DOLPHIN ENTERTAINMENT, INC. OVERVIEW
We are a leading independent entertainment marketing and premium content
production company. Through our subsidiaries, 42West, The Door,
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 live event production, 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 have also established an investment strategy, "Dolphin 2.0," based upon identifying opportunities to develop internally owned assets, or to acquire ownership interest 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 Dolphin 2.0. We intend to enter into additional investments during 2022, but there is no assurance that we will be successful in doing so, whether in 2022 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,
Dolphin 2.0
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 "Dolphin 2.0" (with "Dolphin 1.0" being the underlying businesses of each of our subsidiaries mentioned above). Simply put, we seek to own an interest in some of the assets we are marketing. Specifically, we want to own an interest in 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.
The first of our Dolphin 2.0 investments has been in the new world of
Non-Fungible Tokens ("NFTs"). We see a large opportunity in this sector. Even
without broad consumer adoption, the NFT market grew from an estimated
In March, 2021, we announced our intentions to enter into the production and marketing of NFTs. In August, 2021, we announced our partnership with FTX.US, a leading cryptocurrency exchange, to develop and launch NFT collections across all major entertainment industry verticals (film, television, music, gaming, etc.). In December, 2021, we unveiled our first collection, entitled "Creature Chronicles: Exiled Aliens," a generative art collection of 10,000 unique avatars. We expect to mint (or offer for sale) "Creature Chronicles" during the third quarter of 2022.
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Our second Dolphin 2.0 investment was made in October, 2021, when we acquired an
ownership interest in
Our third Dolphin 2.0 investment was made in December, 2021, when we acquired an ownership interest in Crafthouse Cocktails, a pioneering brand of ready-to-drink, all-natural classic cocktails.
COVID Update
During
The extent to which the COVID-19 pandemic affects our business, operations and financial results depends, and will continue to depend, on numerous evolving factors that we may not be able to accurately predict. Since the outbreak of COVID-19 began and public and private sector measures to reduce its transmission were implemented, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, the demand for certain of the services the Company offers was adversely affected resulting in decreased revenues and cash flows.
Recent Developments IMAX Co-Production Agreement
On
24 Revenues
For the three months ended
Entertainment Publicity and Marketing
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 actively soliciting new business, as well as through acquisition of new businesses within the same industry. 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 and (viii) content productions of marketing materials on a project contract basis. 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.
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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.
? 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. We expect that
increased digital streaming marketing budgets at several large key
clients will drive growth of revenue and profit in 42West's
Entertainment Marketing division over the next several years.
? Strategic Communications - We earn fees by advising companies looking
to create, raise or reposition their public profiles, primarily in the
entertainment industry. We believe that growth in the Strategic
Communications division will be driven by increasing demand for these
services by traditional and non-traditional media clients who are
expanding their activities in the content production, branding, and
consumer products PR sectors. We expect that this growth trend will
continue for the next three to five years. We also help studios and
filmmakers deal with controversial movies, as well as high-profile
individuals address sensitive situations.
? Creative Branding and Production - We offer clients creative branding
and production services from concept creation to final delivery. Our
services include brand strategy, concept and creative development,
design and art direction, script and copyrighting, live action
production and photography, digital development, video editing and
composite, animation, audio mixing and engineering, project management
and technical support. We expect that our ability to offer these
services to our existing clients in the entertainment and consumer
products industries, will be accretive to our revenue.
? 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, as well as editorial work on behalf of
brand clients. 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.
Content Production
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.
26 Expenses
Our expenses consist primarily of: (1) direct costs; (2) payroll and benefits expenses (3) selling, general and administrative expenses; (4) depreciation and amortization expense; (5) changes in the fair value of contingent consideration and (6) legal and professional fees.
(1) Direct costs include certain cost of services, as well as certain
production costs, related to our entertainment publicity and marketing
business. Included within direct costs are immaterial impairments for
any of our content production projects.
(2) Payroll and benefits expenses include wages, stock-based compensation,
payroll taxes and employee benefits.
(3) Selling, general and administrative expenses include all overhead costs
except for payroll, depreciation and amortization and legal and
professional fees that are reported as a separate expense item.
(4) Depreciation and amortization include the depreciation of our property
and equipment and amortization of intangible assets and leasehold
improvements.
(5) Changes in fair value of contingent consideration includes changes in
the fair value of the contingent earn-out payment obligations for the
Company' acquisitions. The fair value of the related contingent
consideration is measured at every balance sheet date and any changes
recorded on our condensed consolidated statements of operations.
(6) Legal and professional fees include 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 three months ended
RESULTS OF OPERATIONS
Three months ended
Revenues
For the three months ended
For the three months ended
March 31,
2022 2021
Revenues:
Entertainment publicity and marketing
$ 9,177,125 $ 7,177,117
Revenues from entertainment publicity and marketing increased by approximately
We did not derive any revenues from the content production segment as we have not produced and distributed any of the projects discussed above and the projects that were produced and distributed in 2013 and 2016 have mostly completed their normal revenue cycles.
27 Expenses For the three months endedMarch 31, 2022 and 2021, our expenses were as follows: Three months ended March 31, 2022 2021 Expenses: Direct costs$ 1,110,658 $ 829,151 Payroll and benefits 6,960,283 5,233,116 Selling, general and administrative 1,488,338 1,482,471 Depreciation and amortization 407,238 482,712 Change in fair value of contingent consideration (763,900 ) 365,000 Legal and professional 938,217 344,607 Total expenses$ 10,140,834 $ 8,737,057
Direct costs are mainly attributable to the EPM segment and increased by
approximately
Payroll and benefits expenses increased by approximately
Selling, general and administrative remained consistent for the three months
ended
Depreciation and amortization remained consistent for the three months ended
Change in fair value of the contingent consideration was an
Legal and professional fees increased by approximately
Other Income and Expenses
Three months ended
March 31,
2022 2021
Other Income and expenses:
Loss on extinguishment of debt - (57,363 )
Change in fair value of convertible notes and derivative liabilities
287,858 (871,449 )
Change in fair value of warrants 60,000 (2,562,877 )
Change in fair value of put rights - (71,106 )
Acquisition costs - (22,907 )
Interest expense (149,406 ) (165,194 )
Total other income (expense), net $ 198,452 $ (4,115,896 ) We did not record any gain or loss on extinguishment of debt for the three
months ended
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We elected the fair value option for certain convertible notes issued in 2020.
The embedded conversion feature of a convertible note issued in 2019 met the
criteria for a derivative. The fair value of these convertible notes and
embedded conversion feature are remeasured at every balance sheet date and any
changes are recorded on our condensed consolidated statements of operations. For
the three months ended
Warrants issued with convertible notes payable issued in 2020, were 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 each respective warrant liability recognized
as other income or expense. In
The fair value of put rights related to the 42West acquisition were recorded on
our condensed consolidated balance sheet on the date of the acquisition. The
fair value of the put rights are measured at every balance sheet date and any
changes are recorded on our condensed consolidated statements of operations. The
fair value of the put rights decreased by approximately
Interest expense remained consistent for the three months ended
Equity in losses of unconsolidated affiliates
Equity in earnings or losses of unconsolidated affiliates includes our share of
income or losses from equity investees. For the three months ended
Income Taxes
We recorded an income tax expense of
We recorded an income tax benefit of
Net Loss
Net loss was approximately
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