The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
Reconciliation of cash, cash equivalents and restricted cash. The following
table provides a reconciliation of cash, cash equivalents and restricted cash reported within the statements of cash flows that sum to
the total of the same such amounts shown in the statements of cash flows:
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
NOTE 1 – GENERAL
Dolphin Entertainment, Inc.,
a Florida corporation (the “Company,” “Dolphin,” “we,” “us” or “our”), is
a leading independent entertainment marketing and premium content development company. Through its acquisitions of 42West LLC (“42West”),
The Door Marketing Group, LLC (“The Door”), Shore Fire Media, Ltd (“Shore Fire”), Viewpoint Computer Animation
Incorporated (“Viewpoint”), Be Social Public Relations, LLC (“Be Social”) and B/HI Communications, Inc. (“B/HI”),
the Company provides expert strategic marketing and publicity services to all of the major film studios and many of the leading independent
and digital content providers, A-list celebrity talent, including actors, directors, producers, celebrity chefs, social media influencers
and recording artists. The Company also provides strategic marketing publicity services and creative brand strategies for prime hotel
and restaurant groups and consumer brands. The strategic acquisitions of 42West, The Door, Shore Fire, Viewpoint, Be Social and B/HI bring
together premium marketing services, including digital and social media marketing capabilities, with premium content production, creating
significant opportunities to serve respective constituents more strategically and to grow and diversify the Company’s business.
Dolphin’s content production business is a long established, leading independent producer, committed to distributing premium, best-in-class
film and digital entertainment. Dolphin produces original feature films and digital programming primarily aimed at family and young adult
markets.
Impact of COVID-19
On March 11, 2020, the World
Health Organization categorized a novel coronavirus (“COVID-19”) as a pandemic, and it has spread throughout the United States.
The pandemic has had and continues to have a
significant effect on economic conditions in the United States, and continues to cause significant uncertainties in the U.S. and global
economies, particularly as a result of a new Delta variant of COVID-19, which appears to be causing an increase in COVID-19 cases. Public
health officials and medical professionals have warned that a resurgence of COVID-19 cases may continue, particularly if vaccination rates
do not quickly increase or if additional, potent variants emerge. It is unclear how long a resurgence may last, how severe it may be,
and what safety measures governments may impose in response to it.
The extent to which the COVID-19
pandemic affects our business, operations and financial results depends, and will continue to depend, on numerous evolving factors that
we may not be able to accurately predict. Since the outbreak of COVID-19 began and public and private sector measures to reduce its transmission
were implemented, such as the imposition of social distancing and orders to work-from-home, stay-at-home and shelter-in-place, the demand
for certain of the services the Company offers was adversely affected resulting in decreased revenues and cash flows.
One of our subsidiaries operates
in the food and hospitality sector, which was negatively impacted by the orders to either suspend or reduce operations of restaurants
and hotels. Similarly, another subsidiary represents talent, such as actors, directors and producers, and revenues from these clients
was negatively impacted by the suspension of content production. The television and streaming consumption around the globe has increased since the outbreak
of COVID-19, as well as the demand for consumer products. Revenues from the marketing of these shows and products somewhat offset the
decrease in revenue from the sectors discussed above.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
Between April 19, 2020 and April
23, 2020, the Company and its subsidiaries received five separate unsecured loans for an aggregate amount of $2.8 million (the “PPP
Loans”) under the Paycheck Protection Program (the “PPP”) which was established under the Coronavirus Aid, Relief and
Economic Security Act (the “CARES Act”). Through our acquisition of Be Social, the Company assumed a PPP Loan of $304,169.
Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments and covered utilities
during the measurement period beginning on the date of first disbursement of the PPP Loans. For purposes of the CARES Act, payroll costs
exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 40% of the forgiven amount can
be attributable to non-payroll costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent
on the Company having initially qualified for the PPP Loans and qualifying for the forgiveness of the PPP Loans based on its adherence
to the forgiveness criteria. Throughout 2021, the Company and its subsidiaries applied for forgiveness of all PPP Loans received. On June
28, 2021, the Company was notified that the SBA had approved our application to forgive the entire amount of the loans for 42West and
Dolphin, which in aggregate amounted to $1.1 million. Subsequent to June 30, 2021, the Company was notified that the SBA had approved
our application to forgive the entire amount of the loans for Viewpoint and Shore Fire, which in aggregate amounted to $0.8 million. In
addition, subsequent to June 30, 2021, the Company applied for forgiveness of the PPP Loans relating to The Door and Be Social; which
are still outstanding as of the date of this quarterly report on form 10-Q.
Depending on the extent and
duration of the pandemic and the related economic impacts, COVID-19 may continue to impact our business and financial results, as well
as significant judgments and estimates, including those related to goodwill and other asset impairments and allowances for doubtful accounts.
Basis of Presentation
The accompanying unaudited condensed
consolidated financial statements include the accounts of Dolphin, and all of its wholly owned subsidiaries, comprising Dolphin Films,
Inc. (“Dolphin Films”), Dolphin SB Productions LLC, Dolphin Max Steel Holdings, LLC (“Max Steel Holdings”), Dolphin
JB Believe Financing, LLC, Dolphin JOAT Productions, LLC, 42West, The Door, Viewpoint, Shore Fire, Be Social and B/HI.
The Company enters into
relationships or investments with other entities, and in certain instances, the entity in which the Company has a relationship or investment
may qualify as a variable interest entity (“VIE”). A VIE is consolidated in the financial statements if the Company is deemed
to be the primary beneficiary of the VIE. The primary beneficiary is the party that has the power to direct activities that most significantly
impact the activities of the VIE and has the obligation to absorb losses or the right to benefits from the VIE that could potentially
be significant to the VIE. The Company has included JB Believe, LLC formed on December 4, 2012 in the State of Florida in its condensed
consolidated financial statements for the three and six months ended June 30, 2021 and 2020 as a VIE.
On
November 23, 2020, the Company filed an amendment to its Amended and Restated Articles of Incorporation with the Secretary of State of
the State of Florida to effect a 1-for-5 reverse stock split (the “Reverse Stock Split”) of the authorized, issued and outstanding
shares of the Common Stock. The Reverse Stock Split was effective as of 12:01 a.m. (Eastern Time) on November 27, 2020 (the “Effective
Time”). At the Effective Time, the number of authorized shares of Common Stock was reduced from 200,000,000 shares to 40,000,000.
The par value per share of Common Stock remains unchanged. As a result, each shareholder’s percentage ownership interest in the
Company and proportional voting power remained unchanged. Any fractional shares resulting from the Reverse Stock Split were rounded up
to the nearest whole share of Common Stock. All references to Common Stock or common stock price in these condensed consolidated financial
statements have been retroactively adjusted to reflect the Reverse Stock Split.
The unaudited condensed consolidated
financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”)
for interim financial information and the instructions to Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP
for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of its financial
position as of June 30, 2021, and it results of operations for the three and six months ended June 30, 2021 and 2020, and cash flows for
the six months ended June 30, 2021 and 2020. All significant inter-company balances and transactions have been eliminated from the condensed
consolidated financial statements. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of
the results that may be expected for the full year ending December 31, 2021. The condensed consolidated balance sheet at December 31,
2020 has been derived from the audited financial statements at that date but does not include all the information and footnotes required
by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read
together with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2020.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
Reclassifications
Reclassifications have been
made to our unaudited condensed consolidated financial statements for the prior period to conform to classifications used in 2021.
Use of Estimates
The preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the 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 revenue and expenses during the reporting period. The most significant estimates made by management in the preparation of the financial
statements relate to estimates of sales returns and other allowances, provisions for doubtful accounts and impairment assessments for
goodwill and intangible assets. Actual results could differ materially from such estimates.
Additionally, the full impact
of the COVID-19 outbreak is unknown and cannot be reasonably estimated. However, management has made appropriate accounting estimates
on certain accounting matters, which include the allowance for doubtful accounts, carrying value of the goodwill and other intangible
assets, carrying amount of certain convertible notes payable and embedded derivatives and warrant liabilities, based on the facts and
circumstances available as of the reporting date. The Company’s future assessment of the magnitude and duration of the COVID-19
outbreak, as well as other factors, could result in material impacts to the Company’s financial statements in future reporting
periods.
Update to Significant Accounting Policies
The Company’s significant
accounting policies are detailed in "Note 3: Summary of Significant Accounting Policies" within Item 8 of our Annual Report
on Form 10-K for the year ended December 31, 2020. Significant changes to our accounting policies as a result of adopting
ASU 2020-06 during the six months ended June 30, 2021 is discussed below. There were no significant changes to our accounting policies
during the three months ended June 30, 2021.
Convertible
Notes
On January 1, 2021, the Company adopted Accounting Standards Update (“ASU”)
2020-06 that simplifies the accounting for convertible instruments. ASU 2020-06 (i) reduced the number of accounting models for convertible
instruments, by eliminating the models that require separation of cash conversion or beneficial conversion features from the host and
(ii) revised derivative scope exception and (iii) provided targeted improvements for EPS. The adoption of ASU 2020-06 did not have a
material impact on the Company’s outstanding convertible debt instruments as of June 30, 2021.
Recent Accounting Pronouncements
Accounting Guidance Adopted
In August 2020, the Financial
Accounting Standards Board (“FASB”) issued ASU 2020-06—Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity. The guidance simplifies accounting for convertible instruments by removing major separation
models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument
with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity
contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies
the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning
after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within
those fiscal years. The Company adopted this new guidance on January 1, 2021 using the modified retrospective approach without a material
impact on its condensed consolidated financial statements.
In December 2019, the FASB issued
ASU 2019-12, “Income
taxes (Topic 740): Simplifying the Accounting for Income Taxes.”
to simplify the accounting for income taxes by removing certain exceptions and amending certain exceptions related to the approach for
intraperiod tax allocations, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities
for outside basis differences. This ASU also clarifies and simplifies other aspects of the accounting for income taxes. This amended guidance
was effective for the Company beginning January 1, 2021. The Company adopted this new guidance on January 1, 2021 without a material impact
on its condensed consolidated financial statements.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
Accounting Guidance Not Yet Adopted
In June 2016, the FASB issued
new guidance on measurement of credit losses (ASU 2016-13, Measurement of Credit Losses on Financial Instruments) with subsequent amendments
issued in November 2018 (ASU 2018-19) and April 2019 (ASU 2019-04). This update changes the accounting for credit losses on loans and
held-to-maturity debt securities and requires a current expected credit loss (CECL) approach to determine the allowance for credit losses.
It is applicable to trade accounts receivable. The guidance is effective for fiscal years beginning after December 15, 2022 with a cumulative-effect
adjustment to retained earnings as of the beginning of the year of adoption. Early adoption is permitted. The Company is in the process
of evaluating the impact of the adoption of ASU 2016-13 on the Company's consolidated financial statements and disclosures.
NOTE 2 — GOING CONCERN
The accompanying condensed consolidated
financial statements have been prepared in conformity with U.S. GAAP and contemplate the continuation of the Company as a going concern.
The Company has suffered recurring losses, including a net loss of $3,922,043 for the six months ended June 30, 2021, and had an accumulated
deficit of $101,894,084 as of June 30, 2021. Several of our subsidiaries operate in industries that have been adversely affected by the
government mandated work-from-home, stay-at-home and shelter-in-place orders as a result of the novel coronavirus COVID-19. As these industries
continue to gradually reopen, we have seen signs of improvement on demand for their services. We have noted an increase in demand for
our services and noted signs of improvement in the results of our operations; for the three months ended June 30, 2021 we noted increased
revenues as compared to the same period in prior year, cash flows from operations and reported net income.
Since the beginning of the pandemic,
the Company implemented certain measures to mitigate the effects of the pandemic on the Company, such as a freezes on hiring, salary reductions,
staff reductions and cuts in non-essential spending. In addition, the Company has taken other measures to strengthen its financial position,
which is evidenced by a positive working capital as of June 30, 2021.
The Company is dependent upon
funds from the issuance of debt securities, securities convertible into shares of its common stock, par value $0.015, (“Common Stock”),
sales of shares of Common Stock and financial support of certain shareholders. The continued spread of COVID-19 and uncertain market conditions
may limit the Company’s ability to access capital. If the Company is unable to obtain funding from these sources within the next
12 months, it could be forced to curtail its business operations or liquidate.
These factors raise substantial
doubt about the ability of the Company to continue as a going concern within one year after these condensed consolidated financial statements
are issued. The condensed consolidated financial statements, of which these notes form a part, do not include any adjustments that might
result from the outcome of these uncertainties. The Company’s management currently plans to raise any necessary additional funds
through additional issuances of its Common Stock, securities convertible into its Common Stock and/or debt securities, as well as available
bank and non-bank financing, or a combination of such financing alternatives. There is no assurance that the Company will be successful
in raising additional capital. Any issuance of shares of Common Stock or securities convertible into Common Stock would dilute the equity
interests of our existing shareholders, perhaps substantially. The Company currently has the rights to several scripts, including one
currently in development for which it intends to obtain financing to produce and release following which it expects to earn a producer
and overhead fee. There can be no assurances that such production, together with any other productions, will be commenced or released
or that fees will be realized in future periods or at all. The Company is currently exploring opportunities to expand the services currently
being offered by 42West, The Door, Viewpoint, Shore Fire, Be Social and B/HI while reducing expenses of their respective operations through
synergies with the Company. There can be no assurance that the Company will be successful in expanding such services or reducing expenses.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
NOTE 3 — GOODWILL AND INTANGIBLE ASSETS
As of June 30, 2021, in connection
with its acquisitions of 42West, The Door, Viewpoint, Shore Fire, Be Social and B/HI, the Company has a balance of $20,015,800 of goodwill
on its condensed consolidated balance sheet which management has assigned to the entertainment publicity and marketing segment. The Company
accounts for goodwill in accordance with FASB ASC No. 350, Intangibles—Goodwill and Other (“ASC 350”). ASC 350 requires
goodwill to be reviewed for impairment annually, or more frequently if circumstances indicate a possible impairment. The Company evaluates
goodwill in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include
but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3)
an adverse action or assessment by a regulator.
The Company first assesses qualitative
factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its’ carrying amount,
including goodwill. If management concludes that it is more likely than not that the fair value of the reporting unit is less than its’
carrying amount, management conducts a quantitative goodwill impairment test. This impairment test involves comparing the fair value of
the reporting unit with its’ carrying value (including goodwill). The Company estimates the fair values of its reporting units using
a combination of the income, or discounted cash flows approach and the market approach, which utilizes comparable companies’ data.
If the estimated fair value of the reporting unit is less than its carrying value, a goodwill impairment exists for the reporting unit
and an impairment loss is recorded.
Goodwill
All of the Company’s goodwill
is related to the entertainment, publicity and marketing segment. Changes in the carrying value of goodwill were as follows:
Schedule of Changes In Carrying Value of Goodwill
|
|
|
|
|
|
Balance as of December 31, 2020
|
|
|
$
|
19,627,856
|
|
Measurement period adjustments(1)
|
|
|
|
(82,651
|
)
|
Business Acquisitions(2)
|
|
|
|
470,595
|
|
Balance as of June 30, 2021
|
|
|
$
|
20,015,800
|
|
———————
|
(1)
|
Working Capital adjustment recorded in (June 2021) in connection with the Be Social acquisition. (See Note 4)
|
|
(2)
|
Acquisition of B/HI in January 2021.
|
Intangible Assets
Intangible assets consisted
of the following as of June 30, 2021 and December 31, 2020:
Schedule of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
8,290,000
|
|
|
$
|
4,327,902
|
|
|
$
|
3,962,098
|
|
|
$
|
8,130,000
|
|
|
$
|
3,787,406
|
|
|
$
|
4,342,593
|
|
Trademarks and trade names
|
|
|
4,490,000
|
|
|
|
1,570,035
|
|
|
|
2,919,965
|
|
|
|
4,440,000
|
|
|
|
1,330,535
|
|
|
|
3,109,465
|
|
Non-compete agreements
|
|
|
690,000
|
|
|
|
640,000
|
|
|
|
50,000
|
|
|
|
630,000
|
|
|
|
630,000
|
|
|
|
—
|
|
|
|
$
|
13,470,000
|
|
|
$
|
6,537,937
|
|
|
$
|
6,932,063
|
|
|
$
|
13,200,000
|
|
|
$
|
5,747,941
|
|
|
$
|
7,452,059
|
|
Amortization expense associated
with the Company’s intangible assets was $394,998 and $400,078 for the three months ended June 30, 2021 and 2020, respectively,
and $789,996 and $830,990 for the six months ended June 30, 2021 and 2020, respectively.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
Amortization expense related
to intangible assets for the next five years is as follows:
Schedule of amortization expense related
to intangible assets for the next five years
|
|
|
|
2021 (July 1 through December 31, 2021)
|
$
|
789,995
|
|
2022
|
|
1,367,330
|
|
2023
|
|
1,152,421
|
|
2024
|
|
991,715
|
|
2025
|
|
961,373
|
|
Thereafter
|
|
1,669,229
|
|
Total
|
$
|
6,932,063
|
|
NOTE 4 — MERGERS AND ACQUISITIONS
B/HI Communications, Inc.
On January 8, 2021, but effective January 1, 2021, the Company acquired all of the issued and outstanding shares of B/HI, a California corporation, (the “B/HI
Purchase”) pursuant to a share purchase agreement (the “B/HI Share Purchase Agreement”) between the Company and Dean
G. Bender and Janice L. Bender, as co-trustees of the Bender Family Trust dated May 6, 2013 (collectively, the “B/HI Sellers). B/HI
is an entertainment public relations agency that specializes in corporate and product communications programs for interactive gaming,
esports, entertainment content and consumer product organizations.
The total consideration paid
to the B/HI Seller in respect to the B/HI Purchase is $0.8 million of shares of Common Stock based on a 30-day trailing trading average
closing price immediately prior to, but not including, the applicable payment date adjusted for working capital, cash targets and the
B/HI indebtedness as defined in the B/HI Share Purchase Agreement. The B/HI Sellers may also earn up to an additional $1.2 million of
which 50% will be paid in cash and 50% will be paid in Common Stock upon achieving certain specified financial performance targets during
the years ended December 31, 2021 and 2022. The Common Stock that will be issued as part of the consideration has not been registered
under the Securities Act of 1933, as amended (the “Securities Act”).
The following table summarizes the provisional fair
value of the consideration transferred:
Summary of provisional fair value of consideration transferred
|
|
|
|
|
Payments made to settle final indebtedness, net of minimum operating cash as defined in the B/HI Share Purchase Agreement
|
|
$
|
575,856
|
|
Provisional working capital adjustment
|
|
|
192,986
|
|
Provisional amount of Common Stock to be issued to the B/HI Sellers
|
|
|
31,158
|
|
Provisional fair value of the consideration transferred
|
|
$
|
800,000
|
|
As a condition to the B/HI Purchase,
Dean Bender, one of the sellers and Shawna Lynch, a key employee of B/HI entered into employment agreements with the Company to continue
as employees after the closing of the B/HI Purchase. Mr. Bender’s agreement is for a period of two years through December 31, 2022
and he will serve as Co-President of B/HI during that term. Ms. Lynch’s agreement is for a period of four years and may be renewed
on the same terms for two successive two-year terms. Ms. Lynch will serve as Co-President of B/HI during the term of her agreement.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
The following table summarizes the provisional
fair values of the assets acquired and liabilities assumed by the B/HI Purchase. Amounts in the table are estimates that may change, as
described below.
Schedule of Assets Acquired and Liabilities Assumed
|
|
|
|
|
Cash
|
|
$
|
65,465
|
|
Accounts receivable
|
|
|
154,162
|
|
Other current assets
|
|
|
15,262
|
|
Property, equipment and leasehold improvements
|
|
|
24,639
|
|
Right-of-use asset
|
|
|
1,044,864
|
|
Other assets
|
|
|
23,617
|
|
Intangibles
|
|
|
270,000
|
|
Total identifiable assets acquired
|
|
|
1,598,009
|
|
|
|
|
|
|
Accrued payable
|
|
|
(104,724
|
)
|
Accrued expenses and other current liabilities
|
|
|
(259,936
|
)
|
Lease liability
|
|
|
(1,044,864
|
)
|
Deferred revenue
|
|
|
(56,994
|
)
|
Line of credit
|
|
|
(456,527
|
)
|
Deferred tax liability
|
|
|
(38,851
|
)
|
Loans payable
|
|
|
(75,550
|
)
|
Total liabilities assumed
|
|
|
(2,037,446
|
)
|
Net identifiable liabilities acquired
|
|
|
(439,437
|
)
|
Goodwill
|
|
|
470,595
|
|
Net assets acquired
|
|
$
|
31,158
|
|
Unaudited Pro Forma Consolidated Statements of
Operations
For the three and six months
ended June 30, 2021, the Company’s statements of operations includes revenue pertaining to B/HI amounting to $818,408 and $1,426,841,
respectively, and net income of $138,161 and $157,069, respectively. The following represents the Company’s unaudited pro forma
consolidated operations after giving effect to the Be Social and B/HI acquisitions for the three and six months ended June 30, 2020 as
if the Company had completed both acquisitions on January 1, 2020 and its results had been included in the consolidated results of the
Company for the three and six months ending June 30, 2020.
Schedule of Proforma Results of Operations
|
|
|
|
|
|
|
|
|
Three Months ended
|
|
|
Six Months ended
|
|
|
|
June 30,
2020
|
|
|
June 30,
2020
|
|
Revenues
|
|
$
|
6,161,800
|
|
|
$
|
13,943,911
|
|
Net loss
|
|
$
|
(3,196,376
|
)
|
|
$
|
(1,427,558
|
)
|
These amounts have been calculated after applying
the Company’s accounting policies and adjusting the results of the acquisitions to reflect the amortization that would have been
charged, assuming the intangible assets had been recorded on January 1, 2020.
The impact of the acquisition
of Be Social and B/HI on the Company’s actual results for periods following the acquisition may differ significantly from that reflected
in this unaudited pro forma information for a number of reasons. As a result, this unaudited pro forma information is not necessarily
indicative of what the combined company’s financial condition or results of operations would have been had the acquisitions been
completed on January 1, 2020, as provided in this pro forma financial information. In addition, the pro forma financial information does
not purport to project the future financial condition and results of operations of the combined company.
Be Social
In August 2020, the Company acquired all of the issued
and outstanding membership interest of Be Social. During the three and six months ended June 30, 2021, the Company recorded a measurement
period adjustment amounting to $82,651 of working capital adjustments.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
NOTE 5 — DEBT
Total debt of the Company was
as follows as of June 30, 2021 and December 31, 2020:
Schedule of debt
|
|
|
|
|
|
|
|
|
Debt Type
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Convertible notes payable
|
|
$
|
3,050,000
|
|
|
$
|
1,445,000
|
|
Convertible notes payable - fair value option
|
|
|
1,029,766
|
|
|
|
1,527,293
|
|
Notes payable
|
|
|
1,226,596
|
|
|
|
1,273,394
|
|
Term loan
|
|
|
700,227
|
|
|
|
900,292
|
|
Paycheck Protection Program loans
|
|
|
2,037,569
|
|
|
|
3,099,869
|
|
Total debt
|
|
$
|
8,044,158
|
|
|
$
|
8,245,848
|
|
Less current portion of debt
|
|
|
(1,851,669
|
)
|
|
|
(2,909,479
|
)
|
Noncurrent portion of debt
|
|
$
|
6,192,489
|
|
|
$
|
5,336,369
|
|
The table below details the
maturity dates for the Company’s debt as of June 30, 2021:
Schedule of Future Annual Contractual Principal Payment Commitments of Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Type
|
|
Maturity Date
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
Convertible notes payable
|
|
Ranging between March 2023 and March 2030
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,050,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
500,000
|
|
Nonconvertible promissory notes
|
|
Ranging between June 2021 and December 2023
|
|
|
49,953
|
|
|
|
307,685
|
|
|
|
868,960
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Term loan Bank United
|
|
March 31, 2023
|
|
|
200,065
|
|
|
|
400,130
|
|
|
|
100,032
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Paycheck Protection Program loans
|
|
Ranging between April 2022 and May 5, 2022
|
|
|
339,595
|
|
|
|
1,018,784
|
|
|
|
679,190
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
$
|
589,613
|
|
|
$
|
1,726,599
|
|
|
$
|
4,698,182
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
500,000
|
|
Convertible Notes Payable
On
March 2021, April 2021 and June 2021 the Company issued seven convertible promissory notes to four noteholders in the aggregate
amount of $3,050,000. The convertible promissory notes bear interest at a rate of 10% per annum and mature on the second anniversary
of their respective issuances. The balance of each convertible promissory note and any accrued interest may be converted at the
noteholder’s option at any time at a purchase price based on a 90-day average closing market price per share of the Common
Stock but not at a price less than $2.50 per share.
During the six months ended
June 30, 2021, the holders of five convertible notes issued during 2020 converted the principal balance of $1,445,000 plus accrued interest
of $8,611 into 381,601 shares of Common Stock at conversion prices ranging between $3.69 and $3.96 per share.
The Company recorded interest
expense related to these convertible notes payable of $15,565 and $42,482 during the three and six months ended June 30, 2021, respectively,
and made cash interest payments amounting to $31,149 during the six months ended June 30, 2021 related to the convertible promissory notes.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
As of June 30, 2021 and December
31, 2020, the principal balance of the convertible promissory notes of $3,050,000 and $1,445,000, respectively, was recorded in noncurrent
liabilities under the caption convertible promissory notes on the Company’s condensed consolidated balance sheets.
The following is a summary of
the Company’s convertible notes payable as of June 30, 2021:
Schedule of convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
Principal Amount
|
|
|
Net Carrying
Amount
|
|
|
Amount
|
|
|
Level
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10% convertible notes due in March 2023
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
|
$
|
153,000
|
|
|
|
3
|
|
10% convertible notes due in April 2023
|
|
|
1,050,000
|
|
|
|
1,050,000
|
|
|
|
1,120,000
|
|
|
|
3
|
|
10% convertible notes due in June 2023
|
|
|
1,850,000
|
|
|
|
1,850,000
|
|
|
|
1,840,000
|
|
|
|
3
|
|
|
|
$
|
3,050,000
|
|
|
$
|
3,050,000
|
|
|
$
|
3,113,000
|
|
|
|
|
|
Convertible Notes Payable at Fair Value
The
Company had convertible promissory notes outstanding with aggregate principal amounts of $1,600,000 as of December 31, 2020 for which
it elected the fair value option. As such, the estimated fair value of each note was recorded on their respective
issue dates. At each balance sheet date, the Company records the fair value of the convertible promissory notes with any changes in the
fair value recorded in the condensed consolidated statements of operations.
On each of January 13, 2021
and January 27, 2021, notes with a remaining aggregate principal balance of $1,100,000 were converted into 281,554 shares of Common Stock
at purchase prices ranging between $3.90 and $3.91 per share. The Company had a balance of $1,029,766 and 947,293 in noncurrent liabilities
as of June 30, 2021 and December 31, 2020, respectively, and $580,000 in current liabilities as of December 31, 2020 recorded on its condensed
consolidated balance sheets related to the convertible promissory notes measured at fair value. The Company recorded a gain in fair value of
$268,974 and a loss in fair value of $696,420 for the three months ended June 30, 2021 and 2020, respectively, and losses in fair value
of $602,475 and $548,961 for the six months ended June 30, 2021 and 2020, respectively, on its condensed consolidated statements of operations.
The Company recorded interest
expense of $9,863 and $19,726 in its condensed consolidated statements of operations during the three and six months ended June 30, 2021,
respectively, and made cash interest payments amounting to $19,726 during the six months ended June 30, 2021 related to these convertible
promissory notes.
Nonconvertible Promissory Notes
As
of June 30, 2021, the Company has outstanding unsecured nonconvertible promissory notes in the aggregate amount of $1.4 million,
which bear interest at a rate of 10%
per annum and mature between January 15, 2022 and December 10, 2023.
As of June 30, 2021 and December
31, 2020, the Company had a balance of $302,455 and $846,749, respectively, recorded as current liabilities and $924,141 and $426,645,
respectively in noncurrent liabilities on its condensed consolidated balance sheets related to these nonconvertible promissory notes.
The Company recorded interest expense related to these nonconvertible promissory notes of $30,927 and $33,347 for the three months ended
June 30, 2021 and 2020, respectively, and $62,449 and $67,230 for the six months ended June 30, 2021 and 2020, respectively. The Company
made interest payments of $62,726 and $67,230 during the six months ended June 30, 2021 and 2020, respectively, related to the nonconvertible
promissory notes.
Term Loan
On
March 31, 2020, 42West and The Door, as co-borrowers, entered into a three-year term loan (the “Term Loan”) with Bank
United, N.A, which bears interest at a rate of 0.75% points over the Lender’s Prime Rate, provides for monthly repayment of
principal and interest and matures on March 15, 2023. As of June 30, 2021, the outstanding balance on the Term Loan was
$700,227.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
The Term Loan contains both
customary affirmative and negative covenants. The bank tests for compliance with debt covenants on an annual basis based on the financial
statements of 42West and The Door as of and for the year ended December 31. Based on current economic factors and uncertainties due to
COVID-19, the Company believes it is out of compliance with certain debt covenants as of and for the three and six months ended June 30,
2021. As such, the Company classified the entire balance of the Term Loan in current liabilities on its condensed consolidated balance
sheet as of June 30, 2021.
Paycheck Protection Program Loan
In April 2020, the Company
and its subsidiaries received an aggregate amount of $2.8
million of PPP Loans established under the CARES Act. Through our acquisition of Be Social in August 2020, the Company assumed a PPP
Loan of $304,169.
The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially
qualified for the PPP Loans and qualifying for the forgiveness of the PPP Loans based on its adherence to the forgiveness criteria.
Throughout 2021, the Company and its subsidiaries applied for forgiveness of all PPP Loans received. On June 28, 2021, the Company
was notified that the SBA had approved our application to forgive the entire amount of the loans for 42West and Dolphin, which in
aggregate amounted to $1.1
million and was recorded as a gain on extinguishment of debt on its condensed consolidated statements of operations for the three
and six months ended June 30, 2021. Subsequent to June 30, 2021, the Company was notified that the SBA had approved our application
to forgive the entire amount of the loans for Viewpoint and Shore Fire, which in aggregate amounted to $0.8
million. As of the date of these condensed consolidated financial statements, the Company is awaiting the outcome of its
applications for forgiveness of the PPP Loans for the Door and Be Social.
As of June 30, 2021, the current
and noncurrent portion of the loan were $848,987 and $1,188,582, respectively.
NOTE 6 — LOANS FROM RELATED PARTY
Dolphin Entertainment, LLC (“DE
LLC”), an entity wholly owned by the Company’s Chief Executive Officer, William O’Dowd (the “CEO”), previously
advanced funds for working capital to Dolphin Films. In prior years, Dolphin Films entered into a promissory note with DE LLC (the “Original
DE LLC Note”) in the principal amount of $1,009,624, which was payable on demand. On June 15, 2021 the Company exchanged the Original DE LLC Note for a new note maturing on July 31, 2023 (“New DE LLC Note”).
Other than the change in maturity date, there were no other changes to the principal, interest or any other terms of the Original DE LLC
Note.
For the three and six months
ended June 30, 2021, the Company did not repay any principal balance of the New DE LLC Note. The Company recorded interest expense related
to the New DE LLC Note amounting to $27,621 for both the three months ended June 30, 2021 and 2020, and $54,938 and $55,242 for the six
months ended June 30, 2021 and 2020, respectively.
As of both June 30, 2021 and
December 31, 2020, the Company had a principal balance of $1,107,873, and accrued interest amounted to $26,683 as of December 31, 2020.
During the three and six months ended June 30, 2021, the Company made cash payments for interest amounting to $81,621; as a result, there
is no accrued interest relating to the New DE LLC Note on its condensed consolidated balance sheets as of June 30, 2021.
NOTE 7 — FAIR VALUE MEASUREMENTS
Put Rights
In
connection with the 42West acquisition, the Company entered into put agreements, pursuant to which it granted Put Rights to the sellers
and certain 42West employees. During the six months ended June 30, 2021, the sellers and certain employees exercised their Put Rights
for an aggregate amount of 22,867 shares of Common Stock and were paid $1,015,135 for Put Rights. An additional $600,000 of put rights
were converted into 115,366 shares of Common Stock during the six months ended June 30, 2021. As of June 30, 2021, there were no amounts
due to the sellers of 42West and certain 42West employees from the exercise of these Put Rights.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
The following is a reconciliation
of the fair value of the Put Rights from December 31, 2020 to June 30, 2021:
Schedule of Fair Value Assumptions Used to Value Liabilities
|
|
|
|
|
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020
|
|
$
|
1,544,029
|
|
Put rights paid in 2021
|
|
|
(1,015,135
|
)
|
Loss in fair value reported in condensed consolidated the statements of operations
|
|
|
71,106
|
|
Put rights converted into common stock
|
|
|
(600,000
|
)
|
Ending fair value of put rights reported in the condensed consolidated balance sheet at June 30, 2021
|
|
$
|
–
|
|
Contingent consideration
The Company records the fair value of the contingent
consideration liability in the condensed consolidated balance sheets under the caption “Contingent Consideration” and records
changes to the liability against earnings or loss under the caption “Changes in fair value of contingent consideration” in
the condensed consolidated statements of operations.
The Company utilized a Monte
Carlo Simulation model, which incorporates significant inputs that are not observable in the market, and thus represents a Level 3 measurement
as defined in ASC 820. The unobservable inputs utilized for measuring the fair value of the contingent consideration reflect management’s
own assumptions about the assumptions that market participants would use in valuing the contingent consideration as of the acquisition
date. The Company determined the fair value by using the following key inputs to the Monte Carlo Simulation Model:
Schedule of Liability Fair Value Categorized Within Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Door
|
|
Be Social
|
|
Inputs
|
|
As of
June 30, 2021
|
|
|
As of
December 31, 2020
|
|
|
As of
June 30, 2021
|
|
|
As of
December 31,
2020
|
|
|
Risk Free Discount Rate (based on US government treasury obligation with a term similar to that of the contingent consideration)
|
|
0.06
|
%
|
|
0.16
|
%
|
|
0.16% – 0.36
|
%
|
|
0.13% - 0.17
|
%
|
|
Annual Asset Volatility Estimate
|
|
82.5
|
%
|
|
60.0
|
%
|
|
87.5
|
%
|
|
73.5
|
%
|
|
For the contingent consideration,
which are measured at fair value categorized within Level 3 of the fair value hierarchy, the following is a reconciliation of the fair
values from December 31, 2020 to June 30, 2021:
Schedule of fair value categorized within Level 3
|
|
|
|
|
|
|
|
|
|
The Door
|
|
Be Social
|
|
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020
|
|
$
|
370,000
|
|
$
|
160,000
|
|
Loss in fair value reported in the condensed consolidated statements of operations
|
|
|
180,000
|
|
|
20,000
|
|
Ending fair value balance reported in the condensed consolidated balance sheet at June 30, 2021
|
|
$
|
550,000
|
|
$
|
180,000
|
|
Contingent Consideration – B/HI
In connection with the Company’s
acquisition of B/HI, the seller of B/HI has the potential to earn up to $1,200,000 of contingent consideration, of which 50% is payable
in cash, and 50% in shares of Common Stock, upon achievement of adjusted net income targets based on the operations of B/HI over the fiscal
years ending December 31, 2021 and 2022. Management estimated the fair value of the contingent consideration to be a di minimis amount
as of June 30, 2021.
Fair Value Option (“FVO”) Election – Convertible
notes payable and freestanding warrants
2020 convertible notes payable
During 2020, the Company
issued three convertible notes payable: a convertible note with a principal amount of $1.3
million (the “January 3rd Note”), face value of $500,000
(the “March 4th Note”) and face value of $560,000
(the “March 25th Note”) (together “the 2020 convertible notes”), which are all accounted for
under the ASC 825-10-15-4 FVO election. Under the FVO election the financial instrument is initially measured at its issue-date
estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. The
estimated fair value adjustment is presented as a single line item within other income (expense) in the accompanying condensed
consolidated statements of operations under the caption “change in fair value of convertible notes and derivative
liabilities”.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
The 2020 convertible notes
are measured at fair value categorized within Level 3 of the fair value hierarchy. The following is a reconciliation of the fair
values from December 31, 2020 to June 30, 2021:
Schedule of Fair Value Assumptions Used to Value Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3rd Note
|
|
|
|
March 4th Note
|
|
|
|
March 25th Note
|
|
|
|
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020
|
|
$
|
436,155
|
|
|
$
|
511,136
|
|
|
$
|
580,000
|
|
|
|
(Gain) loss in fair value reported in the condensed consolidated statements of operations
|
|
|
103,845
|
|
|
|
518,630
|
|
|
|
(20,000)
|
|
|
|
Exercised during the six months ended June 30, 2021
|
|
|
(540,000
|
)
|
|
|
—
|
|
|
|
(560,000
|
)
|
|
|
Ending fair value balance reported on the condensed consolidated balance sheet at June 30, 2021
|
|
$
|
—
|
|
|
$
|
1,029,766
|
|
|
$
|
—
|
|
|
|
The estimated fair value of
the January 3rd Note and the March 25th Note was computed using a Monte Carlo simulation, which incorporates significant
inputs that are not observable in the market, and thus represents a Level 3 measurement as defined in ASC 820. The unobservable inputs
utilized for measuring the fair value of the note reflects management’s own assumptions about the assumptions that market participants
would use in valuing the note as of the acquisition date and subsequent reporting periods.
The estimated fair value of
the March 4th Note as of June 30, 2021 and as of December 31, 2020, was computed using a Black-Scholes simulation of the present value
of its cash flows using a synthetic credit rating analysis and a required rate of return, using the following assumptions:
Schedule of estimated fair value
|
|
|
|
|
|
|
|
|
Fair Value Assumptions - March 4th Note
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Face value principal payable
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Original conversion price
|
|
$
|
3.91
|
|
|
$
|
3.91
|
|
Value of Common Stock
|
|
$
|
9.34
|
|
|
$
|
3.40
|
|
Expected term (years)
|
|
|
8.68
|
|
|
|
9.18
|
|
Volatility
|
|
|
100
|
%
|
|
|
100
|
%
|
Risk free rate
|
|
|
1.34
|
%
|
|
|
0.93
|
%
|
Warrants
During the six months
ended June 30, 2021, the Series E, F, G, and H Warrants were all exercised and the Company issued 146,027
shares of Common Stock via a cashless exercise formula pursuant to the warrant agreement.
The warrants are measured at
fair value and categorized within Level 3 of the fair value hierarchy. The following is a reconciliation of the fair values from December
31, 2020 to June 30, 2021:
Schedule of warrants are measured at
fair value
|
|
|
|
|
|
|
|
|
Fair Value:
|
|
Series E, F, G and H
|
|
|
Series I
|
|
Beginning fair value balance reported on the consolidated balance sheet at December 31, 2020
|
|
$
|
400,000
|
|
|
$
|
50,000
|
|
Loss in fair value reported in the condensed consolidated statements of operations
|
|
|
2,397,877
|
|
|
|
100,000
|
|
Exercise of warrants during the six months ended June 30, 2021
|
|
|
(2,797,877
|
)
|
|
|
—
|
|
Ending fair value balance reported on the condensed consolidated balance sheet at June 30, 2021
|
|
$
|
—
|
|
|
$
|
150,000
|
|
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
The estimated fair value of the Series “I”
Warrants was computed using a Black-Scholes valuation model, using the following assumptions:
Fair Value Assumption - Series “I” Warrants
|
|
June 30,
2020
|
|
|
December 31,
2020
|
|
Aggregate Fair Value
|
|
$
|
150,000
|
|
|
$
|
50,000
|
|
Exercise Price per share
|
|
$
|
3.91
|
|
|
$
|
3.91
|
|
Value of Common Stock
|
|
$
|
9.34
|
|
|
$
|
3.40
|
|
Expected term (years)
|
|
|
4.17
|
|
|
|
4.67
|
|
Volatility
|
|
|
100
|
%
|
|
|
100
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk free rate
|
|
|
0.70
|
%
|
|
|
0.31
|
%
|
Term Loan and PPP Loans
The estimated fair value of the
Term Loan and PPP Loans approximates their carrying amount based on the arrangement of the financing of the debt and pursuant to the terms
of the CARES ACT, respectively. The Company applied for the PPP Loans to be forgiven by the SBA. (See Note 5)
NOTE 8 — CONTRACT LIABILITIES
The Company receives advance
payments from customers for public relations projects or as deposits for promotional or brand-support video projects, that it records
as contract liabilities. Once the work is performed or the projects are delivered to the customer, the contract liabilities are deemed
earned and recorded as revenue. Advance payments received are generally for short duration and are recognized once the performance obligation
of the contract is met. As of June 30, 2021 and December 31, 2020, the Company had balances of $3,175,917 and $1,855,209, respectively,
in contract liabilities in its condensed consolidated balance sheets.
NOTE 9 —VARIABLE INTEREST ENTITIES
VIEs are entities that, by design,
either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from
other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s
operations through voting rights, or do not have the obligation to absorb the expected losses or the right to receive the residual returns
of the entity.
The Company evaluated the entities
in which it did not have a majority voting interest and determined that it had (1) the power to direct the activities of the entities
that most significantly impact their economic performance and (2) had the obligation to absorb losses or the right to receive benefits
from these entities. As such the financial statements of JB Believe, LLC are consolidated in the condensed consolidated balance sheets
as of June 30, 2021 and December 31, 2020, and in the condensed consolidated statements of operations and statements of cash flows presented
herein for the three and six months ended June 30, 2021 and 2020. This entity was previously under common control and has been accounted
for at historical costs for all periods presented.
Summary of Financial Information for Variable Interest Entities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JB Believe LLC
|
|
(in USD)
|
|
For the three months ended
June 30,
2021
|
|
|
For the three months ended
June 30,
2020
|
|
|
For the six months ended
June 30,
2021
|
|
|
For the six months ended June 30, 2020
|
|
|
As of June 30, 2021
|
|
|
As of December 31, 2020
|
|
Assets
|
|
$
|
n/a
|
|
|
$
|
n/a
|
|
|
$
|
n/a
|
|
|
$
|
n/a
|
|
|
$
|
251,671
|
|
|
$
|
190,347
|
|
Liabilities
|
|
$
|
n/a
|
|
|
$
|
n/a
|
|
|
$
|
n/a
|
|
|
$
|
n/a
|
|
|
$
|
(6,750,088
|
)
|
|
$
|
(6,749,914
|
)
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Expenses
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
The Company performs ongoing
reassessments of (1) whether entities previously evaluated under the majority voting-interest framework have become VIEs, based on certain
triggering events, and therefore would be subject to the VIE consolidation framework, and (2) whether changes in the facts and circumstances
regarding the Company’s involvement with a VIE cause the Company’s consolidation
conclusion to change. The consolidation status of the VIEs with which the Company is involved may change as a result of such reassessments.
Changes in consolidation status are applied prospectively with assets and liabilities of a newly consolidated VIE initially recorded at
fair value unless the VIE is an entity which was previously under common control, which in that case is consolidated based on historical
cost. A gain or loss may be recognized upon deconsolidation of a VIE depending on the amounts of deconsolidated assets and liabilities
compared to the fair value of retained interests and ongoing contractual arrangements.
JB Believe LLC (“Believe”),
an entity owned by Believe Film Partners LLC, of which the Company owns a 25% membership interest, was formed for the purpose of recording
the production costs of the motion picture “Believe”. The Company was given unanimous consent by the members to enter
into domestic and international distribution agreements for the licensing rights of the motion picture, Believe, until such time
as the Company had been repaid $3,200,000
for the investment in the production of the film and $5,000,000
for the P&A to market and release the film in the US. The Company has not been repaid these amounts and as such is still in
control of the distribution of the film. For the three and six months ended June 30, 2021 and 2020, the Company did not record any revenues
related to the distribution of Believe. The capitalized production costs related to Believe were either amortized or impaired
in previous years. Believe’s primary liability is to the Company which it owes $6,301,314
and eliminates in consolidation.
NOTE 10 — STOCKHOLDERS’ EQUITY
The Company’s Amended
and Restated Articles of Incorporation authorize the issuance of 10,000,000 shares of preferred stock. The Company’s Board of Directors
(the “Board”) has the power to designate the rights and preferences of the preferred stock and issue the preferred stock in
one or more series.
On July 6, 2017, the Company
amended its Articles of Incorporation to designate 50,000 preferred shares as Series C with a $0.001 par value which may be issued only
to an “Eligible Series C Preferred Stock Holder”. Pursuant to the Certificate of Designation of the Series C, each share of
Series C will be convertible into one share of Common Stock, subject to adjustment for each issuance of Common Stock upon the occurrence
of certain event(s) described in further detail in “Note 16: Stockholders’ Equity” within Item 8 of our Annual Report
on Form 10-K for the year ended December 31, 2020 At a meeting of the Board on November 12, 2020, a majority of the independent directors
of the Board determined that the “optional conversion threshold” had been met. As a result, the Series C became immediately
convertible and as of June 30, 2021 is convertible into 4,738,940 shares of Common Stock, subject to the restriction discussed below.
Additionally, DE LLC, as the holder of the Series C is entitled to 14,216,819 votes, which are equal to approximately 65% of the voting
securities of the Company.
At the meeting of the Board
on November 12, 2020, the Board and Mr. O’Dowd agreed to restrict the conversion of the Series C until the Board approved its conversion.
Therefore, on November 16, 2020, the Company and DE, LLC entered into a Stock Restriction Agreement pursuant to which the conversion of
the Series C is prohibited until such time as a majority of the independent directors of the Board approves the removal of the prohibition.
The Stock Restriction Agreement also prohibits the sale or other transfer of the Series C until such transfer is approved by a majority
of the independent directors of the Board. The Stock Restriction Agreement shall terminate upon a Change of Control (as such term is defined
in the Stock Restriction Agreement) of the Company.
The Certificate of Designation
also provides for a liquidation value of $0.001 per share and dividend rights of the Series C on parity with the Company’s Common
Stock.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
The following table summarizes the movement of the
common stock outstanding for the six months ended June 30, 2020:
Schedule of common stock outstanding
|
|
|
|
|
Common Stock Outstanding
|
|
Shares
|
|
Balance at December 31, 2020
|
|
|
6,618,785
|
|
Issuance of shares:
|
|
|
|
|
Conversion of note payable
|
|
|
663,155
|
|
Cashless exercise of warrants
|
|
|
146,027
|
|
Issued to seller of Be Social
|
|
|
103,245
|
|
Exchange of Put Rights for stock
|
|
|
115,366
|
|
Issued to seller of The Door
|
|
|
10,238
|
|
Shares retired from exercise of puts
|
|
|
(18,347
|
)
|
Balance at June 30, 2021
|
|
|
7,638,469
|
|
|
C.
|
Incentive Compensation Plan
|
On June 29, 2017, the shareholders
of the Company approved the Dolphin Digital Media, Inc. 2017 Equity Incentive Plan (the “2017 Plan”). During the three and
six months ended June 30, 2021 and 2020, the Company did not issue any Awards under the 2017 Plan.
NOTE 11 — EARNINGS (LOSS) PER SHARE
The following table sets forth
the computation of basic and diluted earnings (loss) per share:
Schedule of Basic and Diluted Income (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
1,349,942
|
|
|
$
|
(2,943,601
|
)
|
|
$
|
(3,922,043
|
)
|
|
$
|
(869,754
|
)
|
Net income attributable to participating securities
|
|
|
8,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss) attributable to Dolphin Entertainment common stock shareholders and numerator for basic earnings (loss) per share
|
|
|
1,341,192
|
|
|
|
(2,943,601
|
)
|
|
|
(3,922,043
|
)
|
|
|
(869,754
|
)
|
Change in fair value of put rights
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,517,810
|
)
|
Change in fair value of derivative liability
|
|
|
(268,974
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Change in fair value of warrants
|
|
|
(65,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest expense
|
|
|
36,862
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Numerator for diluted earnings (loss) per share
|
|
$
|
1,044,080
|
|
|
$
|
(2,943,601
|
)
|
|
$
|
(3,922,043
|
)
|
|
$
|
(2,387,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS - weighted-average shares
|
|
|
7,664,000
|
|
|
|
4,719,241
|
|
|
|
7,456,360
|
|
|
|
4,363,742
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Put rights
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
850,613
|
|
Warrants
|
|
|
11,913
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Convertible notes payable
|
|
|
237,483
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Denominator for diluted EPS - adjusted weighted-average shares
|
|
|
7,913,396
|
|
|
|
4,719,241
|
|
|
|
7,456,360
|
|
|
|
5,214,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.17
|
|
|
$
|
(0.62
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.20
|
)
|
Diluted earnings (loss) per share
|
|
$
|
0.13
|
|
|
$
|
(0.62
|
)
|
|
$
|
(0.53
|
)
|
|
$
|
(0.46
|
)
|
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
Basic earnings (loss) per
share is computed by dividing income (loss) attributable to the shareholders of Common Stock (the numerator) by the weighted-average
number of shares of Common Stock outstanding (the denominator) for the period. Diluted earnings (loss) per share assumes that any
dilutive equity instruments, such as put rights, warrants and convertible notes payable were exercised and outstanding Common Stock
adjusted accordingly.
Certain of the
Company’s convertible notes payable and the Series C Preferred Stock have clauses that entitle the holder to participate if
dividends are declared to the common stockholders as if the instruments had been converted into shares of Common Stock. As such, the
Company uses the two-class method to compute earnings per share and attribute a portion of the Company’s net income to these participating securities. For the three months ended June 30, 2021, the Company attributed $8,750 of the
Company’s net income to these participating securities and reduced the net income available to common shareholders by that
amount when calculating earnings per share. For the six months ended June 30, 2021 and the three and six months ended June 30, 2020,
the Company had a net loss, and as such, the two-class method is not presented since the securities do not participate in losses.
In periods when the Put Rights
are assumed to have been settled at the beginning of the period in calculating the denominator for diluted earnings (loss) per share,
the related change in the fair value of Put Right liability recognized in the condensed consolidated statements of operations for the
period, is added back or subtracted from net income (loss) during the period. The denominator for calculating diluted earnings (loss) per
share for the three and six months ended June 30, 2021 and 2020 assumes the Put Rights had been settled at the beginning of the period,
and therefore, the related income (loss) due to the decrease in the fair value of the Put Right liability during the three and six months
ended June 30, 2021 and 2020 is subtracted from net income (loss). The number of shares added to the denominator for the Put Rights is
calculated using the reverse treasury stock method that assumes the Company issues and sells sufficient shares at the average period trading
price to satisfy the Put Right contracts.
For the three months ended June 30, 2021, convertible promissory notes
and warrants were included in the calculation of fully diluted earnings per share using the if-converted method that assumes the convertible
promissory notes are converted at the beginning of the reporting period using the average market price for the three months ended June
30, 2021 of the Common Stock. For the six months ended June 30, 2021 and the three and six months ended June 30, 2020, the convertible
promissory notes and warrants in the aggregate amount of 304,613, 2,061,635 and 3,177,253 shares of Common Stock, respectively, were not
included in diluted loss per share because inclusion was considered to be anti-dilutive.
NOTE 12 — WARRANTS
A summary of warrants outstanding
at December 31, 2020 and issued, exercised and expired during the six months ended June 30, 2021 is as follows:
Summary of Warrants Issued
|
|
|
|
|
|
|
|
|
|
Warrants:
|
|
|
Shares
|
|
|
Weighted Avg.
Exercise Price
|
|
Balance at December 31, 2020
|
|
|
|
221,513
|
|
|
$
|
7.08
|
|
Issued
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
|
(166,072
|
)
|
|
|
0.00
|
|
Expired
|
|
|
|
(35,441
|
)
|
|
|
23.70
|
|
Balance at June 30, 2021
|
|
|
|
20,000
|
|
|
$
|
3.91
|
|
On March 4, 2020, in connection
with the March 4th Note, the Company issued Series “I” Warrant to purchase up to 20,000 shares of Common Stock at a purchase
price of $3.91 per share. The warrants become exercisable on the six-month anniversary and for a period of five years thereafter. If a
resale registration statement covering the shares of Common Stock underlying the warrants is not effective and available at the time of
exercise, the warrants may be exercised by means of a “cashless” exercise formula. The Company determined that the Series
“I” Warrant should be classified as a freestanding financial instrument that meets the criteria to be accounted for as a derivative
liability and recorded a fair value at issuance of $40,000. The Company recorded an income of $65,000 and a loss of $100,000 in its condensed
consolidated statements of operations due to change in fair value for the three and six months ending June 30, 2021, respectively. The
fair value recorded on the Company’s condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020 was $150,000
and $50,000, respectively.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
The Company recorded a loss
of $2,397,877 in its condensed consolidated statements of operations due to change in fair value for the six months ending June 30, 2021
in connection with the Series E, F, G and H warrants which were exercised in March 2021 using a cashless exercise formula pursuant to
the warrant agreement.
NOTE 13 — RELATED PARTY TRANSACTIONS
On September 7, 2012, the
Company entered into an employment agreement with its CEO, which provides for annual compensation of $250,000 and an annual
discretionary bonus as determined by the Board. Unpaid compensation accrues interest at a rate of 10% per annum. In 2019,
the Compensation Committee approved an increase in Mr. O’Dowd’s annual salary to $300,000. On May 17, 2021, the Compensation
Committee of the Board approved an increase in the base salary of Mr. O’Dowd from $300,000 to $400,000 per year. The increase was
effective January 1, 2021.
As of June 30, 2021 and December
31, 2020, the Company had accrued $2,625,000 of compensation as accrued compensation and has balances of $1,718,227 and $1,756,438 respectively,
in accrued interest in current liabilities on its condensed consolidated balance sheet, related to the CEO’s employment. Amounts
owed under this arrangement are payable on demand. The Company recorded interest expense related to the accrued compensation in the condensed
consolidated statements of operations amounting to $65,445 and $65,445 for the three months ended June 30, 2021 and 2020, respectively,
and $130,171 and $130,890 for the six months ended June 30, 2021 and 2020, respectively. During the three and six months ended June 30,
2021, the Company paid interest amounting to $168,379 in connection with the accrued compensation to the CEO.
The Company entered into the New
DE LLC Note with an entity wholly owned by our CEO. See Note 6 for further discussion.
In connection with the acquisition
of 42West, the Company and its CEO, as personal guarantor, entered into the Put Agreements with each of the sellers of 42West, pursuant
to which the Company granted the Put Rights. During the three and six months ended June 30, 2021, the Company made payments in the amount
of $300,000 and $400,000, respectively, to Ms. Leslee Dart, a member of the Board, related to the Put Rights. Pursuant to the terms of
one such Put Agreement, Ms. Dart exercised 6,507 Put Rights at a purchase price of $46.10 per share during the six months ended June 30,
2021. As of June 30, 2021, the Company does not owe Ms. Dart any amounts related to the exercise of these Put Rights. On May 16, 2021,
Ms. Dart resigned from her position as a member of the Board effective as of such date.
NOTE 14 — SEGMENT INFORMATION
The Company operates in two
reportable segments, Entertainment Publicity and Marketing Segment (“EPD”) and Content Production Segment (“CPD”).
The Entertainment Publicity and Marketing segment is composed of 42West, The Door, Viewpoint, Shore Fire, Be Social, and B/HI, and provides
clients with diversified services, including public relations, entertainment and hospitality content marketing and strategic marketing
consulting. The Content Production segment is composed of Dolphin Entertainment and Dolphin Films and engages in the production and distribution
of digital content and feature films.
The profitability measure employed
by our chief operating decision maker for allocating resources to operating segments and assessing operating segment performance is operating
income (loss) which is the same as Loss before other income (expenses) on the Company’s condensed consolidated statements of operations
for the three and six months ended June 30, 2021. Salaries and related expenses include salaries, bonuses, commissions and other incentive
related expenses. Legal and professional expenses primarily include professional fees related to financial statement audits, legal, investor
relations and other consulting services, which are engaged and managed by each of the segments. In addition, general and administrative
expenses include rental expense and depreciation of property, equipment and leasehold improvements for properties occupied by corporate
office employees.
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
In connection with the acquisitions
of 42West, The Door, Viewpoint, Shore Fire, Be Social, and B/HI, the Company assigned $6,932,063 of intangible assets, net of accumulated
amortization of $6,537,937, and goodwill of $20,015,800 as of June 30, 2021 to the Entertainment Publicity and Marketing segment. The
balances reflected as of June 30, 2020 for Entertainment Publicity and Marketing segment comprise 42West, The Door, Viewpoint, and Shore
Fire.
Schedule of Revenue and Assets by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPD
|
|
$
|
8,643,244
|
|
|
$
|
5,194,725
|
|
|
$
|
15,820,361
|
|
|
$
|
11,828,525
|
|
CPD
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
8,643,244
|
|
|
$
|
5,194,725
|
|
|
$
|
15,820,361
|
|
|
$
|
11,828,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPD
|
|
$
|
1,391,171
|
|
|
$
|
875,831
|
|
|
$
|
602,295
|
|
|
$
|
216,757
|
|
CPD
|
|
|
(1,334,878
|
)
|
|
|
(1,054,869
|
)
|
|
|
(1,740,942
|
)
|
|
|
(1,266,655
|
)
|
Total operating income (loss)
|
|
|
56,293
|
|
|
|
(179,038
|
)
|
|
|
(1,138,647
|
)
|
|
|
(1,049,898
|
)
|
Interest expense
|
|
|
(169,837
|
)
|
|
|
(1,058,694
|
)
|
|
|
(335,031
|
)
|
|
|
(1,682,976
|
)
|
Other income, net
|
|
|
1,463,486
|
|
|
|
(1,705,869
|
)
|
|
|
(2,487,216
|
)
|
|
|
1,863,120
|
|
Income (Loss) before income taxes
|
|
$
|
|
|
$
|
)
|
|
$
|
)
|
|
$
|
)
|
|
|
|
|
|
|
|
|
|
As of
June 30,
2021
|
|
|
As of
December 31,
2020
|
|
|
|
|
|
|
|
|
Total assets:
|
|
|
|
|
|
|
|
|
EPD
|
|
$
|
47,699,370
|
|
|
$
|
45,266,315
|
|
CPD
|
|
|
3,294,811
|
|
|
|
4,085,636
|
|
Total
|
|
$
|
50,994,181
|
|
|
$
|
49,351,951
|
|
NOTE 15 — LEASES
The Company and its subsidiaries
are party to various office leases with terms expiring at different dates through December 2026. The amortizable life of the right-of-use
asset is limited by the expected lease term. Although certain leases include options to extend the Company did not include these in the
right-of-use asset or lease liability calculations because it is not reasonably certain that the options will be executed.
The table below shows the lease
income and expenses recorded in the condensed consolidated statements of operations incurred during the three and six months ended June
30, 2021 and 2020.
Schedule of Lease Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease costs
|
|
Classification
|
|
Three months
ended June 30,
2021
|
|
|
Three months
ended June 30,
2020
|
|
|
Six months ended June 30, 2021
|
|
|
Six months ended June 30, 2020
|
|
Operating lease costs
|
|
Selling, general and administrative expenses
|
|
$
|
664,315
|
|
|
$
|
554,506
|
|
|
$
|
1,410,843
|
|
|
$
|
1,063,113
|
|
Operating lease costs
|
|
Direct costs
|
|
|
—
|
|
|
|
60,861
|
|
|
|
60,861
|
|
|
|
121,722
|
|
Sublease income
|
|
Selling, general and administrative expenses
|
|
|
—
|
|
|
|
(2,397
|
)
|
|
|
—
|
|
|
|
(4,794
|
)
|
Net lease costs
|
|
|
|
$
|
664,315
|
|
|
$
|
612,970
|
|
|
$
|
1,471,704
|
|
|
$
|
1,180,041
|
|
DOLPHIN ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2021
Lease Payments
For the three and six months
ended June 30, 2021, the Company made payments in cash related to its operating leases in the amounts of $663,738 and $1,402,896, respectively.
Future maturities lease payments
for operating leases for the remainder of 2021 and thereafter, were as follows:
Schedule of Future Minimum Payments Under Operating Lease Agreements
|
|
|
|
|
2021
|
|
$
|
1,330,585
|
|
2022
|
|
|
2,073,640
|
|
2023
|
|
|
1,954,903
|
|
2024
|
|
|
1,824,908
|
|
2025
|
|
|
1,232,060
|
|
Thereafter
|
|
|
940,976
|
|
Total lease payments
|
|
$
|
9,357,072
|
|
Less: Imputed interest
|
|
|
(1,589,059
|
)
|
Present value of lease liabilities
|
|
$
|
7,768,013
|
|
As of June 30, 2021, the Company’s
weighted average remaining lease terms on its operating lease is 4.44 years and the Company’s weighted average discount rate is
5.79% related to its operating leases.
NOTE 16 — COMMITMENTS AND CONTINGENCIES
Litigation
The Company may be subject to
legal proceedings, claims, and liabilities that arise in the ordinary course of business. In the opinion of management and based upon
the advice of its outside counsels, the liability, if any, from any pending litigation is not expected to have a material effect in the
Company’s financial position, results of operations and cash flows. The Company is not aware of any pending litigation as of the
date of this report.
Letter of Credit
Pursuant to the lease agreements
of 42West’s New York and Los Angeles office locations, the Company is required to issue letters of credit to secure the leases.
On July 24, 2018, the Company renewed the letter of credit issued by City National Bank for the 42West office space in New York. The letter
of credit is for $677,354 and originally expired on August 1, 2018. This letter of credit renews automatically annually unless City National
Bank notifies the landlord 60-days prior to the expiration of the bank’s election not to renew the letter of credit. The Company
granted City National Bank a security interest in bank account funds totaling $677,354 pledged as collateral for the letter of credit.
The letters of credit commit the issuer to pay specified amounts to the holder of the letter of credit under certain conditions. If this
were to occur, the Company would be required to reimburse the issuer of the letter of credit.
The Company is not aware of
any other claims relating to its outstanding letters of credit as of June 30, 2021.