Attached files
file | filename |
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EX-99.4 - UNAUDITED PRO FORMA FINANCIAL INFORMATION - Dolphin Entertainment, Inc. | dlpn_ex99z4.htm |
EX-99.2 - AUDITED FINANCIAL STATEMENTS - Dolphin Entertainment, Inc. | dlpn_ex99z2.htm |
EX-99.1 - PRESS RELEASE - Dolphin Entertainment, Inc. | dlpn_ex99z1.htm |
EX-23.1 - CONSENT - Dolphin Entertainment, Inc. | dlpn_ex23z1.htm |
EX-4.1 - REGISTRATION RIGHTS AGREEMENT - Dolphin Entertainment, Inc. | dlpn_ex4z1.htm |
EX-2.1 - AGREEMENT AND PLAN OF MERGER - Dolphin Entertainment, Inc. | dlpn_ex2z1.htm |
8-K - CURRENT REPORT - Dolphin Entertainment, Inc. | dlpn_8k.htm |
EXHIBIT 99.3
THE DOOR MARKETING GROUP, LLC
FINANCIAL STATEMENTS
1
THE DOOR MARKETING GROUP, LLC
TABLE OF CONTENTS
Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017 | 3 |
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Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (unaudited) | 4 |
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Statements of Changes in Members Equity for the Three Months Ended March 31, 2018 (unaudited) | 5 |
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Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited) | 6 |
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Notes to the unaudited Financial Statements | 7 11 |
2
THE DOOR MARKETING GROUP, LLC
BALANCE SHEETS
|
| As of |
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| As of |
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| March 31, |
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| December 31, |
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| 2018 |
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| 2017 |
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| (UNAUDITED) |
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Assets |
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Current Assets: |
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Cash |
| $ | 166,608 |
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| $ | 305,644 |
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Accounts receivable |
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| 412,788 |
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|
| 332,340 |
|
Prepaid expenses and other assets |
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| 31,658 |
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|
| 65,845 |
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Total Current Assets |
|
| 611,054 |
|
|
| 703,829 |
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Property, Equipment and Leasehold Improvements, net |
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| 113,955 |
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|
| 119,819 |
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Security Deposits |
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| 30,667 |
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| 30,667 |
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Total Assets |
| $ | 755,676 |
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| $ | 854,315 |
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Liabilities and Members' Equity |
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Current Liabilities: |
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Deferred revenue |
| $ | - |
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| $ | 30,000 |
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Accrued expenses |
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| 154,923 |
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| 160,912 |
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Deferred rent, current portion |
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| 14,015 |
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| 12,788 |
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Deferred tax liability |
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| 14,649 |
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| 26,718 |
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Total Current Liabilities |
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| 183,587 |
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| 230,418 |
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Long-Term Liabilities: |
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Deferred rent, noncurrent portion |
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| 27,860 |
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| 32,287 |
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Line of credit |
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| 240,363 |
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| 371,658 |
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Total Long-Term Liabilities |
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| 268,223 |
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| 403,945 |
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Total Liabilities |
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| 451,810 |
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| 634,363 |
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Members' Equity |
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| 303,866 |
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| 219,952 |
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Total Liabilities and Members' Equity |
| $ | 755,676 |
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| $ | 854,315 |
|
The accompanying notes are an integral part of these financial statements.
3
THE DOOR MARKETING GROUP, LLC
STATEMENTS OF OPERATIONS
(UNAUDITED)
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| For the three months ended |
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| March 31, |
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| 2018 |
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| 2017 |
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Revenue |
| $ | 1,598,628 |
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| $ | 1,290,346 |
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Operating Expenses |
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| 1,394,796 |
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| 1,249,991 |
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Operating Income Before Guaranteed Payments |
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| 203,832 |
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| 40,355 |
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Guaranteed Payments |
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| 120,000 |
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| 120,000 |
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Operating Income |
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| 83,832 |
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|
| (79,645 | ) |
Interest Expense |
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| 5,397 |
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| 1,916 |
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Income before Provision for Income Taxes |
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| 78,435 |
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|
| (81,561 | ) |
Income Tax Benefit |
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| (5,479 | ) |
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| (15,767 | ) |
Net Income (Loss) |
| $ | 83,914 |
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| $ | (65,794 | ) |
The accompanying notes are an integral part of these financial statements.
4
THE DOOR MARKETING GROUP, LLC
STATEMENT OF CHANGES IN MEMBERS EQUITY
(UNAUDITED)
Members' Equity, December 31, 2017 |
| $ | 219,952 |
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Net income |
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| 83,914 |
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Members' Equity, March 31, 2018 |
| $ | 303,866 |
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The accompanying notes are an integral part of these financial statements.
5
THE DOOR MARKETING GROUP, LLC
STATEMENTS OF CASH FLOWS
(UNAUDITED)
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| For the three months ended |
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| March 31, |
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| 2018 |
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| 2017 |
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Cash Flows From Operating Activities: |
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Net income (loss) |
| $ | 83,914 |
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| $ | (65,794 | ) |
Adjustment to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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| 10,442 |
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| 14,456 |
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Deferred rent |
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| (3,200 | ) |
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| (2,000 | ) |
Deferred tax liability |
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| (12,069 | ) |
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| (16,752 | ) |
Changes in operating assets and liabilities: |
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Accounts receivable |
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| (80,448 | ) |
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| 122,737 |
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Prepaid expenses and other assets |
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| 34,187 |
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| 29,592 |
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Accrued expenses |
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| (5,989 | ) |
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| (122,110 | ) |
Deferred revenue |
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| (30,000 | ) |
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| - |
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Net Cash Used in Operating Activities |
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| (3,163 | ) |
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| (39,871 | ) |
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Cash Flows From Investing Activities: |
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Purchase of property, equipment and leasehold improvements |
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| (4,578 | ) |
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| (11,471 | ) |
Net Cash Used in Investing Activities |
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| (4,578 | ) |
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| (11,471 | ) |
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Cash Flows From Financing Activities: |
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Repayments of line of credit |
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| (131,295 | ) |
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| - |
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Distributions |
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| - |
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| (66,000 | ) |
Net Cash Used in Financing Activities |
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| (131,295 | ) |
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| (66,000 | ) |
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Net Decrease in Cash |
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| (139,036 | ) |
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| (117,342 | ) |
Cash, Beginning of Period |
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| 305,644 |
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| 295,374 |
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Cash, End of Period |
| $ | 166,608 |
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| $ | 178,032 |
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Supplemental Disclosures of Cash Flow Information: |
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Interest |
| $ | 5,397 |
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| 1,916 |
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The accompanying notes are an integral part of these financial statements.
6
THE DOOR MARKETING GROUP, LLC
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPAL BUSINESS ACTIVITIES
The Door Marketing Group, LLC (the Company) was organized, pursuant to the laws of the State of New York in December 2007, as a public relations firm headquartered in New York, with other offices in Illinois and California. The Company will continue in operation as provided for in the operating agreement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) as set forth in the Financial Accounting Standards Boards (FASB) accounting standards codification.
Use of Estimates in Financial Statements
U.S. GAAP requires management to make certain estimates, judgments and assumptions that affect 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash balances consist of cash deposits at financial institutions. At times, balances in these accounts may exceed federally insured limits, however, to date, the Company has not incurred any losses on deposits of cash.
Accounts Receivable and Allowance for Doubtful Accounts
The Companys trade accounts receivable are recorded at amounts billed to customers, and presented on the balance sheet net of allowance for doubtful accounts. The Company reserves for doubtful accounts receivable based on various 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 the past due status of receivables is based on how recently payments have been received and each customers financial condition. The balance of the reserve for doubtful accounts, if any, is deducted from receivables to properly reflect the net realizable value. Receivables are written off when all collection efforts have been exhausted. Management deems the entire accounts receivable balance to be collectible and no allowance for uncollectible accounts has been established as of March 31, 2018 and December 31, 2017, respectively.
Depreciation and Amortization
Property, equipment, and leasehold improvements are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the term of the related lease or the estimated useful lives of the assets.
Revenue Recognition
Revenue consists of fees from the performance of professional services and billings for direct costs reimbursed by clients. Fees are generally recognized on a straight-line or monthly basis which approximates the proportional performance on such contracts. Direct costs reimbursed by clients are billed as pass-through revenue with no mark-up.
Deferred revenue represents customer advances or amounts allowed to be billed under the contracts for work that has not yet been performed or expenses that have not yet been incurred.
7
THE DOOR MARKETING GROUP, LLC
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company is a partnership and is not subject to federal or state income tax in general. It is only subject to tax in New York City which has a statutory rate of 4%.
The Company recognizes and measures tax positions taken or expected to be taken in its tax return only if it is more likely than not to be sustained based solely on their technical merit and assesses the likelihood that the positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period; otherwise, no benefits of the positions are to be recognized. Moreover, the more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. The Company has not recorded any unrecognized tax benefits in the accompanying balance sheets as of March 31, 2018 and December 31, 2017, respectively. In the event the Company was to recognize interest and penalties relating to uncertain tax positions, they would be recorded in interest expense and other non-interest expense, respectively.
The U.S. Federal jurisdiction, California, Illinois, Louisiana, New York, and New York City are the major tax jurisdictions where the Company files income tax returns. The Company is no longer subject to U.S. Federal examinations by tax authorities for years before 2013. Additionally, the statute of limitations to examine the Companys tax returns, in the U.S. states and New York City, varies depending on the jurisdiction. The company has not been notified of any federal or state income tax examinations.
Guaranteed Payments
Guaranteed payments to members that are compensation for services rendered are accounted for as Company expenses rather than as allocations of the Companys net income.
Deferred Rent
Deferred rent consists of the difference between the rent expense recognized on the straight-line basis over the payments required under certain office leases.
Advertising Costs
Advertising costs, which are included in operating expenses, are charged to expense as incurred. Advertising expense was approximately $1,300 and $2,792 for the three months ended March 31, 2018 and 2017, respectively.
8
THE DOOR MARKETING GROUP, LLC
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
3. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers. ASU 2014-09 represents a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. This ASU sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year, but permits entities to adopt one year earlier if they choose (i.e., the original effective date). As such, ASU 2014-09 will be effective for annual and interim reporting periods beginning after December 15, 2018. The Company is currently evaluating the potential impact of the adoption of this standard.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the potential impact of the adoption of this standard.
4. PROPERTY, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Property, equipment, and leasehold improvements consist of the following:
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| As of March 31, |
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| As of December 31, |
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| 2018 |
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| 2017 |
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Computers and equipment |
| $ | 134,764 |
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| $ | 130,186 |
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Furniture and fixtures |
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| 118,556 |
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| 118,556 |
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Leasehold improvements |
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| 50,116 |
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| 50,116 |
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| 303,436 |
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| 298,858 |
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Less: Accumulated depreciation |
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| (189,481 | ) |
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| (179,039 | ) |
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| $ | 113,955 |
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| $ | 119,819 |
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The Company depreciates office furniture over a useful life of seven years, computer equipment over a useful life of five years, and leasehold improvements over the remaining term of the related lease (Note 8). The Company recorded depreciation expense of $10,442 and $14,456 for the three months ended March 31, 2018 and 2017, respectively.
5. LINE OF CREDIT
The Company has a $450,000 revolving evergreen credit line agreement with JPMorgan Chase Bank. Borrowings bear interest at the banks prime lending rate plus 2.80% (7.55% at March 31, 2018). The debt, including letters of credit outstanding, is collateralized by substantially all of the Companys assets. The credit agreement requires the Company to meet certain covenants and includes limitations on distributions to members. The Company is in compliance with covenants as of March 31, 2018. The outstanding loan balance was $240,363 and $371,658 as of March 31, 2018 and December 31, 2017, respectively. The Company incurred interest expense of $5,397 and $1,916 for the three months ended March 31, 2018 and 2017, respectively.
9
THE DOOR MARKETING GROUP, LLC
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
6. INCOME TAXES
The components of income tax benefit are as follows:
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| For the three months ended |
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| March 31, |
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| 2018 |
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| 2017 |
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Current |
| $ | 6,590 |
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| $ | 985 |
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Deferred |
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| (12,069 | ) |
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| (16,752 | ) |
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| $ | (5,479 | ) |
| $ | (15,767 | ) |
The Company is a partnership and is not subject to federal or state income tax in general. It is only subject to tax in New York City which has a statutory rate of 4%. Net deferred assets and liabilities are as follows:
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| As of March 31, |
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| As of December 31, |
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| 2018 |
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| 2017 |
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Deferred Tax Asset: |
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Effect of Cash Basis Accounting Adjustments |
| $ | 5,148 |
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| $ | 5,683 |
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Deferred Tax Liabilities: |
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Effect of Cash Basis Accounting Adjustments |
|
| (16,971 | ) |
|
| (29,354 | ) |
Effect of Tax Depreciation Adjustments |
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| (2,826 | ) |
|
| (3,047 | ) |
Net Deferred Tax Liability |
| $ | (14,649 | ) |
| $ | (26,718 | ) |
The Company may be subject to examination by the Internal Revenue Service (IRS) as well as states for calendar years 2014 through 2017. The Company has not been notified of any federal or state income tax examinations.
7. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) profit sharing plan that covers substantially all employees. Contributions to the plan are at the discretion of the Companys management. The Companys contributions were approximately $21,470 and $33,557 for the three months ended March 31, 2018 and 2017, respectively.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company occupies office space in New York, New York. An affiliate of the Company owned by the same members is obligated under an operating lease agreement for the office space in New York, New York, expiring in August 2020. The Company made payments of $48,442 and $47,264 to the affiliate for the three months ended March 31, 2018 and 2017, respectively, related to the lease. The lease is secured by a cash security deposit of approximately $29,000.
The Company is obligated under an operating lease agreement for office space in Chicago, Illinois, at a fixed rate of $2,200, expiring in May 2020. The lease is secured by a cash security deposit of approximately $1,500.
The Company has a month-to-month lease agreement for office space in Los Angeles, California at a fixed rate of $1,300 per month.
Rent expense amounted to approximately $56,585 and $55,078 for the three months ended March 31, 2018 and 2017, respectively.
10
THE DOOR MARKETING GROUP, LLC
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
9. SUBSEQUENT EVENTS
On July 5, 2018 (the Closing Date), the Company and its members (the Members), entered into an Agreement and Plan of Merger (the Merger Agreement) together with Dolphin Entertainment, Inc. (Dolphin), a Florida corporation. On the Closing Date, the Company merged with Dolphin and became a wholly-owned subsidiary of Dolphin.
The total consideration payable to the Members in respect of the execution of the Merger Agreement comprises the following: (i) $2.0 million in shares of Dolphins common stock, par value $0.015 (the Common Stock), based on a price per share of Common Stock of $3.25, (ii) $2.0 million in cash (as adjusted for certain working capital and closing adjustments and transaction expenses) and (iii) up to an additional $7.0 million of contingent consideration in a combination of cash and shares of Common Stock upon the achievement of specified financial performance targets over a four-year period as set forth in the Merger Agreement (the Additional Consideration). On the Closing Date, Dolphin issued to the Members $1.0 million in shares of Common Stock and paid the Members an aggregate of $1,000,000 in cash (the Initial Consideration). Pursuant to the Merger Agreement, on January 2, 2019, Dolphin has agreed to issue to the Members an additional $1.0 million in shares of Common Stock and pay to the Member $1.0 million in cash (the Post-Closing Consideration and, together with the Initial Consideration and the Additional Consideration, the Merger Consideration). The Merger Agreement contains customary representations, warranties and covenants of the parties thereto.
Each of the Members has entered into a four-year employment agreement with Dolphin, pursuant to which each Member has agreed not to transfer any shares of Common Stock received as Merger Consideration (the Share Consideration) in the first year following the Closing Date, no more than 1/3 of such Merger Consideration in the second year and no more than an additional 1/3 of such Merger Consideration in the third year
On the Closing Date, Dolphin entered into a registration rights agreement with the Members (the Registration Rights Agreement), pursuant to which the Members are entitled to rights with respect to the registration of the Share Consideration under the Securities Act of 1933, as amended (the Securities Act). All fees, costs and expenses of underwritten registrations under the Registration Rights Agreement will be borne by Dolphin. At any time after July 5, 2019, Dolphin will be required, upon the request of such Members holding at least a majority of the Share Consideration received by the Members, to file up to two registration statements on Form S-3 covering up to 25% of the Share Consideration.
Subsequent events have been evaluated through July 11, 2018, which is the date the financial statements were available to be issued.
11