Attached files
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
Form
10-K/A
(Amendment No.
1)
(Mark
One)
☑
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For
the fiscal year ended December 31, 2016
Or
☐
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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Commission file number:
000-50621
DOLPHIN DIGITAL MEDIA, INC.
(Exact name of
registrant as specified in its charter)
Florida
(State or other
jurisdiction of
incorporation or
organization)
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86-0787790
(I.R.S.
Employer
Identification
No.)
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2151 LeJeune Road,
Suite 150-Mezzanine, Coral Gables, FL
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33134
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(Address of
principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number (305) 774-0407
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Title of each
class
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Name of each
exchange on which registered
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Common Stock,
$0.015 par value per share
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None
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Indicate by a check
mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. ☐ Yes
☑ No
Indicate by a check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. ☐
Yes ☑ No
Indicate by a check
mark if the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. ☑
Yes ☐ No
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).
☑ Yes
☐ No
Indicate by a check
mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
☐
Indicate by a check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated
filer ☐
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Accelerated filer
☐
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Non-accelerated
filer ☐
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Smaller reporting
company ☑
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Emerging Growth
Company ☐
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If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act.) ☐ Yes ☑ No
The aggregate
market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the
common equity was last sold, as of the last business day of the
registrant’s most recently completed second fiscal
quarter: $33,243,780
Indicate the number
of shares outstanding of the registrant’s common stock as of
April 17, 2017:
18,755,865
DOCUMENTS
INCORPORATED BY REFERENCE
NONE.
EXPLANATORY
NOTE
This
Amendment No. 1 (the “Amendment”) amends the Annual
Report on Form 10-K for the fiscal year ended December 31, 2016,
filed by Dolphin Digital Media, Inc. (the “Company”,
“we”, or “us”) with the Securities and
Exchange Commission (“SEC”) on April, 17 2017 (the
“Original Filing”). The Company is filing this
Amendment to include the information required by Part III of Form
10-K. The information required by Items 10-14 of Part III is no
longer being incorporated by reference to the Proxy Statement as
the Proxy Statement is not expected to be filed with the SEC within
120 days of December 31, 2016. In addition, in
connection with the filing of this Amendment and pursuant to the
rules of the SEC, we are including with this Amendment new
certifications of our principal executive officer and principal
financial officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. Accordingly, Item 15 of Part IV has also been
amended to reflect the filing of these new
certifications.
No changes have been made in
this Amendment to modify or update the other disclosures presented
in the Original Filing. This Amendment does not reflect events
occurring after the Original Filing or modify or update those
disclosures that may be affected by subsequent events. This
Amendment should be read in conjunction with the Original Filing
and the Company’s other filings with the SEC.
PART
III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
Our directors and
executive officers and the positions held by each of them
are as follows:
(a)
Directors
NAME
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AGE
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PRINCIPAL OCCUPATION
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William
O’Dowd, IV
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48
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Chairman,
President and Chief Executive Officer
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Michael
Espensen
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67
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Director
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Nelson
Famadas
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44
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Director
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Mirta A
Negrini
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53
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Director, Chief
Financial and Operating Officer
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Nicholas Stanham,
Esq.
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49
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Director
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(b)
Executive
Officers
NAME
|
|
AGE
|
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PRINCIPAL
OCCUPATION
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William
O’Dowd, IV
|
|
48
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Chief Executive
Officer
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Mirta A
Negrini
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53
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Chief Financial and
Operating Officer
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Biographical Information of Directors and Executive
Officers
William
O’Dowd, IV. Mr. O’Dowd has served as our
Chief Executive Officer and Chairman of our Board of Directors (the
“Board”) since June 2008. Mr. O’Dowd
founded Dolphin Entertainment, Inc. (“Dolphin
Entertainment”) in 1996 and has served as its President since
that date. In 2016, we acquired Dolphin Films, Inc., a
content producer of motion pictures, from Dolphin Entertainment.
Past television series credits for Mr. O’Dowd include serving
as Executive Producer of Nickelodeon’s worldwide top-rated
series Zoey101 (Primetime
Emmy-Award nominated) and Ned’s Declassified School Survival
Guide, as well as Nickelodeon’s first ever musical,
Spectacular! In addition,
Mr. O’Dowd produced the first season of Raising Expectations, a 26-episode
family sitcom. Raising
Expectations won the 2017 KidScreen Award for Best New
Tween/Teen Series, the global children’s television
industry’s highest honor.
1
Qualifications. The Board
nominated Mr. O’Dowd to serve as a director because of his
current and prior senior executive and management experience at the
Company and his significant industry experience, including having
founded Dolphin Entertainment, a leading entertainment company
specializing in children’s and young adult’s
live-action programming.
Michael
Espensen. Mr.
Espensen has served on our Board since June 2008. From
2009 to 2014, Mr. Espensen served as Chief Executive Officer of
Keraplast Technologies, LLC (“Keraplast”), a private
multi-million dollar commercial-stage biotechnology
company. From 2009 to present, Mr. Espensen has also
served as Chairman of the Board of Keraplast. While
serving as Chief Executive Officer, Mr. Espensen was responsible
for overseeing and approving Keraplast’s annual budgets and
financial statements. Mr. Espensen is also a
producer and investor in family entertainment for television and
feature films. Between 2006 and 2009, Mr. Espensen
was Executive or Co-Executive Producer of twelve
made-for-television movies targeting children and family
audiences. As Executive Producer, he approved production
budgets and then closely monitored actual spending to ensure that
productions were not over budget. Mr. Espensen has
also been a real estate developer and investor for over thirty
years.
Qualifications. The Board
nominated Mr. Espensen to serve as a director because of his
business management and financial oversight experience both as the
current Chairman and former Chief Executive Officer of a
multi-million dollar company and as a former Executive Producer in
the made-for-television movie industry, as well as his valuable
knowledge of our industry.
Nelson
Famadas. Mr. Famadas has served on our Board
since December 2014. Since 2015, he has served as
President of Cien, a marketing firm that serves the Hispanic
market. Prior to Cien, Mr. Famadas served as Senior Vice
President of National Latino Broadcasting (“NLB”) from
July 2011 to May 2015. NLB is an independent Hispanic
media company that owns and operates two satellite radio channels
on SiriusXM. From July 2010 to March 2012,
Mr. Famadas served as our Chief Operating Officer, where he
was responsible for daily operations including public filings and
investor relations. Mr. Famadas began his career at
MTV Networks, specifically MTV Latin America, ultimately serving as
New Business Development Manager. From 1995 through
2001, he co-founded and managed Astracanada Productions, a
television production company that catered mostly to the Hispanic
audience, creating over 1,300 hours of programming. As
Executive Producer, he received a Suncoast EMMY in 1997 for
Entertainment Series for A Oscuras
Pero Encendidos. Mr. Famadas has over 20 years of
experience in television and radio production, programming,
operations, sales and marketing.
Qualifications. The Board
nominated Mr. Famadas to serve as a director because of his
significant prior management experience as a co-founder and former
manager of a television production company and senior vice
president of a broadcasting firm, as well as his current management
experience with a marketing firm.
Mirta
A Negrini. Ms. Negrini has served on our Board since
December 2014 and as our Chief Financial and Operating Officer
since October 2013. Ms. Negrini has over thirty years of experience
in both private and public accounting. Immediately prior to joining
the Company, she served since 1996 as a named partner in Gilman
& Negrini, P.A., an accounting firm of which the Company was a
client. Ms. Negrini is a Certified Public Accountant licensed in
the State of Florida.
Qualifications. The Board
nominated Ms. Negrini to serve as a director because of her
significant accounting experience gained as a named partner at an
accounting firm.
Nicholas
Stanham, Esq. Mr. Stanham has served on our
Board since December 2014. Mr. Stanham is a founding partner of
R&S International Law Group, LLP in Miami, Florida, which was
founded in January 2008. His practice is focused primarily in real
estate and corporate structuring. Mr. Stanham has over 20 years of
experience in real estate purchases and sales of residential and
commercial properties. Since 2004, Mr. Stanham has been a member of
the Christopher Columbus High School board of directors. In
addition, he serves as a director of ReachingU, a foundation that
promotes initiatives and supports organizations that offer
educational opportunities to Uruguayans living in
poverty.
Qualifications. The Board
nominated Mr. Stanham to serve as a director because of his
experience as a founding partner at a law firm as well as his
business management experience at that firm.
2
Corporate Governance
Compliance
with Section 16(a) of the Exchange Act
Section 16(a) of
the Exchange Act requires our directors and certain officers, and
persons who own more than 10% of our common stock, par value $0.015
(the “common stock”), to file with the SEC reports of
ownership and changes in ownership of our common stock and other
equity securities. Based solely on a review of such
reports that were filed with the SEC, all filings required of
directors and Section 16 officers and persons who own more than 10%
of our common stock in 2016 were made on a timely basis, with the
exception of William O’Dowd, IV, who reported two late
transactions on a Form 4 and Nelson Famadas who reported one late
transaction on a Form 4, in each case due to an administrative
oversight.
Code of Ethics
Our Board of
Directors has adopted our Code of Ethics for Senior Financial
Officers (“Code of Ethics”) which we plan to
periodically revise to reflect best corporate governance practices
and changes in applicable rules. Our Code of Ethics sets
forth standards of conduct applicable to our Chief Executive
Officer (“CEO”) and our Chief Financial and Operating
Officer to promote honest and ethical conduct, proper disclosure in
our periodic filings, and compliance with applicable laws, rules
and regulations. Our Code of Ethics is available to view at
our website, www.dolphindigitalmedia.com by clicking on Investor
Relations and then Code of Ethics. We intend to provide
disclosure of any amendments or waivers of our Code of Ethics on
our website within four business days following the date of the
amendment or waiver.
Audit Committee and
Audit Committee Financial Expert
Our Board currently
has a standing Audit Committee consisting of two directors,
Nicholas Stanham and Michael Espensen, who serves as
Chairman. Our Audit Committee operates pursuant to an
Audit Committee Charter, which was adopted by our Board, setting
forth the responsibilities of the Audit Committee. The
Audit Committee Charter can be found at our website at
www.dolphindigitalmedia.com by clicking on Investor Relations and
then Audit Committee Charter.
The Audit
Committee’s responsibilities include, but are not limited to,
assisting the Board in overseeing the:
●
accounting and
financial reporting practices and policies and systems of internal
controls over financial reporting of the
Company;
●
integrity of the
Company’s consolidated financial statements and the
independent audit thereof;
●
compliance of the
Company with legal and regulatory requirements;
and
●
performance of the
independent registered public accounting firm and assessment of the
auditors’ qualifications and
independence.
The Audit Committee
Chairman reports on Audit Committee actions and recommendations at
Board meetings. The Audit Committee may, in its
discretion, delegate its duties and responsibilities to a
subcommittee of the Committee as it deems appropriate. Our Board
has determined that each member of the Audit Committee meets the
independence requirements under NASDAQ’s Marketplace Rules
and the enhanced independence standards for audit committee members
required by the SEC. In addition, our Board has
determined that Mr. Espensen meets the requirements of an audit
committee financial expert under the rules of the SEC.
In 2016, the Audit
Committee held four meetings, which were all attended by each
member.
Procedures for Recommending Nominees to the
Board
During 2016, no
material changes have been made to the procedures by which
shareholders may recommend nominees to our Board of
Directors.
3
Summary Compensation Table
Name
and Principal Position
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Year
|
Salary
($)
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Bonus
($)
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All
Other Compensation
($)
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Total
($)
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William
O’Dowd, IV, (1)
|
|
2016
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250,000
|
—
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377,403(2)
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627,403
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Chairman and
Chief
Executive
Officer
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2015
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250,000
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—
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574,947
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824,947
|
|
|
|
|
|
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Mirta A.
Negrini,
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2016
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200,000
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—
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—
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200,000
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Chief Financial
and
Operating
Officer
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2015
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150,000
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50,000
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—
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200,000
|
____________________________
(1)
For
2016, we accrued the full amount of Mr. O’Dowd’s salary
of $250,000 but did not make any payments on this
amount.
(2) This amount
includes life insurance in the amount of $48,384, interest paid on
accrued and unpaid compensation in the amount of $212,066 and
interest paid on the Revolving Promissory Note (defined below) in
the amount of $116,953 for the fiscal year ended December 31,
2016. In March 2016, Dolphin Entertainment exchanged
$3,073,410 aggregate amount of principal and interest outstanding
under the Revolving Promissory Note for shares of our common stock.
For additional information on the Revolving Promissory Note, please
see “Certain Relationships and Related
Transactions”.
Outstanding Equity Awards at Fiscal Year-End
None
of the executive officers named in the table above had any
outstanding equity awards as of December 31, 2016 and
2015.
Mirta Negrini
Employment Arrangement
On October 21,
2013, the Company appointed Ms. Negrini as its Chief Financial and
Operating Officer, at an annual base salary of $150,000. In
2016, Ms. Negrini’s annual base salary was increased to
$200,000. The terms of Ms. Negrini’s employment arrangement
do not provide for any payments in connection with her resignation,
retirement or other termination, or a change in control, or a
change in her responsibilities following a change in
control.
Director Compensation
In 2016, we did not pay
compensation to any of our directors in connection with their
service on our Board.
4
ITEM 12.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The
table below shows the beneficial ownership as of April 17, 2017, of
our common stock and our Series C Convertible Preferred Stock held
by each of our directors, named executive officers, all current
directors and executive officers as a group and each person known
to us to be the beneficial owner of more than 5% of our outstanding
common stock of 5% of our Series C Convertible Preferred Stock. The
percentages in the table below are based on 18,755,865 shares of
Common Stock outstanding and 1,000,000 shares of Series C Preferred
Stock outstanding as of April 17, 2017. Shares of common stock that
will be issuable upon conversion of the Series C Preferred Stock
are not included in such calculation as the Board has not
determined that an optional conversion threshold (as defined below)
has occurred. The Series C Preferred Stock is convertible in
accordance with the terms set forth in our Amended Articles of
Incorporation, a conformed copy of which was filed with our Form
10-Q for the quarter ended March 31, 2016 with the
Commission.
Beneficial
ownership is determined in accordance with Rule 13d-3 promulgated
under the Exchange Act. Except as indicated by footnote and subject
to community property laws, where applicable, to our knowledge the
persons named in the table below have sole voting and investment
power with respect to all shares of common stock that are shown as
beneficially owned by them. In computing the number of shares owned
by a person and the percentage ownership of that person, any such
shares subject to warrants or other convertible securities held by
that person that were exercisable as of April 17, 2017 or that will
become exercisable within 60 days thereafter are deemed outstanding
for purposes of that person’s percentage ownership but not
deemed outstanding for purposes of computing the percentage
ownership of any other person. Except as required by law, holders
of Series C Preferred Stock will only have voting rights once the
independent directors of the Board
determine that an optional conversion threshold has
occurred.
Common
Stock
|
||
Name and Address of Owner(1)
|
# of Shares of
Common Stock
|
% of Class
(Common Stock)
|
Directors and Executive Officers
|
|
|
William
O’Dowd, IV
|
3,251,687(2)
|
17.3%
|
Michael
Espensen
|
555
|
*
|
Nelson
Famadas
|
3,685
|
*
|
Mirta A
Negrini
|
––
|
*
|
Nicholas Stanham,
Esq.(3)
|
28,667
|
*
|
All Directors and
Executive Officers as a Group (5 persons)
|
3,284,594
|
17.5%
|
5% Holders
|
|
|
Stephen L.
Perrone(4)
|
4,050,000
|
21.2%
|
T Squared Partners
LP(5)
|
2,082,000
|
9.9%
|
Alvaro and Lileana
de Moya(6)
|
1,207,483
|
6.4%
|
Justo
Pozo(7)
|
2,366,909
|
12.6%
|
Series
C Convertible Preferred Stock
|
||
Name and Address of Owner(1)
|
# of Shares of
Preferred Stock
|
% of Class
(Preferred Stock)
|
William
O’Dowd, IV(8)
|
1,000,000
|
100%
|
* Less
than 1% of outstanding shares.
(1)
Unless otherwise
indicated, the address of each shareholder is c/o Dolphin Digital
Media, Inc., 2151 Le Jeune Road, Suite 150, Mezzanine, Coral
Gables, Florida, 33134.
(2)
The amount shown includes (1) 1,242,104 shares of
common stock held by Dolphin Digital Media Holdings LLC, which is
wholly-owned by Mr. O’Dowd, (2) 1,055,682 shares of common
stock held by Dolphin Entertainment, which is wholly-owned by Mr.
O’Dowd and (3) 953,900 shares of common stock held by Mr.
O’Dowd individually. Does not include shares of Common Stock
that are issuable upon conversion of the Series C Convertible
Preferred Stock upon the determination by the independent directors
of the Board that an optional conversion threshold has occurred. In
accordance with the terms of our Amended Articles of Incorporation,
each share of Series C Convertible Preferred Stock will be
convertible into one-twentieth (1/20) of a share of Common Stock,
subject to adjustment for each issuance of common stock (but not
upon issuance of common stock equivalents) that occurred, or
occurs, from the date of issuance of the Series C Convertible
Preferred Stock (the “issue date”) until the fifth
(5th) anniversary of the issue date (i) upon the
conversion or exercise of any instrument issued on the issued date
or thereafter issued (but not upon the conversion of the Series C
Convertible Preferred Stock), (ii) upon the exchange of debt for
shares of common stock, or (iii) in a private placement, such that
the total number of shares of common stock held by an
“Eligible Class C Preferred Stock Holder” (based on the
number of shares of Common Stock held as of the date of issuance)
will be preserved at the same percentage of shares of Common Stock
outstanding held by such Eligible Class C Preferred Stock Holder on
such date. An Eligible Class C Preferred Stock Holder means any of
(i) Dolphin Entertainment for so long as Mr. O’Dowd continues
to beneficially own at least 90% and serves on the board of
directors or other governing entity, (ii) any other entity in which
Mr. O’Dowd beneficially owns more than 90%, or a trust for
the benefit of others, for which Mr. O’Dowd serves as trustee
and (iii) Mr. O’Dowd individually. Series C
Convertible Preferred Stock will only be convertible by the
Eligible Class C Preferred Stock Holder upon the Company satisfying
one of the “optional conversion thresholds”.
Specifically, a majority of the independent directors of the Board,
in its sole discretion, must have determined that the Company
accomplished any of the following (i) EBITDA of more than $3.0
million in any calendar year, (ii) production of two feature films,
(iii) production and distribution of at least three web series,
(iv) theatrical distribution in the United States of one feature
film, or (v) any combination thereof that is subsequently approved
by a majority of the independent directors of the Board based on
the strategic plan approved by the Board. While certain events may
have occurred that could be deemed to have satisfied this criteria,
the independent directors of the Board have not yet determined that
an optional conversion threshold has occurred.
(3)
Mr. Stanham shares
voting and dispositive power with respect to all of the shares of
common stock with his spouse.
5
(4)
The amount shown
includes: (i) 2,470,000 shares held by KCF Investments LLC; (ii)
770,000 shares held by BBCF 2011 LLC; (iii) 450,000 shares held by
BBCD LLC; and (iv) 10,000 shares held by Mr. Perrone as an
individual. The amount shown also includes 350,000 shares issuable
upon the exercise of a common stock purchase warrant that is
exercisable within 60 days after April 17, 2017. Stephen L. Perrone
(4450 US Highway #1, Vero Beach, FL 32967) is the beneficial owner
of all of the shares and has sole voting and dispositive power with
respect to all of the shares.
(5)
The amount shown is
based upon: (i) 24,230 shares issuable upon the exercise of a Class
E Warrant; (ii) 350,000 shares issuable upon the exercise of a
Class F Warrant; (iii) 1,500,000 shares issuable upon the exercise
of a Class G Warrant; (iv) 500,000 shares issuable upon the
exercise of a Class H Warrant; (v) 500,000 shares issuable upon the
exercise of a Class I Warrant; and (vi) 30,177 shares held by Mark
Jensen and/or Thomas M. Suave and related entities owned by Mark
Jensen and/or Thomas M. Suave. Each of the warrants is
convertible/exercisable within 60 days after April 17, 2017, to the
extent that after giving effect to such conversion/exercise, the
holder (together with the holder’s affiliates) would not
beneficially own in excess of 9.9% of the number of shares of
common stock outstanding immediately after giving effect to such
conversion/exercise. Mark Jensen and Thomas M. Suave are both
principals of T Squared Partners LP (P.O. Box 606, Fishers, IN
46038) and are each deemed to have beneficial ownership of all the
shares. Mr. Jensen and Mr. Suave have shared voting and dispositive
power over all shares beneficially owned by T Squared Partners
LP.
(6)
The amount shown
includes: (i) 150,000 shares held by the Alvaro de Moya Revocable
Trust; (ii) 150,000 shares held by the Lileana de Moya Revocable
Trust; (iii) 200,000 shares held by the Lileana de Moya Lifetime
Trust; (iv) 20,000 shares held by the Alvaro de Moya Grantor
Retained Annuity Trust and (v) 687,483 held by Alvaro and Lileana
de Moya.
(7)
The amount shown
includes: (i) 1,018,888 shares held by Pozo Opportunity Fund I;
(ii) 632,800 shares held by Pozo Opportunity Fund II; (iii) 1,875
shares held by Justo Pozo, Trustee FBO Zulita Pina Irrevocable
Trust; (iv) 1,750 shares held by Justo Pozo ACF Ricardo S. Pozo
U/FI/UTMA; (v) 49,706 shares held by Justo Luis and Sylvia E. Pozo;
and (vi) 661,890 held by Pozo Capital Partners LLP. Mr. Pozo is the
beneficial owner of all of the shares and has sole voting and
dispositive power with respect to all of the
shares.
(8) The
Series C Convertible Preferred Stock are held by Dolphin
Entertainment which is wholly-owned by Mr.
O’Dowd.
Equity Compensation Plan Information
On
September 13, 2012, our Board approved an Omnibus Incentive
Compensation Plan (the “Plan”), which was approved by
the majority of our shareholders on September 19, 2012. The Plan
was adopted as a means of attracting and retaining exceptional
employees and consultants by enabling them to share in the long
term growth and financial success of the Company. The Plan is
administered by the Board or a committee designated by the Board.
The Board designated 500,000 shares of common stock (post-split)
for this Plan. No awards have been issued under the Plan since its
adoption.
ITEM 13.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
William O’Dowd
On December 31,
2011, we issued an unsecured revolving promissory note (the
“Revolving Promissory Note”) to Dolphin Entertainment,
an entity wholly owned by our CEO, Mr. O’Dowd. The
Revolving Promissory Note accrued interest at a rate of 10% per
annum. Dolphin Entertainment had the right at any time to demand
that all outstanding principal and accrued interest be repaid with
a ten day notice to us. During the year ended December 31, 2015,
Dolphin Entertainment advanced $2,797,000 and was repaid $3,267,000
in principal. During the year ended December 31, 2016, Dolphin
Entertainment advanced $270,000. On March 4, 2016, we
entered into a subscription agreement with Dolphin Entertainment,
pursuant to which we and Dolphin Entertainment agreed to convert
$1,920,600 of principal balance and $1,152,809 of accrued interest
outstanding under the Revolving Promissory Note into 614,682 shares
of common stock. The shares were converted at a price of
$5.00 per share. During the years ended December 31,
2016 and 2015, $32,008 and $340,050, respectively, were expensed in
interest and we recorded accrued interest of $5,788 and $1,126,
related to the Revolving Promissory Note, on our consolidated
balance sheets as of December 31, 2016 and 2015,
respectively. As of December 31, 2016 and 2015, the
outstanding balances under the Revolving Promissory Note were $0
and $1,982,267. The largest aggregate balance that the Company owed
to Dolphin Entertainment during 2016 and 2015, was $3,073,410 and
$5,056,496, respectively.
Dolphin
Entertainment has previously advanced funds for working capital to
Dolphin Films, Inc. (“Dolphin Films”), its former
subsidiary which we acquired in March 2016. During the year ended
December 31, 2015, Dolphin Films agreed to enter into second loan
and security agreements with certain of Dolphin
Entertainment’s debtholders, pursuant to which the
debtholders exchanged their Dolphin Entertainment notes for notes
issued by Dolphin Films totaling $8,774,327. The amount of debt
assumed by Dolphin Films was applied against amounts owed to
Dolphin Entertainment by Dolphin Films. On October 1,
2016, Dolphin Films entered into a promissory note with Dolphin
Entertainment (the “DE Note”) in the principal amount
of $1,009,624. The DE Note is payable on demand and
bears interest at a rate of 10% per annum. As of December 31, 2016
and 2015, Dolphin Films owed Dolphin Entertainment $434,326 and
$1,612,357, respectively, of principal and $19,652 and
$1,305,166, respectively, of accrued interest, that was recorded on
the condensed consolidated balance sheets Dolphin Films recorded
interest expense of $83,551 and $148,805, respectively for the
years ended December 31, 2016 and 2015. The largest aggregate
balance Dolphin Films owed Dolphin Entertainment during 2016 and
2015, was $2,658,800 and $6,527,600,
respectively
6
On September 7, 2012, we entered
into an employment agreement with Mr. O’Dowd, which was
subsequently renewed for a period of two years, effective January
1, 2015. The agreement provided for an annual salary of
$250,000 and a one-time bonus of $1,000,000. Unpaid
compensation accrues interest at a rate of 10% per
annum. As of December 31, 2016 and 2015, we had a
balance of $735,211 and $523,145, respectively of accrued interest
and $2,250,000 and $2,000,000, of accrued compensation related to
this agreement. We recorded $212,066 and $186,513 of
interest expense for the years ended December 31, 2016 and
2015.
During 2015, we agreed to pay
Dolphin Entertainment $250,000 for a script that it had developed
for a web series that we produced during 2015.
As previously mentioned, on March
29, 2016, we acquired Dolphin Films from Dolphin
Entertainment. As consideration, we issued to Dolphin
Entertainment 2,300,000 shares of Series B Convertible Preferred
Stock, par value $0.10 per share (“Series B Preferred
Stock”) and 1,000,000 shares of Series C Convertible
Preferred Stock, par value $0.001 per share (“Series C
Preferred Stock”). On November 15, 2016, Dolphin
Entertainment converted the Series B Preferred Stock into 2,300,000
shares of our common stock. As Mr. O’Dowd is the
sole owner of Dolphin Entertainment, he is deemed the beneficial
owner of such shares of common stock.
Nicholas
Stanham
In March 2016, we entered into a
debt exchange agreement with our director, Mr. Stanham, pursuant to
which we exchanged a promissory note in the amount of $50,000 for
11,128 shares of our common stock, as payment in full of the
promissory note. The promissory note accrued interest at
a rate of 10% per annum. The shares of common stock were
converted at a price of $5.00 per share.
T Squared
Partners LP
In connection with the merger
whereby we acquired Dolphin Films, we entered into a preferred
stock exchange agreement with T Squared Partners LP
(previously T Squared Investments, LLC) (“T Squared”)
pursuant to which, on March 7, 2016, we issued 950,000 shares of
Series B Preferred Stock to T Squared in exchange for
1,042,753 shares of Series A Convertible Preferred Stock,
previously issued to T Squared. On November 16, 2016, T
Squared converted the Series B Preferred Stock into 950,000 shares
of our common stock.
On November 4, 2016, we issued
Class G, Class H and Class I Warrants (the “Warrants”)
to T Squared that entitles T Squared to purchase up to 2,500,000
shares of our common stock. The Warrants have a maximum
exercise provision that prohibit T Squared from exercising warrants
that would cause it to exceed 9.99% of our outstanding shares of
common stock, unless the restriction is waived or amended, by the
mutual consent of us and T Squared.
On March 31, 2017, T Squared
partially exercised Class E Warrants and acquired 325,770 shares of
our common stock pursuant to the cashless exercise provision in the
related warrant agreement. T Squared had previously paid
down $1,675,000 for these shares.
Justo Pozo
During 2016,
we entered into three separate debt exchange agreements with
entities under the control of Justo Pozo (“Pozo”) to
exchange promissory notes with an aggregate principal and interest
balance of $8,178,145 into 1,629,628 shares of our Common Stock at
$5.00 per share. The promissory notes accrued interest at
rates ranging from 11.25% to 12.5% per annum. Pozo was the
holder of a convertible note that mandatorily and automatically
converted into Common Stock, at the conversion price of $5.00 per
share, upon the average market price per share of Common Stock
being greater than or equal to the conversion price for twenty
trading days. During 2016, such triggering event occurred and
the convertible note was converted into 632,800 shares of our
Common Stock.
Stephen L.
Perrone
In December 2016, we and entities
affiliated with Stephen L. Perrone entered into: (i) a debt
exchange agreement to exchange promissory notes in the aggregate
amount of $6,470,990 for shares of our common stock and (ii) a
purchase agreement to acquire a 25% membership interest of Dolphin
Kids Clubs owned by the affiliated entity. The promissory notes
accrued interest at rates ranging from 11.25% to $13.25% per
annum. Pursuant to the agreements, we issued a Class J
Warrant that entitled Mr. Perrone to purchase up to 2,170,000
shares of our common stock at a price of $0.015 per share through
December 29, 2020. In addition, we issued to an entity
affiliated with Mr. Perrone a Class K Warrant as consideration to
terminate an equity finance agreement in the amount of
$564,000. The Class K Warrant entitled Mr. Perrone to
purchase up to 170,000 shares of our common stock at a price of
$0.015 per share prior to December 29, 2020. On March
31, 2017, Mr. Perrone’s affiliated entities exercised the
Class J and Class K Warrants at an aggregate purchase price of
$35,100 and acquired 2,340,000 shares of our Common
Stock.
Alvaro and Lileana De
Moya
7
Director Independence
We are not listed
on a national securities exchange; however, we have elected to use
the definition of independence under the NASDAQ listing
requirements in determining the independence of our directors and
nominees for director. In 2017, the Board undertook a
review of director independence, which included a review of each
director’s response to questionnaires inquiring about any
relationships with us. This review was designed to
identify and evaluate any transactions or relationships between a
director or any member of his immediate family and us, or members
of our senior management or other members of our Board of
Directors, and all relevant facts and circumstances regarding any
such transactions or relationships. Based on its review,
the Board determined that Messrs. Espensen, Famadas and Stanham are
independent. Mr. O’Dowd and Ms. Negrini are not
independent under NASDAQ’s compensation committee
independence standards or its nominations committee independence
standards.
BDO USA, LLP
(“BDO”) served as the Company’s independent
registered public accounting firm for the fiscal years ended
December 31, 2016 and 2015.
The following table
shows the fees that we were billed for audit and other services
provided by our independent auditors for the periods set
forth.
Fees Paid to BDO
|
Year
Ended
12/31/2016
|
Year
Ended
12/31/2015
|
Audit
Fees(1)
|
$128,875
|
$134,600
|
Audit-Related
Fees
|
—
|
18,500(2)
|
Tax
Fees
|
—
|
—
|
All Other
Fees
|
—
|
—
|
Total
|
$128,875
|
$153,100
|
(1)
Audit Fees—
this category includes the audit of our annual financial
statements, review of financial statements included in the
Company’s Form 10-Q Quarterly Reports and services that are
normally provided by the independent auditors in connection with
engagements for those fiscal years.
(2)
Audit-Related Fees
— this category consists of assurance services by the
independent auditors in connection with the Company’s pro
forma financial statements related to the acquisition of Dolphin
Films in 2016.
The Audit Committee
reviews, and in its sole discretion pre-approves, our independent
auditors’ annual engagement letter including proposed fees
and all auditing services provided by the independent auditors.
Accordingly, our Audit Committee approved all services rendered by
BDO during fiscal year 2016, as described above. The Audit
Committee has not implemented a policy or procedure which delegates
the authority to approve, or pre-approve, audit or permitted
non-audit services to be performed by BDO. Our Board may
not engage the independent auditors to perform the non-audit
services proscribed by law or regulation.
8
PART IV
(3)
Exhibits
The exhibits listed
on the accompanying Index to Exhibits are filed as part of this
Amendment.
Exhibit Index
Exhibit
No.
|
|
Description
|
|
|
|
31.1
|
|
Certification of
Chief Executive Officer of the Company pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
|
|
|
|
31.2
|
|
Certification of
Chief Financial Officer of the Company pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
|
* Filed
herewith.
9
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
DOLPHIN DIGITAL
MEDIA, INC.
|
|
|
|
|
|
|
|
By:
|
/s/
William
O’Dowd, IV
|
|
|
|
William
O’Dowd, IV
|
|
|
|
Chief Executive
Officer
|
|
|
Dated: May 1, 2017 |
|
10