3. ACQUISITION OF DOLPHIN FILMS, INC. | On March 7, 2016, the Company, DDM Merger Sub, Inc., a Florida corporation and a direct wholly-owned subsidiary of the Company (Merger Subsidiary), Dolphin Entertainment and Dolphin Films, a Florida corporation and a direct wholly-owned subsidiary of Dolphin Entertainment, completed their previously announced merger (the Merger) contemplated by the Agreement and Plan of Merger, dated October 14, 2015 (the Merger Agreement). Pursuant to the terms of the Merger Agreement, Merger Subsidiary merged with and into Dolphin Films (the Merger) with Dolphin Films surviving the Merger. As a result of the Merger, the Company acquired Dolphin Films. At the effective time of the Merger, each share of Dolphin Films common stock, par value $1.00 per share, issued and outstanding, was converted into the right to receive the consideration for the Merger (the Merger Consideration). The Company issued 2,300,000 shares of Series B Convertible Preferred Stock, par value $0.10 per share, and 1,000,000 shares of Series C Convertible Preferred Stock, par value $0.001 per share to Dolphin Entertainment as the Merger Consideration. William ODowd is the President, Chairman and Chief Executive Officer of the Company and, as of March 4, 2016, was the beneficial owner of 52.5% of the outstanding shares of common stock of the Company (the Common Stock). In addition, Mr. ODowd is the founder, president and sole shareholder of Dolphin Entertainment, which is the sole shareholder of Dolphin Films. The Merger Consideration was determined as a result of negotiations between Dolphin Entertainment and a special committee of independent directors of the Board of Directors of the Company (the Special Committee), with the assistance of separate financial and legal advisors selected and retained by the Special Committee. The Special Committee unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, were fair to and in the best interests of the shareholders of the Company other than Mr. ODowd, and that it was advisable for the Company to enter into the Merger Agreement. The Merger was consummated following the approval and adoption of the Merger Agreement by the Companys shareholders. The Company retrospectively adjusted the historical financial results for all periods to include Dolphin Films as required for transactions between entities under common control. The following table presents the Companys previously reported Consolidated Balance Sheet, retrospectively adjusted for the acquisition of Dolphin Films: As of December 31, 2015 Dolphin Digital Media, Inc.* Dolphin Films, Inc. (unaudited) Acquisition Adjustments Consolidated Balance Sheets currently reported ASSETS Current Cash and cash equivalents $ 2,259,504 $ 133,181 - $ 2,392,685 Related party receivable - 453,529 - 453,529 Prepaid Expenses 10,018 62,500 - 72,518 Receivables and other current assets 560,112 2,267,019 - 2,827,131 Total Current Assets 2,829,634 2,916,229 - 5,745,863 - Capitalized production costs 2,439 15,168,329 - 15,170,768 Property and equipment 55,413 - - 55,413 Deposits 41,291 355,778 - 397,069 Total Assets $ 2,928,777 $ 18,440,336 - $ 21,369,113 LIABILITIES Current Accounts payable $ 479,799 $ 1,590,746 - $ 2,070,545 Other current liabilities 2,669,456 314,864 - 2,984,320 Accrued compensation 2,065,000 - - 2,065,000 Debt 2,545,000 32,186,008 - 34,731,008 Loan from related party - 2,917,523 - 2,917,523 Deferred revenue - 1,418,368 - 1,418,368 Notes payable 300,000 - - 300,000 Total Current Liabilities 8,059,255 6,241,501 - 46,486,764 Non Current Convertible note payable 3,164,000 - - 3,164,000 Loan from related party 1,982,267 - - 1,982,267 Debt 2,600,000 - - 2,600,000 Total Non Current Liabilities 7,746,267 - - 7,746,267 - Total Liabilities 15,805,522 38,427,509 - 54,233,031 STOCKHOLDERS' DEFICIT Common stock, $0.015 par value, 400,000,000 shares authorized, 4,094,618 issued and outstanding at December 31, 2015. 1,228,385 100 (100 ) 1,228,385 Preferred stock $0.001 par value, 10,000,000 shares authorized, 1,042,753 shares issued and outstanding, liquidation preference of $1,042,753 at December 31, 2015. 1,043 - (1,043 ) - Preferred stock, Series B. $0.10 par value, 4,000,000 shares authorized, 3,300,000 shares issued and outstanding at December 31, 2015. - - 330,000 330,000 Preferred stock, Series C. $0.001 par value, 1,000,000 shares authorized, 1,000,000 shares issued and outstanding at December 31, 2015. - - 1,000 1,000 Additional paid in capital 25,544,174 - (329,857 ) 25,214,317 Accumulated deficit (42,628,155 ) (19,987,273 ) - (62,615,428 ) Total Dolphin Digital Media, Inc. Deficit $ (15,854,553 ) $ (19,987,173 ) - $ (35,841,726 ) Non-controlling interest 2,977,808 - - 2,977,808 Total Stockholders' Deficit $ (12,876,745 ) $ (19,987,173 ) - $ (32,863,918 ) Total Liabilities and Stockholders' Deficit $ 2,928,777 $ 18,440,336 - $ 21,369,113 *Previously reported on Form 10-K filed with the SEC March 31, 2016 The following table presents the Companys previously reported Condensed Consolidated Statement of Operations, retrospectively adjusted for the acquisition of Dolphin Films: for the three months ended March 31, 2015 Dolphin Digital Media, Inc.* Dolphin Films, Inc. (unaudited) Acquisition Reclassification Consolidated Statement of Operations (currently reported) Revenues: Production $ - $ 20,513 - $ 20,513 Membership 3,750 - - 3,750 Total Revenue: 3,750 20,513 - $ 24,263 Expenses: Direct costs - 274,862 - 274,862 Selling, general and administrative 554,794 73,055 (202,500 ) 425,349 Legal and professional - 399,478 202,500 601,978 Payroll 316,098 - - 316,098 Loss before other income (expense) (867,142 ) (726,882 ) - (1,594,024 ) Other Income (Expense): Other Income - - - Interest expense (188,992 ) (498,233 ) - (687,225 ) Net Loss (1,056,134 ) (1,225,115 ) - (2,281,249 ) Net income attributable to noncontrolling interest $ 937 $ - - $ 937 Net loss attributable to Dolphin Films, Inc. - (1,225,115 ) - (1,225,115 ) Net loss attributable to Dolphin Digital Media, Inc. (1,057,071 ) - - (1,057,071 ) Net loss $ (1,056,134 ) $ (1,225,115 ) - $ (2,281,249 ) *As reported on Form 10Q filed with the SEC on May 15, 2015 The following table presents Companys previously reported Condensed Consolidated Statement of Cash Flows, retrospectively adjusted for the acquisition of Dolphin Films: For the three months ended March 31, 2015 Dolphin Digital Media, Inc.* Dolphin Films, Inc. (unaudited) Acquisition Adjustments Consolidated Statement of Cash Flows (as currently reported) CASH FLOWS FROM OPERATING ACTIVITIES: $ (1,056,134 ) $ (1,225,115 ) - $ (2,281,249 ) Adjustments to reconcile net loss to net cash used in operating activities: - Depreciation 6,995 - - 6,995 Amortization of capitalized production costs - 1,851 - 1,851 Changes in operating assets and liabilities: - Receivables and other current assets 479,868 (1,985,773 ) - (1,505,905 ) Prepaid expenses (1,520 ) 2,066,599 - 2,065,079 Capitalized production costs (1,342,309 ) (625,405 ) - (1,967,714 ) (40,000 ) - (40,000 ) Deferred revenue 750,000 - - 750,000 Accrued compensation 62,500 - - 62,500 Accounts payable 91,524 (641,434 ) - (549,910 ) Other Current Liabilities 959,316 300,021 - 1,259,337 Net Cash Provided by/(Used in) Operating Activities (89,760 ) (2,109,256 ) - (2,199,016 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of furniture and equipment (3,137 ) - - (3,137 ) Net Cash Used In Investing Activities (3,137 ) - (3,137 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Loan and Security agreement 100,000 1,150,130 - 1,250,130 Repayment of Loan and Security agreement (250,000 ) 250,000 - - Advances from related party 573,500 1,081,460 - 1,654,960 Repayment to related party (237,500 ) (15,726 ) - (253,226 ) Net Cash Provided by/(Used in) Financing Activities 186,000 2,465,864 2,651,864 NET INCREASE IN CASH AND CASH EQUIVALENTS 93,103 356,608 - 449,711 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 198,470 194,605 - 393,075 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 291,573 $ 551,213 - $ 842,786 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: Interest paid, net of amounts capitalized interest of $3,888 and $ 0 for the three months ended March 31, 2015 and 2014. $ 74,170 $ 372,999 - $ 447,169 *as previously reported on Form 10-Q filed with the SEC on May 15, 2015 |