Dolphin Entertainment(US:DLPN)2020-11-16 22:09Acquisitions and Investments - The company acquired Be Social Public Relations for $1.5 million in cash and 349,534 shares, with potential earnout consideration of up to $800,000 based on performance targets for 2022 and 2023 [243]. - The company plans to complete at least one acquisition in 2021 to enhance its entertainment publicity and marketing services, although success is not guaranteed [245]. - The company has identified potential acquisition targets in data analytics and digital marketing to create synergistic opportunities [245]. - The company has completed development on three feature films, which are awaiting financing for pre-production [261]. - The company granted sellers of 42West put rights to require the purchase of up to 1,187,087 shares at $9.22 per share, with 199,244 shares exercised during the nine months ended September 30, 2020 [299]. - The company has a balance of $19,707,322 of goodwill on its balance sheet, primarily from acquisitions, including a provisional balance of $1,634,496 related to the Be Social acquisition [334]. Financial Performance - For the three months ended September 30, 2020, 100% of total revenue was derived from the entertainment publicity and marketing segment, compared to 99.9% in the same period of 2019 [250]. - Revenues from entertainment publicity and marketing increased by approximately $0.5 million to $6,390,653 for the three months ended September 30, 2020, compared to $5,940,440 in the same period of 2019 [272]. - Total revenue for the nine months ended September 30, 2020, was $18,219,178, a decrease from $18,550,936 in the same period of 2019 [272]. - Net loss for the three months ended September 30, 2020, was approximately $(0.1) million or $0.00 per share, compared to a net loss of $(0.3) million or $(0.02) per share in the same period of 2019 [288]. - Total expenses for the nine months ended September 30, 2020, were $19,762,261, down from $21,990,347 in the same period of 2019 [274]. - Cash flows used in operating activities for the nine months ended September 30, 2020, were $0.6 million, a decrease from $2.2 million in the same period of 2019 [290]. Debt and Financing - The company received approximately $7.6 million from a registered direct offering of 7.9 million shares at $1.05 per share on June 5, 2020 [248]. - The company received $2.8 million in loans under the Paycheck Protection Program, with no assurance of forgiveness [249]. - The term loan balance as of September 30, 2020, was $1,000,325, with potential non-compliance with certain debt covenants due to COVID-19 [304]. - The company issued a convertible promissory note of $1.3 million in January 2020, with a principal amount of $1.2 million, and warrants for 207,588 shares [311]. - The company issued a convertible promissory note of $500,000 on September 11, 2020, which bears interest at 10% per annum and matures on September 11, 2022 [317]. - The company issued two convertible promissory notes on March 18, 2020, totaling $195,000, with a conversion price of $0.78 per share [318]. Operational Adjustments - The company has taken measures to align expenses with revenue changes due to COVID-19, including hiring freezes and salary reductions [246]. - The company anticipates that increased digital streaming marketing budgets from key clients will drive revenue growth in its Entertainment Marketing division over the next several years [257]. - The company updated its estimates for goodwill impairment due to the adverse effects of COVID-19 but determined that an impairment adjustment was not necessary as of the assessment date [336]. Tax and Valuation - The income tax benefit of $182,487 reported for the three and nine months ended September 30, 2019, is due to a reduction in the valuation allowance against tax liability associated with the acquisition of Be Social [353]. - The company uses a Black-Scholes Option Pricing model for measuring the fair value of put rights, which incorporates significant unobservable inputs [350]. - The fair value hierarchy categorizes inputs into three levels, with Level 3 inputs reflecting management's assumptions based on limited market activity [343]. Cash and Equity - As of September 30, 2020, total debt was approximately $7.7 million, with total stockholders' equity at approximately $20.5 million [297]. - The company had cash available for working capital of approximately $9.2 million as of September 30, 2020, compared to $2.3 million in 2019 [294]. - The company recorded a gain on extinguishment of debt of $3.3 million during the nine months ended September 30, 2020, primarily related to the Max Steel VIE [279].