Attached files
file | filename |
---|---|
EX-99.1 - 42WEST LLCS AUDITED FINANCIAL STATEMENTS AS OF, AND FOR THE YEARS ENDED, DECEMBE - Dolphin Entertainment, Inc. | auditedfinancials.htm |
8-K/A - FORM 8-K/A - Dolphin Entertainment, Inc. | dpdm_8k.htm |
Exhibit 99.2
DOLPHIN
DIGITAL MEDIA, INC
UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro
forma consolidated financial information and related
notes present the historical combined financial
information of Dolphin Digital Media, Inc. and its wholly owned
subsidiaries (hereinafter referred to as “Dolphin” or
“the Company”) and 42West LLC (“42West”)
after giving effect to Dolphin’s acquisition of 42West that
was completed on March 30, 2017 (the “Acquisition
Date”). The pro forma adjustments are based upon
available information and assumptions that the Company believes are
reasonable.
The unaudited pro forma
combined balance sheet as of December 31, 2016 is presented as if
the acquisition of 42West had occurred on December 31,
2016. The unaudited pro forma combined consolidated
statements of operations for the year ended December 31, 2016 are
presented as if the acquisition had occurred on January 1,
2016. The historical financial information is adjusted
in the unaudited pro forma combined financial information to give
effect to pro forma events that are (1) directly attributable to
the proposed acquisition, (2) factually supportable, and (3) with
respect to the combined statements of operations, expected to have
a continuing impact of the combined results.
The determination and
preliminary allocation of the purchase consideration used in the
unaudited pro forma combined consolidated financial information are
based upon preliminary estimates, which are subject to change
during the measurement period (up to one year from the Acquisition
Date). Accordingly, the aggregate value of the
consideration paid by Dolphin to complete the acquisition was
allocated to the assets acquired and liabilities assumed from
42West based upon estimated fair value on the closing date of the
acquisition. Dolphin has not completed the detailed
valuations necessary to estimate the fair value of the assets
acquired and the liabilities assumed form 42West and the related
allocations of purchase price, nor has Dolphin identified all
adjustments necessary to conform 42West’s accounting policies
to Dolphin’s accounting policies. Accordingly, the pro forma
purchase price adjustments presented herein are preliminary, and
may not reflect any final purchase price adjustments
made. Dolphin estimated the fair value of 42West’s
assets and liabilities based on discussion with 42West’s
management, due diligence and preliminary work performed by
third-party valuation specialists. As the final valuations are
being performed, increases or decreases in fair value of relevant
balance sheet amounts will result in adjustments, which may result
in material differences from the information presented
herein.
The unaudited pro
forma adjustments are not necessarily indicative of or intended to
represent the results that would have been achieved had the
transaction been consummated as of the dates indicated or that may
be achieved in the future. The actual results reported
by the combined company in periods following the acquisition may
differ significantly from those reflected in these unaudited pro
forma combined financial information for a number of reasons,
including cost saving synergies from operating efficiencies and the
effect of incremental costs incurred to integrate the two
companies.
The unaudited pro
forma combined financial information should be read in conjunction
with our historical consolidated financial statements and
accompanying notes included in our Annual Report on Form 10-K for
the year ended December 31, 2016 and the historical audited
financial statements of 42West for the year ended December 31, 2016
contained in this Form 8-K/A.
Unaudited Pro Forma
Combined Balance Sheet
|
|||||
As
of December 31, 2016
|
|||||
|
|
|
|
|
|
|
Dolphin Digital
Media, Inc. (Historical)
|
42West - Acquiree
(Historical)
|
Pro
Forma Adjustments
|
Notes
|
Pro
Forma Combined
|
Cash and cash
equivalents
|
$662,546
|
$1,279,056
|
$-
|
|
$1,941,602
|
Restricted
cash
|
1,250,000
|
-
|
-
|
|
1,250,000
|
Accounts
receivable, net
|
3,668,646
|
1,337,806
|
-
|
|
5,006,452
|
Other current
assets
|
2,665,781
|
26,150
|
-
|
|
2,691,931
|
Total
current assets
|
8,246,973
|
2,643,012
|
-
|
|
10,889,985
|
Capitalized
production costs
|
4,654,013
|
-
|
-
|
|
4,654,013
|
Property, equipment
and leasehold improvements, net
|
35,188
|
1,115,515
|
-
|
|
1,150,703
|
Other
assets
|
1,261,067
|
265,563
|
-
|
|
1,526,630
|
Intangible
assets
|
-
|
-
|
9,110,000
|
(a)
|
9,110,000
|
Goodwill
|
-
|
-
|
13,112,411
|
(b)
|
13,112,411
|
Total
assets
|
$14,197,241
|
$4,024,090
|
$22,222,411
|
|
$40,443,742
|
|
|
|
|
|
|
Accounts
payable
|
$677,249
|
$435,110
|
$-
|
|
$1,112,359
|
Bank loan
payable
|
-
|
350,000
|
-
|
|
350,000
|
Warrant
liability
|
14,011,254
|
-
|
-
|
|
14,011,254
|
Accrued
compensation
|
2,250,000
|
-
|
-
|
|
2,250,000
|
Debt
|
18,743,069
|
-
|
-
|
|
18,743,069
|
Loan from related
party
|
684,326
|
-
|
-
|
|
684,326
|
Put
rights
|
-
|
-
|
4,000,000
|
(c)
|
4,000,000
|
Contingent
consideration
|
-
|
-
|
3,541,000
|
(d)
|
3,541,000
|
Deferred
revenue
|
46,681
|
-
|
-
|
|
46,681
|
Note
payable
|
300,000
|
300,000
|
-
|
|
600,000
|
Other current
liabilities
|
2,958,523
|
708,328
|
1,327,708
|
(e)
|
4,994,559
|
Total
current liabilities
|
39,671,102
|
1,793,438
|
8,868,708
|
|
50,333,248
|
Warrant
liability
|
6,393,936
|
-
|
|
|
6,393,936
|
Note
payable
|
-
|
225,000
|
-
|
|
225,000
|
Other noncurrent
liabilities
|
-
|
769,296
|
-
|
|
769,296
|
Total
liabilities
|
46,065,038
|
2,787,734
|
8,868,708
|
|
57,721,480
|
Total
stockholders' (deficit) equity
|
(31,867,797)
|
1,236,356
|
13,353,703
|
(f)
|
(17,277,738)
|
Total
liabilities and stockholders' deficit
|
$14,197,241
|
$4,024,090
|
$22,222,411
|
|
$40,443,742
|
|
|
|
|
|
|
See
accompanying notes to the Unaudited Pro Forma Combined Financial
Information
|
2
Unaudited Pro Forma
Combined Statements of Operations
|
|||||
For
the year ended December 31, 2016
|
|||||
|
|
|
|
|
|
|
Dolphin Digital
Media, Inc. (Historical)
|
42West - Acquiree
(Historical)
|
Pro
Forma Adjustments
|
Notes
|
Pro
Forma Combined
|
|
|
|
|
|
|
Revenues
|
$9,395,625
|
$18,563,749
|
$-
|
|
$27,959,374
|
|
|
|
|
|
|
Operating expenses
exclusive of depreciation and amortization
|
27,097,889
|
15,851,177
|
-
|
|
42,949,066
|
|
|
|
|
|
|
Operating
(loss) income
|
(17,702,264)
|
2,712,572
|
-
|
|
(14,989,692)
|
|
|
|
|
|
|
Depreciation and
amortization
|
(476,250)
|
(213,846)
|
(997,333)
|
(A)
|
(1,687,429)
|
Interest
expense
|
(4,241,841)
|
(21,505)
|
-
|
|
(4,263,346)
|
Change in fair
value of warrant liability
|
2,195,542
|
-
|
-
|
|
2,195,542
|
Warrant issuance
expense
|
(7,372,593)
|
-
|
-
|
|
(7,372,593)
|
Loss on
extinguishment of debt
|
(9,601,933)
|
-
|
-
|
|
(9,601,933)
|
Other income
(expense)
|
9,660
|
$(59,752)
|
-
|
|
(50,092)
|
Net (loss)
income
|
$(37,189,679)
|
$2,417,469
|
$(997,333)
|
|
$(35,769,543)
|
|
|
|
|
|
|
Deemed dividend on
preferred stock
|
5,247,227
|
-
|
-
|
|
5,247,227
|
Net loss
attributable to common shareholders
|
$(42,436,906)
|
$2,417,469
|
$(997,333)
|
|
$(41,016,770)
|
|
|
|
|
|
|
Basic and Diluted
Loss per Share
|
$(4.83)
|
|
|
|
$(3.33)
|
|
|
|
|
|
|
Weighted average
number of shares used in share calculation
|
8,778,193
|
|
|
(B)
|
12,314,850
|
|
|
|
|
|
|
See
accompanying notes to the Unaudited Pro Forma Combined Financial
Information
|
3
NOTES
TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION
NOTE
1 – DESCRIPTION OF THE TRANSACTION
On March 30, 2017, Dolphin
completed its acquisition of 42West. Pursuant to the
terms of the Membership Interest Purchase Agreement (the
“Purchase Agreement”), Dolphin acquired from the
members of 42West (the “Sellers”), 100% of the
membership interests of 42West and 42West became a wholly-owned
subsidiary of Dolphin (the “42West Acquisition”). The
consideration paid by Dolphin in connection with the 42West
Acquisition was approximately $18.7 million in shares of common
stock of Dolphin, par value $0.015 (the “Common
Stock”), based on the Company’s 30-trading-day average
stock price prior to the closing date of $4.61 per share (less
certain working capital and closing adjustments, transaction
expenses and payments of indebtedness), plus the potential to earn
up to an additional $9.3 million in shares of Common Stock based on
achieving certain financial targets.
Also in connection
with the 42West Acquisition, on March 30, 2017, the Company entered
into put agreements (the “Put Agreements”) with each of
the Sellers. Pursuant to the terms and subject to the conditions
set forth in the Put Agreements, the Company has granted the
Sellers the right, but not obligation, to cause the Company to
purchase up to an aggregate of 2,374,187 of the shares of Common
Stock received as consideration for a purchase price equal to $4.61
per share during certain specified exercise periods set forth in
the Put Agreements up until December 2020 (the “Put
Rights”).
NOTE
2 –BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma
combined balance sheet as of December 31, 2016 combines the
historical balance sheet of Dolphin with the historical balance
sheet of 42West and has been prepared as if the 42West Acquisition
had occurred on December 31, 2016. The unaudited pro
forma combined statement of operations for the year ended December
31, 2016 combines the historical statement of operations of Dolphin
with the historical statement of operations of 42West and was
prepared as if the 42West Acquisition had occurred on January 1,
2016. The historical financial information is adjusted
in the unaudited pro forma combined financial information to give
effect to pro forma events that are (1) directly attributable to
the proposed acquisition, (2) factually supportable, and (3) with
respect to the combined statement of operations, expected to have a
continuing impact on the combined results.
Dolphin accounted for the
acquisition in the unaudited pro forma combined financial
information using the acquisition method of accounting in
accordance with Financial Accounting Standards Board Accounting
Standards Codification Topic 805 “Business
Combinations” (“ASC 805”). In
accordance with ASC 805, the Company used its best estimates and
assumptions to assign fair value to the tangible and intangible
assets acquired and liabilities assumed at the Acquisition
Date. Goodwill as of the Acquisition Date is measured as
the excess of purchase consideration over the fair value of the net
tangible and identifiable assets acquired.
The pro forma adjustments
described below were developed based on Dolphin management’s
assumptions and estimates, including assumptions relating to the
consideration paid and the allocation thereof to the assets
acquired and liabilities assumed from 42West based on preliminary
estimates to fair value. The final purchase
consideration and allocation of the purchase consideration will
differ from that reflected in the unaudited pro forma combined
financial information after the final valuation procedures are
performed and the amounts are finalized.
The unaudited pro forma
combined financial information is provided for illustrative
purposes only and does not purport to represent what the actual
consolidated results of operations or the consolidated financial
position of the combined company would have been had the
acquisition occurred on the dates assumed, nor are the necessarily
indicative of future consolidated results of operations or
financial position.
Dolphin expects to incur
costs and realize benefits associated with integrating the
operations of Dolphin and 42West. The unaudited pro
forma combined financial statements do not reflect the costs of any
integration activities or any benefits that may result from
operating efficiencies or revenue synergies. The
unaudited pro forma combined statement of operations does not
reflect any non-recurring charges directly related to the
acquisition that the combined companies incurred upon completion of
the 42West Acquisition.
4
NOTE
3 – ESTIMATED PRELIMINARY PURCHASE PRICE
CONSIDERATION
The table below represents
the total estimated preliminary purchase price
consideration:
Common Stock issued
at closing and in April 2017 (1,574,830 shares)
|
$6,693,028
|
Fair value of Common Stock issuable on
January 2, 2018 (1,961,821 shares)
|
8,337,739
|
Fair value of Contingent
Consideration
|
3,541,000
|
Fair value of Put
Rights
|
4,000,000
|
Sellers’
transaction costs paid at closing
|
260,000
|
Sellers’ tax
liabilities assumed
|
627,000
|
|
$23,458,767
|
NOTE
4 – ESTIMATED PRELIMINARY PURCHASE PRICE
ALLOCATION
The table below represents
the estimated preliminary purchase price allocation to the net
assets acquired based on their estimated fair values, as well as
the associated estimated useful lives of the acquired intangible
assets. Such amounts were estimated using the most
recent audited financial statements of 42West as of December 31,
2016. Dolphin does not believe that using 42West’s balances
as of December 31, 2016 instead of March 30, 2017 will result in a
materially different allocation, however, certain amounts, such as
the balances of cash, accounts receivable, other
assets, the net balance of property, equipment and
leasehold improvements, accounts payable, bank loan,
note payable and other liabilities will vary based upon changes in
42West’s balances between December 31, 2016 and March 30,
2017, with offsetting changes to goodwill. As the final
valuations are being performed, increases or decreases in the fair
value of relevant balance sheet accounts will result in
adjustments, which may result in material differences from the
information presented herein.
Assets
acquired
|
|
Cash
|
$1,279,056
|
Accounts
receivable, net
|
1,337,806
|
Property, equipment
and leasehold improvements
|
1,115,515
|
Other
assets
|
291,713
|
Intangibles
|
9,110,000
|
Total identifiable
assets acquired
|
13,134,090
|
|
|
Liabilities
assumed
|
|
Accounts
payable
|
(435,110)
|
Accrued
expenses
|
(561,053)
|
Bank
loan
|
(350,000)
|
Note
payable
|
(525,000)
|
Other
liabilities
|
(916,571)
|
Total liabilities
assumed
|
(2,787,734)
|
Net identifiable
assets
|
10,346,356
|
Goodwill
|
13,112,411
|
Purchase price
allocated
|
$23,458,767
|
NOTE
5 – PRO FORMA ADJUSTMENTS
The following is a
description of the unaudited pro forma adjustments reflected in the
unaudited pro forma combined financial statements:
5
Adjustments
to the pro forma combined balance sheet:
(a)
The addition of
intangible assets as a result of the estimated preliminary purchase
price allocation is comprised of the following:
|
Acquisition Date
Opening Balance
|
Useful Live
(Years)
|
Intangible
assets:
|
|
|
Customer
relationships
|
$5,980,000
|
10
|
Trade
name
|
2,760,000
|
10
|
Non-competition
agreements
|
370,000
|
3
|
Total purchased
intangible assets
|
$9,110,000
|
|
(b)
To record
$13,112,411 of preliminary goodwill based on the excess of purchase
consideration of the 42West Acquisition over the preliminary fair
value of the net identifiable assets acquired. In
accordance with ASC 805, goodwill will not be amortized but instead
will be tested for impairment at least annually and more frequently
if certain indicators of impairment are present. In the
event that goodwill has become impaired, we will record an expense
for the amount impaired during the fiscal quarter in which the
determination is made.
(c)
To record
$4,000,000 as the preliminary fair value of the Put
Rights. As discussed above the Sellers have the right to
cause the Company to purchase up to 2,374,187 shares of Common
Stock at a purchase price of $4.61 per share at certain specified
dates up until December 2020.
(d)
Per the Purchase
Agreements, the Sellers have the right to earn up to an additional
$9.3 million of consideration (the “Contingent
Consideration”) for the 42West Acquisition, contingent on
achieving certain financial targets over a three year period, as
specified in the Purchase Agreement. The Contingent
Consideration is payable in shares of Common Stock at a purchase
price of $4.61 per share. The preliminary fair value of the
Contingent Consideration is $3,541,000.
(e)
The preliminary
fair value of other current liabilities is comprised of the
following:
Seller's tax
liability
|
$627,000
|
Legal
|
425,708
|
Consulting
|
275,000
|
Other current
liabilities
|
$1,327,708
|
The preliminary
fair value of the sellers tax liabilities assumed of $627,000 is
made up of (a) estimates of taxes to be payable upon the issuance
of the shares of Common Stock to the Sellers based on an estimated
tax rate of 3% on estimated taxable amounts, and (b) an estimated
fair value of possible tax liabilities to be owed by the Sellers
related to the shares of Common Stock to be issued as part of the
Contingent Consideration.
The legal and
consulting fees are non-recurring acquisition related
costs. These costs are not reflected on the pro forma
statement of operations because they would not be expenses that the
combined entity would expect to incur on an ongoing
basis.
(f)
The pro forma
adjustment to total equity include the
following:
Elimination of
42West pre-acquisition member equity balances
|
$(1,236,356)
|
Impact of shares of
Common Stock to be delivered as purchase consideration
|
14,590,059
|
Total pro forma
adjustment to total equity
|
$13,353,703
|
|
|
6
Adjustments
to the pro forma combined statements of operations:
(A)
The amortization of
the acquired intangible assets pro forma adjustments are as
follows:
|
Acquisition Date
Opening Balance
|
Useful Live
(Years)
|
Annual
Amortization
|
Intangible
assets:
|
|
|
|
Customer
relationships
|
$5,980,000
|
10
|
$598,000
|
Trade
name
|
2,760,000
|
10
|
276,000
|
Non-competition
agreements
|
370,000
|
3
|
123,333
|
|
$9,110,000
|
|
$997,333
|
(B)
Per the terms of
the Purchase Agreement, (i) 1,230,280 shares of Common Stock were
issued on March 30, 2017, (ii) 344,550 shares of Common Stock were
issued on April 13, 2017 and up to 118,655 shares of Common Stock
may be issued during 2017, and (iii) 1,961,827 shares of Common
Stock will be issued on January 2, 2018. The Company
recalculated the weighted average shares as if the shares of Common
Stock had been issued on January 1, 2016.
7