OVERVIEW
We are a leading independent entertainment marketing and premium content
production company. We were first incorporated in the State of Nevada on
March 7, 1995 and domesticated in the State of Florida on December 4, 2014. Our
Common Stock trades on The Nasdaq Capital Market under the symbol "DLPN".
Through our subsidiaries, 42West, The Door and Shore Fire, we provide expert
strategic marketing and publicity services to many of the top brands, both
individual and corporate, in the entertainment and hospitality industries.
42West, The Door and Shore Fire are both recognized global leaders in the PR
services for the industries they serve. Viewpoint adds full-service creative
branding and production capabilities to our marketing group. Dolphin's legacy
content production business, founded by Emmy-nominated Chief Executive Officer,
Bill O'Dowd, has produced multiple feature films and award-winning digital
series, primarily aimed at family and young adult markets.
We have established an acquisition strategy based on identifying and acquiring
companies that complement our existing entertainment publicity and marketing
services and content production businesses. We believe that complementary
businesses, such as data analytics and digital marketing, can create synergistic
opportunities and bolster profits and cash flow. We have identified potential
acquisition targets and are in various stages of discussion with such targets.
We intend to complete at least one acquisition during 2020, but there is no
assurance that we will be successful in doing so, whether in 2020 or at all. We
currently intend to fund any acquisitions through loans or additional issuances
of our common stock, securities convertible into our common stock, debt
securities or a combination of such financing alternatives; however, there can
be no assurance that we will be successful in raising the capital necessary to
consummate any acquisitions, whether on favorable terms or at all.
We operate in two reportable segments: our entertainment publicity and
marketing segment and our content production segment. The entertainment
publicity and marketing segment comprises 42West, The Door, Shore Fire and
Viewpoint and provides clients with diversified services, including public
relations, entertainment content marketing, strategic marketing consulting,
creative branding and in-house production of content for marketing. The content
production segment comprises Dolphin Films and Dolphin Digital Studios and
specializes in the production and distribution of digital content and feature
films.
On March 11, 2020. The World Health Organization categorized a novel coronavirus
(COVID-19) as a pandemic, and it continues to spread throughout the United
States. The outbreak of COVID-19 and public and private sector measures to
reduce its transmission, such as the imposition of social distancing and orders
to work-from-home, stay-at-home and shelter-in-place have adversely affected our
business and demand for certain of our services. Hotels, restaurants and
content productions have reduced or suspended operating activities which has
negatively impacted the clients we serve. As a result, our revenues have been
negatively impacted from the suspension or reduction of services we provide to
clients that operate in these industries. We have taken steps to align our
expenses with our changes in revenue. The steps being taken across the Company
include freezes on hiring, staff reductions, salary reductions and cuts in
non-essential spending. We continue to believe that our strategic strengths
discussed above will continue to assist us as we navigate a rapidly changing
marketplace. The effects of COVID-19 pandemic are negatively impacting our
results of operations, cash flows and financial position; however, the extent of
the impact will vary depending on the duration and severity of the economic and
operational impacts of COVID-19.
2020 Direct Registered Offering
On June 5, 2020, we issued and sold to certain institutional investors in a
registered direct offering an aggregate of 7.9 million shares of our common
stock at a price of $1.05 per share. The offering of the shares was made
pursuant to our effective shelf registration statement on Form S-3 previously
filed with the Securities and Exchange Commission. We received proceeds of
approximately $7.6 million from the issuance and sale of our common stock after
deducting related offering expenses.
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Revision of Prior Period Financial Statements
During the preparation of condensed consolidated financial statement for the
three months ended March 31, 2020, we identified certain immaterial errors
related to its accounting of the 2019 Lincoln Park Note, 2019 Lincoln Park
Warrants and the Pinnacle Note. We concluded that the conversion feature of the
2019 Lincoln Park Note and the 2019 Lincoln Park Warrants met the definition of
a derivative and should have been recorded at fair value at inception and
remeasured at each reporting period with changes in the fair value recognized in
earnings. The accretion to par value of the 2019 Lincoln Park Note is recorded
as interest expense. We had originally accounted for the 2019 Lincoln Park
Warrants as equity-linked instruments and had not bifurcated the conversion
feature in the 2019 Lincoln Park Note.
We also reviewed the Pinnacle Note that had a down round provision allowing for
the repricing of the conversion price upon the Company's issuance of equity
securities at a price lower than the Pinnacle Note conversion price. On October
21, 2019, we sold shares of Common Stock in a registered public offering, at a
price of $0.78 when the Pinnacle Note conversion price was $3.00. As a result,
the conversion price of the Pinnacle Note was repriced to $0.78. Due to the
repricing, we should have recorded a beneficial conversion feature on the date
of the repricing and amortized the beneficial conversion feature as interest
expense over the remaining life of the Pinnacle Note that matured on January 5,
2020.
In accordance with SAB No. 99, "Materiality," and SAB No. 108, "Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements," we evaluated the errors and determined that the
related impact was not material to our financial statements for any prior annual
or interim period, but that correcting the cumulative impact of the error would
be significant to the our results of operations for the three months ended March
31, 2020. Accordingly, the Company revised the consolidated balance sheets
and quarterly and year to date 2019 consolidated statements of operations as of
and for the quarterly and year to date periods ended June 30, 2019, September
30, 2019 and December 31, 2019, including the related notes presented herein, as
applicable. The errors did not impact net cash used in operations reported in
the consolidated statement of cash flows for any of those periods.
A summary of the revisions to previously reported financial information is as
follows:
As Reported Adjustment As Adjusted
Revised Consolidated Balance Sheet as of June 30, 2019
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