
person has provided a copy of the executed contract or plan to the Compliance Officer.
Provided
that the steps outlined above have been complied with, the Compliance Officer will authorize a trade of the Company's securities, provided
that such purchase or sale has been done strictly in compliance with such approved contract or plan. Any amendment or early termination
of any such
approved contract or plan must be resubmitted for authorization and pre-clearing by the Compliance Officer.
8
F.
Post-Termination
Transactions
This
Statement continues to apply to each officer, director and employee even after his or her service has been terminated. If an officer,
director or
employee is aware of material non-public information when his or her service is terminated, he or she may not trade in the
Company’s securities until that
information has become public or is no longer material. The pre-clearance procedures for officers,
directors and designated employees, however, will cease
to apply to transactions in Company securities upon the expiration of any Blackout
Period or other event-specific trading restriction period that is
applicable to an officer, director or designated employee at the time
of his or her termination of service.
G.
Event-Specific
Trading Restriction Periods
From
time to time, an event may occur that is material to the Company and is known by only a few directors or officers. So long as the event
remains
material and non-public, directors, officers, and any other persons designated by the Compliance Officer ("Designated Insiders")
may not trade in the
Company's securities. In addition, the Company’s financial results may be sufficiently material in a particular
fiscal quarter that, in the judgment of the
Compliance Officer, the Designated Insiders should refrain from trading in the Company’s
securities even sooner than the typical Blackout Period. In that
case, the Compliance Officer may notify the Designated Insiders that
they should not trade in the Company’s securities, without disclosing the reason for
the restriction. The existence of an event-specific
trading restriction period or extension of a Blackout Period for Designated Insiders will not be announced
to the Company as a whole,
and should not be communicated to any other person. Even if the Compliance Officer has not designated you as a person who
should not
trade due to an event-specific restriction, you should not trade while aware of material non-public information. Exceptions cannot be
granted
during an event-specific trading restriction period.
H.
Avoidance
of Certain Aggressive or Speculative Trading
Officers,
directors and employees and their respective family members (including spouses, minor children, or any other family members living in
the
same household), should ordinarily not directly or indirectly participate in transactions involving trading activities which by their
aggressive or speculative
nature may give rise to an appearance of impropriety. Such activities would include the purchase of put or
call options or the writing of such options.
Remember the prohibition against short sales of Company Common Stock and other similar types
of transactions detailed in Section III(G)(3).
I.
Execution
and Return of Certification of Compliance
At
the request of the Compliance Officer, after reading this Policy, all officers, directors and employees should execute and return to
the Compliance
Officer a Certification of Compliance in the form provided from time to time.
Dated:
February 11, 2022
9
Attachment
A
TYPES
OF MATERIAL INFORMATION
This
list is not all-inclusive and is only intended as a guide. Please keep in mind that both positive and negative information may be material.
•
Fundamental
Corporate Changes—What is the Company doing?
•
Information
about current, proposed or contemplated transactions, such as acquisitions, tender offers,
mergers, spin-
offs, joint ventures, restructurings or changes in assets;
•
changes
in directors, senior management or auditors;
•
plans
to go into a new line of business;
•
new
business strategies or changes in strategic direction;
•
new
service offerings;
•
proposed
digital, movie or television productions;
•
projected
number of new productions;
•
information
about major contracts;
•
labor
negotiations; or
•
plans
to engage in a new marketing strategy.
•
Financial
Reporting—How is the Company doing?
•
earnings,
profits and losses;
•
unpublished
financial reports or projections;
•
adjustments
of reported earnings;
•
purchases,
sales and revaluations of company assets;
•
events
that may result in a write-off, creation of a significant reserve or other significant adjustments
to the financial statements;
•
new
equity or debt offerings;
•
gain
or loss of a significant client or contract;
•
environmental
compliance and its related costs;
•
solvency
problems such as litigation, final judgments, loan defaults, and losses of major contracts;
•
institution
of, or developments in, major litigation, investigations, or regulatory actions or proceedings;
•
the
interruption of production or other aspects of a company’s business as a result of
an accident, fire, natural
disaster, or breakdown of labor negotiations or any major shutdown;
•
changes
in dividend policies or the declaration of a stock split or the proposed; or
•
contemplated
redemption or repurchase of securities.
•
Management
Integrity—How is the Company being managed?
•
knowledge
that management has engaged in self-dealing;
•
knowledge
that the Company has been engaged in illegal activity;
•
knowledge
that the Company is under investigation; or
•
knowledge
that a governmental body has begun or is about to begin an action against the Company.
A-1
Attachment
B
SHORT-SWING
PROFIT RULE 16(b) CHECKLIST
The
attached is a checklist of questions which you should answer before engaging in ANY purchase, sale or other transaction in the securities
of
Dolphin. This includes any transaction in a derivative security which is based on Dolphin’s securities.
STEP 1 -Is the transaction contemplated a purchase or sale of Dolphin common stock as defined
in Section 16(b)?
REMEMBER
- a purchase or sale of derivative securities, for example the grant or exercise of an option or the sale of a put also counts as a purchase
or sale of Dolphin common stock. Below is a list of the type of transactions that are subject to Section 16(b) – but you should
contact the Compliance
Officer to determine if any other transaction would be covered:
Covered
Purchases:
•
An
open market purchase of Dolphin common stock;
•
An
acquisition of Dolphin common stock or of a derivative security from a third party;
•
An
acquisition of Dolphin common stock or of a derivative security from Dolphin;
•
Acquisition
of long call option;
•
Grant
of short put option; and
•
Sale
of long put option.
Covered
Sales:
•
An
open market sale of Dolphin common stock;
•
A
sale of Dolphin common stock or of a derivative security to a third party;
•
A
sale of Dolphin common stock or of a derivative security to Dolphin;
•
Exchanging
Dolphin common stock for interests in an Exchange Fund or for any other security;
•
Grant
of short call option;
•
Sale
of long call option; and
•
Acquisition
of long put option.
B-1
STEP 2 --If the transaction contemplated is a purchase or sale of Dolphin common stock, is it exempt from Section 16(b)?
Even
if a transaction does constitute a purchase or sale of Dolphin common stock, it may be exempt from Section 16(b). Below is a list of
transactions
that are exempt from Section 16(b).
Transactions
Exempt From Section 16(b):
•
Grant
of options pursuant to an approved stock option plan;
•
Exercise
of options granted pursuant to an approved stock option plan;
•
Gifts
of shares or options;
•
Transfers
pursuant to a Domestic Relations Order;
•
Securities
(either common stock or derivative securities) received in exchange for pre- existing debt
of
Dolphin; and
•
Any
other transaction between Dolphin and the insider approved in advance by Dolphin’s
Board of Directors.
STEP 3 -- If the transaction contemplated is a purchase or sale of Dolphin common stock (as defined in Step 1) and is not an exempt
transaction (as defined in Step 2), have I had any other non-exempt transaction in the last 6 months?
If
the answer is Yes, you should speak to the Compliance Officer before entering into the contemplated transaction.
If
you have had a non-exempt purchase and a non-exempt sale of Dolphin common stock you will be required to turn over to Dolphin any profit
realized.
REMEMBER
– For purposes of Section 16(b) you will realize a profit if there is any difference between the highest sale price and the lowest
purchase
price within the six month period. Even if you didn't really recognize a cash profit.
B-2
Below
is an example of matchable Section 16(b) transactions:
Month
No.
of Shares
Price
Per Share
Purchases
Sales
January
100
$52
$5,200
February
100
$45
$4,500
March
100
$51
$5,100
April
100
$55
$5,500
May
100
$57
$5,700
June
100
$58
$5,800
$16,000
$15,800
Although
the insider in the above example had a net loss of $200 on the above transactions, $1,000 is recoverable as profit under Section 16(b).
For
further information and guidance, please refer to our Statement of Policies and Procedures Governing Stock Trading in General, Material
Non-
Public Information and the Prevention of Insider Trading and do not hesitate to contact the Compliance Officer.
ALL
TRANSACTIONS BY OFFICERS, DIRECTORS AND DESIGNATED EMPLOYEES IN DOLPHIN SECURITIES MUST BE
PRECLEARED BY CONTACTING THE COMPLIANCE OFFICER
AT (305) 774-0407 OR MIRTA@DOLPHINENTERTAINMENT.COM.
B-3
Attachment
C
INSIDER
TRADING REMINDERS FOR OFFICERS, DIRECTORS AND
DESIGNATED EMPLOYEES
OF
DOLPHIN
Before
engaging in any transaction in Dolphin Entertainment, Inc. (the "Company") securities, please read the following:
Both
the federal securities laws and the Company's policy prohibit transactions in the Company's securities at a time when you may be in possession
of material information about the Company which has not been publicly disclosed. This also applies to members of your household as well
as all others
whose transactions may be attributable to you.
Material
information, in short, is any information which could affect the price of the securities. Either positive or negative information may
be
material. Once a public announcement has been made, you should wait until the information has been made available to the public for
at least 48 hours
before engaging in any transaction.
Except
for the exercise of options that does not involve the sale of Company securities (e.g., the cashless exercise of a Company stock option
does
involve the sale of Company securities and therefore would not qualify under this exception), neither the Company nor any of its
officers, directors or
designated employees may trade in any securities of the Company during the period beginning the last day of any
fiscal quarter of the Company and ending
two business days after the public release of earnings data for such fiscal quarter. Important:
All transactions by officers, directors and designated
employees must be pre- cleared with the Compliance Officer.
No
executive officer or director of the Company may place in any margin account, or pledge as collateral for any loan, any shares of Company
Common Stock subject to restrictions under the Company’s Stock Ownership Guidelines. Additionally, no executive officer or director
may enter into any
form of hedging or monetization transaction (such as zero-cost collars or forward sale contracts) involving Company
Common Stock.
For further information and guidance, please refer to our Statement of Policies and Procedures Governing Stock Trading in
General, Material Non-
Public Information and the Prevention of Insider Trading and do not hesitate to contact the Compliance Officer.
ALL
TRANSACTIONS BY OFFICERS, DIRECTORS AND DESIGNATED EMPLOYEES IN DOLPHIN SECURITIES MUST BE PRE-
CLEARED BY CONTACTING THE COMPLIANCE OFFICER
AT (305) 774-0407 OR MIRTA@DOLPHINENTERTAINMENT.COM.
C-1
Exhibit 21.1
SUBSIDIARIES OF DOLPHIN ENTERTAINMENT,
INC
42WEST, LLC
THE DOOR MARKETING GROUP, LLC
SHORE FIRE MEDIA, LTD
BE SOCIAL PUBLIC RELATIONS, LLC
CYBERGEDDON PRODUCTIONS, LLC
DOLPHIN WOODSTOCK PRODUCTIONS, LLC
DOLPHIN FILMS, INC
DLPN PRODUCTIONS LLC
DOLPHIN NFT STUDIOS, INC.
THE DIGITAL DEPT., LLC formerly known as Socialyte LLC
SPECIAL PROJECTS MEDIA, LLC
SOCIAL MIDCO, LLC
ELLE COMMUNICATIONS, LLC
ALWAYS ALPHA SPORTS MANAGEMENT LLC
The following are subsidiaries of Dolphin Films, Inc
YOUNGBLOOD PRODUCTIONS LLC
DOLPHIN MAX STEEL HOLDINGS LLC
JB BELIEVE, LLC
DOLPHIN CP PRODUCTIONS LLC
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We have issued our report dated March 27, 2025, with respect to the
consolidated financial statements included in the Annual Report of Dolphin
Entertainment, Inc. on Form 10-K for the year ended December
31, 2024. We consent to the incorporation by reference of said report in the Registration
Statements of Dolphin Entertainment, Inc. on
Form S-1 (File No. 333-267336), on Form S-8 (File No. 333-219770) and on Form S-3 (File No. 333-
273431).
/s/ GRANT THORNTON LLP
Fort Lauderdale, Florida
March 27, 2025
Exhibit 31.1
CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO SECTION 302
I, William O’Dowd IV, Chief Executive Officer,
certify that:
1.
I have reviewed this Annual Report on Form 10-K of Dolphin Entertainment, Inc.;
2.
Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
Report.
3.
Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the Registrant and have:
a)
designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control
over financial reporting.
Date: March 27, 2025
/s/
William O’Dowd IV
William O’Dowd IV
Chief Executive Officer
Exhibit 31.2
CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO SECTION 302
I, Mirta A Negrini, Chief Financial Officer, certify
that:
1.
I have reviewed this Annual Report on Form 10-K of Dolphin Entertainment, Inc.;
2.
Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
Report.
3.
Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4.
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the Registrant and have:
a)
designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control
over financial reporting.
Date: March 27, 2025
/s/
Mirta A Negrini
Mirta A Negrini
Chief Financial Officer
Exhibit 32.1
CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report of
Dolphin Entertainment, Inc. (the “Company”) on Form 10-K for the year ended December
31, 2024, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, William O’Dowd IV, Chief Executive Officer of the
Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of
my
knowledge:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the
Company.
By: /s/ William O’Dowd IV
William O’Dowd IV
Chief Executive Officer
March 27, 2025
Exhibit 32.2
CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report of
Dolphin Entertainment, Inc. (the “Company”) on Form 10-K for the year ended December
31, 2024, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Mirta A Negrini, Chief Financial Officer of the
Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and results of operations of the
Company.
By: /s/ Mirta A Negrini
Mirta A Negrini
Chief Financial Officer
March 27, 2025
Exhibit 97.1
DOLPHIN
ENTERTAINMENT, INC. NASDAQ RULE 5608
EXECUTIVE OFFICER COMPENSATION CLAWBACK POLICY
EFFECTIVE
November 20, 2023
1.
Policy Purpose. The purpose of this Dolphin Entertainment, Inc. Nasdaq Rule 5608 Executive
Officer Compensation Clawback Policy
(this “Policy”) is to enable Dolphin Entertainment, Inc. and its subsidiaries
and affiliates (the “Company”) to recover Erroneously Awarded Compensation
in the event that the Company is
required to prepare an Accounting Restatement. This Policy is intended to comply with the requirements set forth in
Listing Rule 5608
of The Nasdaq Stock Market LLC and will be construed and interpreted in accordance with such intent. Unless otherwise defined in this
Policy, capitalized terms will have the meaning ascribed to such terms in Section 7.
2.
Policy Administration. This Policy will be administered by the Compensation Committee of the
Board (the “Committee”) unless the
Board determines to administer this Policy itself. The Committee has full
and final authority to make all determinations under this Policy, in each case to
the extent permitted under the Listing Rule and in compliance
with (or pursuant to an exemption from the application of) Section 409A of the Code. All
determinations and decisions made by the Committee
pursuant to the provisions of this Policy will be final, conclusive and binding on all persons,
including the Company, its affiliates,
its shareholders and the Executive Officers. Any action or inaction by the Committee with respect to an Executive
Officer under this Policy
in no way limits the Committee’s actions or decisions not to act with respect to any other Executive Officer under this Policy or
under any similar policy, agreement or arrangement, nor will any such action or inaction serve as a waiver of any rights the Company may
have against any
Executive Officer other than as set forth in this Policy.
3.
Policy Application. This Policy applies to all Incentive-Based Compensation received by a
person (a) after beginning service as an
Executive Officer, (b) who served as an Executive Officer at any time during the performance
period for such Incentive-Based Compensation, (c) while the
Company had a class of securities listed on a national securities exchange
or a national securities association and (d) during the three completed fiscal years
immediately preceding the Accounting Restatement
Date. In addition to such last three completed fiscal years, the immediately preceding clause (d)
includes any transition period that
results from a change in the Company’s fiscal year within or immediately following such three completed fiscal years,
provided that
a transition period between the last day of the Company’s previous fiscal year end and the first day of its new fiscal year that
comprises a
period of nine to twelve months will be deemed a completed fiscal year. For purposes of this Section 3, Incentive-Based Compensation
is deemed received
in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-Based
Compensation award is attained, even if the
payment or grant of the Incentive-Based Compensation occurs after the end of that period.
For the avoidance of doubt, Incentive-Based Compensation that
is subject to both a Financial Reporting Measure vesting condition and a
service-based vesting condition will be considered received when the relevant
Financial Reporting Measure is achieved, even if the Incentive-Based
Compensation continues to be subject to the service-based vesting condition.
4.
Policy Recovery Requirement. In the event of an Accounting Restatement, the Company must recover,
reasonably promptly, Erroneously
Awarded Compensation, in amounts determined pursuant to this Policy. The Company’s obligation to
recover Erroneously Awarded Compensation is not
dependent on if or when the Company files restated financial statements. Recovery under
this Policy with respect to an Executive Officer will not require
the finding of any misconduct by such Executive Officer or such Executive
Officer being found responsible for the accounting error leading to an
Accounting Restatement. In the event of an Accounting Restatement,
the Company will satisfy the Company’s obligations under this Policy to recover any
amount owed from any applicable Executive Officer
by exercising its sole and absolute discretion in how to accomplish such recovery, to the extent
permitted under the Listing Rule and
in compliance with (or pursuant to an exemption from the application of) Section 409A of the Code. The Company’s
recovery obligation
pursuant to this Section 4 will not apply to the extent that the Committee, or in the absence of the Committee, a majority of the
independent
directors serving on the Board, determines that such recovery would be impracticable and:
a.
The direct expense paid to a third party to assist in enforcing this Policy would exceed the amount
to be recovered. Before
concluding that it would be impracticable to recover any amount of Erroneously Awarded Compensation based on
expense of enforcement, the Company
must make a reasonable attempt to recover such Erroneously Awarded Compensation, document such reasonable
attempts to recover and provide that
documentation to the Stock Exchange;
1
b.
Recovery would violate home country law where that law was adopted prior to November 28, 2022. Before
concluding that it
would be impracticable to recover any amount of Erroneously Awarded Compensation based on violation of home country
law, the Company must obtain
an opinion of home country counsel, acceptable to the Stock Exchange, that recovery would result in such
a violation, and must provide such opinion to the
Stock Exchange; or
c.
Recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are
broadly available to
employees of the registrant, to fail to meet the requirements of Section 401(a)(13) or 411(a) of the Code.
5.
Policy Prohibition on Indemnification and Insurance Reimbursement. The Company is prohibited
from indemnifying any current or
former Executive Officer against the loss of Erroneously Awarded Compensation. Further, the Company is
prohibited from paying or reimbursing an
Executive Officer for purchasing insurance to cover any such loss.
6.
Required Policy-Related Filings. The Company will file all disclosures with respect to this
Policy in accordance with the requirements of
the federal securities laws, including disclosures required by U.S. Securities and Exchange
Commission filings.
7.
Definitions.
a.
“Accounting Restatement” means an accounting restatement due to the material
noncompliance of the Company with any
financial reporting requirement under the securities laws, including any required accounting restatement
to correct an error in previously issued financial
statements that is material to the previously issued financial statements or that would
result in a material misstatement if the error were corrected in the
current period or left uncorrected in the current period.
b.
“Accounting Restatement Date” means the earlier to occur of (i) the date
the Board, a committee of the Board or the officers of
the Company authorized to take such action if the Board action is not required,
concludes, or reasonably should have concluded, that the Company is
required to prepare an Accounting Restatement and (ii) the date a
court, regulator or other legally authorized body directs the Company to prepare an
Accounting Restatement.
c.
“Board” means the board of directors of the Company.
d.
“Code” means the U.S. Internal Revenue Code of 1986, as amended. Any reference
to a section of the Code or regulation
thereunder includes such section or regulation, any valid regulation or other official guidance
promulgated under such section and any comparable
provision of any future legislation or regulation amending, supplementing, or superseding
such section or regulation.
e.
“Erroneously Awarded Compensation” means, in the event of an Accounting
Restatement, the amount of Incentive-Based
Compensation previously received that exceeds the amount of Incentive-Based Compensation that
otherwise would have been received had it been
determined based on the restated amounts in such Accounting Restatement, and must be computed
without regard to any taxes paid by the relevant
Executive Officer. Notwithstanding the foregoing, for Incentive-Based Compensation based
on stock price or total shareholder return where the amount of
Erroneously Awarded Compensation is not subject to mathematical recalculation
directly from the information in an Accounting Restatement (i) the
amount of Erroneously Awarded Compensation must be based on a reasonable
estimate of the effect of the Accounting Restatement on the stock price or
total shareholder return upon which the Incentive-Based Compensation
was received and (ii) the Company must maintain documentation of the
determination of that reasonable estimate and provide such documentation
to the Stock Exchange.
2
f.
“Executive Officer” means the Company’s president, principal financial
officer, principal accounting officer (or if there is no
such accounting officer, the controller), any vice-president of the Company in
charge of a principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a
policy-making function or any other person who performs similar policy-making functions for
the Company. An executive officer of the Company’s
parent or subsidiary is deemed an “Executive Officer” if the executive officer performs such policy
making functions for the
Company.
g.
“Financial Reporting Measure” means any measure that is determined and
presented in accordance with the accounting
principles used in preparing the Company’s financial statements, and any measure that
is derived wholly or in part from such measure, provided that a
Financial Reporting Measure is not required to be presented within the
Company’s financial statements or included in a filing with the U.S. Securities and
Exchange Commission to qualify as a “Financial
Reporting Measure.” For purposes of this Policy, “Financial Reporting Measure” includes, but is not
limited to, stock
price and total shareholder return.
h.
“Incentive-Based Compensation” means any compensation that is granted,
earned or vested based wholly or in part upon the
attainment of a Financial Reporting Measure.
i.
“Stock Exchange” means the national stock exchange on which the Company’s
common stock is listed.
8.
Acknowledgement. Each Executive Officer will sign and return to the Company, within 30 calendar
days following the later of (i) the
effective date of this Policy first set forth above or (ii) the date the individual becomes an Executive
Officer, the Acknowledgement Form attached as
Exhibit A, pursuant to which the Executive Officer agrees to be bound by, and to
comply with, the terms and conditions of this Policy.
9.
Severability. The provisions in this Policy are intended to be applied to the fullest extent
of the law. To the extent that any provision of
this Policy is found to be unenforceable or invalid under any applicable law, such provision
will be applied to the maximum extent permitted, and will
automatically be deemed amended in a manner consistent with its objectives to
the extent necessary to conform to any limitations required under applicable
law.
10.
Amendment and Termination. The Board may amend this Policy from time to time in its sole and
absolute discretion and will amend this
Policy as it deems necessary to reflect the Listing Rule, to comply with (or maintain an exemption
from the application of) Section 409A of the Code. The
Board may terminate this Policy at any time.
11.
Other Recovery Obligations and General Rights. To the extent that the application of this
Policy would provide for recovery of Incentive-
Based Compensation that the Company recovers pursuant to Section 304 of the Sarbanes-Oxley
Act or other recovery obligations, the amount the relevant
Executive Officer has already reimbursed the Company will be credited to the
required recovery under this Policy. This Policy will not limit the rights of
the Company to take any other actions or pursue other remedies
that the Company may deem appropriate under the circumstances and under applicable
law, in each case to the extent permitted under the
Listing Rule and in compliance with (or pursuant to an exemption from the application of) Section 409A
of the Code. Nothing contained
in this Policy will limit the Company’s ability to seek recoupment, in appropriate circumstances (including circumstances
beyond
the scope of this Policy) and as permitted by other applicable law, of any amounts from any individual, in each case to the extent permitted
under
the Listing Rule and in compliance with (or pursuant to an exemption from the application of) Section 409A of the Code.
12.
Successors. This Policy is binding and enforceable against all Executive Officers and their
beneficiaries, heirs, executors, administrators
or other legal representatives.
13.
Governing Law and Venue. This Policy and all rights and obligations hereunder are governed
by and construed in accordance with the
internal laws of the State of Florida, excluding any choice of law rules or principles that may
direct the application of the laws of another jurisdiction.
3
EXHIBIT A
DOLPHIN
ENTERTAINMENT, INC. NASDAQ RULE 5608
EXECUTIVE OFFICER COMPENSATION CLAWBACK POLICY
ACKNOWLEDGEMENT
FORM
By signing below, the undersigned acknowledges
and confirms that the undersigned has received and reviewed a copy of the Dolphin Entertainment, Inc.
Nasdaq Rule 5608 Executive Officer
Compensation Clawback Policy (the “Policy”).
By signing this Acknowledgement Form, the undersigned
acknowledges and agrees that the undersigned is and will continue to be subject to the Policy and
that the Policy will apply both during
and after the undersigned’s employment with Dolphin Entertainment, Inc. and, as applicable, its subsidiaries and
affiliates (the
“Company”). Further, by signing below, the undersigned agrees to abide by the terms of the Policy, including,
without limitation, by returning
any Erroneously Awarded Compensation (as defined in the Policy) to the Company to the extent required
by, and in a manner consistent with, the Policy.
EXECUTIVE OFFICER
Signature
Print Name
Date
A-1