UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 8-K/A
 
(Amendment No. 1)
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of report (Date of earliest event reported) March 30, 2017
 
Dolphin Digital Media, Inc.
(Exact Name of Registrant as Specified in its Charter)
 
 
Florida
    000-50621  
    86-0787790  
(State or Other Jurisdiction
of Incorporation)
(Commission File Number)
(IRS Employer
Identification No.)
 
2151 Le Jeune Road, Suite 150-Mezzanine
Coral Gables, FL
33134
(Address of Principal Executive Offices)
(Zip Code)
 
Registrant’s telephone number, including area code: (305) 774-0407
 
Registrant’s facsimile number, including area code: (954) 774-0405
 
(Former name or former address, if changed since last report)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company   ◻
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ◻
 

 
 
 
 
Item 2.01                      Completion of Acquisition or Disposition of Assets.
 
Dolphin Digital Media, Inc. (the “Company”) previously announced the closing of its acquisition of 42West, LLC (“42West”) on March 30, 2017, on the terms and subject to the conditions set forth in the Membership Interest Purchase Agreement dated March 30, 2017 by and among the Company and Leslee Dart, Amanda Lundberg, Allan Mayer and the Beatrice B. Trust (the “42West Acquisition”).
 
This Form 8-K/A amends the Form 8-K the Company filed on April 5, 2017, to include 42West’s audited financial statements as of, and for the years ended, December 31, 2016 and 2015 and the unaudited pro forma combined financial information related to the 42West Acquisition required by Items 9.01(a) and 9.01(b) of Form 8-K.
 
Item 9.01                      Financial Statements and Exhibits.
 
(a) Financial Statements of Businesses Acquired.
 
  The audited financial statements of 42West as of, and for the years ended, December 31, 2016 and 2015, as well as the accompanying notes thereto and the related Independent Auditors’ Report, are filed as Exhibit 99.1 attached hereto and are incorporated herein by reference.
 
(b) Pro Forma Financial Information.
 
  The unaudited pro forma combined financial information giving effect to the 42West Acquisition is filed as Exhibit 99.2 attached hereto and is incorporated herein by reference.
 
(d) Exhibits.
 
42West LLC’s Audited Financial Statements as of, and for the Years Ended, December 31, 2016 and 2015.
 
 
Dolphin Digital Media, Inc. Unaudited Pro Forma Combined Financial Information of Dolphin Digital Media, Inc. and 42West, LLC as of, and for the Year Ended, December 31, 2016.
 
 
 
 
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
DOLPHIN DIGITAL MEDIA, INC.
 
 
 
 
 
 
By:  
/s/ Mirta A. Negrini
 
 
 
Mirta A. Negrini  
 
 
 
Chief Financial and Operating Officer  
 
Date: June 9, 2017
 
 
 
 
 
 
 
 
 Exhibit 99.1
 
 
42 West, LLC
 

Financial Statements
For the Years Ended December 31, 2016 and 2015
 
 
 
 
 
 
 
42 West, LLC
 
Contents
 

Independent Auditor’s Report
3-4
 
 
Financial Statements:
 
 
 
Balance Sheets as of December 31, 2016 and 2015
5
 
 
Statements of Operations for the Years Ended December 31, 2016 and 2015
6
 
 
Statements of Changes in Members’ Equity for the Years Ended December 31, 2016 and 2015
7
 
 
Statements of Cash Flows for Years Ended December 31, 2016 and 2015
8
 
 
Notes to Financial Statements
9-17
 
 
 
 
 
2
 
 
Independent Auditor’s Report
 
Chief Operating Officer
42West, LLC
220 West 42nd Street
12th Floor
New York, NY 10036
 
We have audited the accompanying financial statements of 42 West, LLC, which comprise the balance sheets as of December 31, 2016 and 2015, and the related statements of operations, changes in members’ equity, and cash flows for the years then ended, and the related notes to the financial statements.
 
Management’s Responsibility for the Financial Statements
 
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
 
Auditor’s Responsibility
 
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
 
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
 
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
 
 
 
3
 
 
Opinion
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 42 West, LLC as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
 
 
 
 
 
 
 /s/ BDO USA, LLP
 
June 7, 2017
 
 
 
 
4
 
42 West, LLC
 
Balance Sheets
 


 
December 31,
 
 
 
2016
 
 
2015
 
Assets
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Cash
  $ 1,279,056  
  $ 2,161,073  
Accounts receivable (net of allowance for doubtful accounts of $184,000 and $165,000, respectively)
    1,337,806  
    1,168,921  
Shares receivable
    -  
    220,000  
Prepaid income taxes
    26,150  
    -  
Total Current Assets
    2,643,012  
    3,549,994  
Property, Equipment and Leasehold Improvements, Net
    1,115,515  
    785,733  
Investments
    220,000  
    -  
Security Deposits
    45,563  
    45,563  
Total Assets
  $ 4,024,090  
  $ 4,381,290  
Liabilities and Members’ Equity
       
       
Current Liabilities:
       
       
Bank loans payable
  $ 350,000  
  $ -  
Current portion of note payable to a former member
    300,000  
    300,000  
Accounts payable
    435,110  
    350,441  
Accrued expenses
    261,053  
    712,792  
Settlement accrual, current portion
    300,000  
    340,000  
Income taxes payable
    -  
    94,817  
Deferred rent, current portion
    47,774  
    112,477  
Deferred landlord reimbursement, current portion
    98,501  
    98,501  
Deferred tax liability
    1,000  
    13,000  
Total Current Liabilities
    1,793,438  
    2,022,028  
Long-Term Liabilities:
       
       
Note payable to a former member, net of current portion
    225,000  
    525,000  
Settlement accrual, noncurrent portion
    -  
    260,000  
Deferred rent, noncurrent portion
    383,502  
    356,080  
Deferred landlord reimbursement, noncurrent portion
    385,794  
    484,295  
Total Long-Term Liabilities
    994,296  
    1,625,375  
Total Liabilities
    2,787,734  
    3,647,403  
Members’ Equity
    1,236,356  
    733,887  
Total Liabilities and Members’ Equity
  $ 4,024,090  
  $ 4,381,290  
 
See accompanying notes to financial statements.
 
 
 
5
 
42 West, LLC
 
Statements of Operations
 

 
 
Year Ended December 31,
 
 
 
2016
 
 
2015
 
Revenue
  $ 18,563,749  
  $ 19,769,891  
Operating Expenses
    13,593,299  
    13,413,057  
Operating Income Before Guaranteed Payments, Expenses Billed to Clients and Settlement Expense
    4,970,450  
    6,356,834  
Guaranteed Payments
    1,197,660  
    1,197,660  
Expenses Billed to Clients
    1,234,064  
    1,633,701  
Settlement Expense
    40,000  
    60,000  
Operating Income
    2,498,726  
    3,465,473  
Other Expenses:
       
       
Loss on disposal of equipment
    -  
    43,138  
Interest expense
    21,505  
    14,825  
Total Other Expenses
    21,505  
    57,963  
Income before Provision for Income Taxes
    2,477,221  
    3,407,510  
Provision for Income Taxes
    59,752  
    225,140  
Net Income
  $ 2,417,469  
  $ 3,182,370  
 
See accompanying notes to financial statements.
 
 
 
6
 
42 West, LLC
 
Statements of Changes in Members’ Equity
 


 
Year Ended December 31,
 
 
 
2016
 
 
2015
 
Members’ Equity, Beginning of Period
  $ 733,887  
  $ 17,517  
Net income
    2,417,469  
    3,182,370  
Less:  Members’ distributions
    (1,915,000 )
    (2,466,000 )
Members’ Equity, End of Period
  $ 1,236,356  
  $ 733,887  
 
See accompanying notes to financial statements.
 
 
 
 
7
 
42 West, LLC
 
Statements of Cash Flows
 


 
Year Ended December 31,
 
 
 
2016
 
 
2015
 
Cash Flows From Operating Activities:
 
 
 
 
 
 
Net income
  $ 2,417,469  
  $ 3,182,370  
Adjustments to reconcile net income to net cash provided by operating activities:
       
       
Depreciation and amortization
    213,846  
    211,794  
Deferred rent
    (37,280 )
    (51,901 )
Amortization of landlord reimbursement
    (98,501 )
    (98,501 )
Loss on disposal of equipment
    -  
    43,138  
Shares receivable
    -  
    (220,000 )
Changes in operating assets and liabilities:
       
       
Accounts receivable
    (168,885 )
    189,310  
Accounts payable
    84,668  
    132,373  
Accrued expenses
    (451,739 )
    (118,642 )
Settlement accrual
    (300,000 )
    60,000  
Deferred taxes
    (12,000 )
    22,000  
Income taxes payable/receivable
    (120,967 )
    55,699  
Net Cash Provided By Operating Activities
    1,526,611  
    3,407,640  
Cash Flows From Investing Activities:
       
       
Purchase of equipment and leasehold improvements
    (543,628 )
    (78,495 )
Net Cash Used In Investing Activities
    (543,628 )
    (78,495 )
Cash Flows From Financing Activities:
       
       
Repayment of note payable to a former member
    (300,000 )
    (300,000 )
Proceeds from revolving credit facility
    350,000  
    -  
Distributions
    (1,915,000 )
    (2,466,000 )
Net Cash Used In Financing Activities
    (1,865,000 )
    (2,766,000 )
Net (Decrease) Increase in Cash
    (882,017 )
    563,145  
Cash, Beginning of Period
    2,161,073  
    1,597,928  
Cash, End of Period
  $ 1,279,056  
  $ 2,161,073  
Supplemental Disclosures of Cash Flow Information:
       
       
Interest
  $ 21,505  
  $ 14,825  
Income taxes
    123,950  
    147,441  
 
       
       
Supplemental Disclosure of Noncash Investing Activities:
       
       
Conversion of shares receivable
  $ 220,000  
  $ -  
 
See accompanying notes to financial statements.
 
 
 
8
 
42 West, LLC
 
Notes to Financial Statements
 

1. Principal Business Activities
 
Organization and Business Activities
 
42 West, LLC (the “Company”) was organized, pursuant to the laws of the State of Delaware in March 2005, as a public relations firm specializing in “A” list entertainment industry clientele with offices in New York and California. The Company will continue in operation as provided for in the operating agreement.
 
Basis of Presentation
 
The accompanying financial statements for the years ended December 31, 2016 and 2015 are stated in conformity with generally accepted accounting principles. The operating results for the periods presented are not necessarily indicative of results that may be expected for any other period or for the full year. In the opinion of management, the accompanying financial statements contain all necessary adjustments, consisting only of those of a recurring nature, and disclosures to present fairly the Company’s financial position and the results of its operations and cash flows for the periods presented.
 
2. Summary of Significant Accounting Policies
 
Use of Estimates in Financial Statements
 
The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
Cash
 
The Company maintains an account in a bank located in the New York metropolitan area. The excess of deposit balances reported by the bank over amounts that would have been covered by federal insurance was approximately $355,000 and $1,404,000 at December 31, 2016 and 2015, respectively.
 
Accounts Receivable and Allowance for Doubtful Accounts
 
The Company’s trade accounts receivable are recorded at amounts billed to customers, and presented on the balance sheet net of the allowance for doubtful accounts. The allowance is determined by various factors, including the age of the receivables, current economic conditions, historical losses and other information management obtains regarding the financial condition of customers. The policy for determining the past due status of receivables is based on how recently payments have been received. Receivables are charged off when they are deemed uncollectible.
 
Depreciation and Amortization
 
Property, equipment, and improvements are stated at cost. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the term of the related lease or the estimated useful lives of the assets.
 
 
 
9
 
42 West, LLC
 
Notes to Financial Statements
 

Revenue Recognition
 
Revenue consists of fees from the performance of professional services and billings for direct costs reimbursed by clients. Fees are generally recognized on a straight-line or monthly basis which approximates the proportional performance on such contracts. Direct costs reimbursed by clients are billed as pass-through revenue with no mark-up.
 
Deferred revenue represents customer advances or amounts allowed to be billed under the contracts for work that has not yet been performed or expenses that have not yet been incurred.
 
Income Taxes
 
The Company is taxed as a partnership for federal, New York State, and California state tax purposes, whereby the Company’s income is reported by the members. Accordingly, no provision has been made for federal, New York State, and California State income taxes. The Company remains liable for New York City Unincorporated Business tax.
 
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
 
The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize deferred tax assets in the future in excess of their recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
 
Guaranteed Payments
 
Guaranteed payments to members that are intended as compensation for services rendered are accounted for as Company expenses rather than as allocations of the Company’s net income.
 
Deferred Landlord Reimbursement
 
Deferred landlord reimbursement represents the landlord’s reimbursement for tenant improvements of the Company’s office space. Such amount is amortized on a straight-line basis over the term of the lease.
 
Deferred Rent
 
Deferred rent consists of the excess of the rent expense recognized on the straight-line basis over the payments required under certain office leases.
 
 
 
10
 
42 West, LLC
 
Notes to Financial Statements
 

Investments
 
Investments in equity securities are recorded at cost. Under this method, the Company’s share of earnings or losses of such investee companies is not included in the balance sheet or statement of operations. However, impairment changes are recognized in the statement of operations. If circumstances suggest that the value of the investee company has subsequently been recovered, such recovery is not recorded.
 
Advertising Costs
 
Advertising costs, which are included in operating expenses, are charged to expense as incurred. Advertising expense amounted to approximately $32,000 and $72,000 for the years ended December 31, 2016 and 2015, respectively.
 
3. Recent Accounting Pronouncements
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 represents a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled to receive in exchange for those goods or services. This ASU sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed. In August 2015, the FASB issued ASU 2015-14, “ Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 by one year, but permits entities to adopt one year earlier if they choose (i.e., the original effective date). As such, ASU 2014-09 will be effective for annual and interim reporting periods beginning after December 15, 2018. In addition, during March 2016, April 2016, May 2016 and December 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Consideration (Reporting Revenue Gross versus Net,” ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” ASU  2016-12 “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” and ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers (Topic 606),” respectively. These additional amendments clarified the revenue recognition guidance on reporting revenue as a principal versus agent, identifying performance obligations, accounting for intellectual property licenses and on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. The Company is currently evaluating the impact of this standard on the Company’s results of operations and financial position including possible transition alternatives.
 
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the potential impact of the adoption of this standard.
 
 
 
11
 
42 West, LLC
 
Notes to Financial Statements
 

4. Property, Equipment and Leasehold Improvements
 
Property, equipment and leasehold improvements consist of:
 
 
 
December 31, 2016
 
 
December 31, 2015
 
Furniture and fixtures
  $ 611,893  
  $ 234,195  
Computers and equipment
    626,611  
    460,680  
Leasehold improvements
    804,770  
    804,770  
 
    2,043,274  
    1,499,645  
Less:  Accumulated depreciation
    (927,759 )
    (713,912 )
 
  $ 1,115,515  
  $ 785,733  
 
The Company depreciates furniture and fixtures over a useful life of seven years, computer and equipment over a useful life of five years, and leasehold improvements over the remaining term of the related lease (Note 12).
 
5. Accrued Expenses
 
Accrued expenses consist of:
 
 
 
December 31, 2016
 
 
December 31, 2015
 
Bonuses
  $ 61,357  
  $ 583,437  
Commissions
    151,000  
    73,316  
Credit card liabilities
    -  
    30,318  
Other accrued expenses
    48,696  
    25,721  
 
  $ 261,053  
  $ 712,792  
 
6. Line of Credit
 
The Company has a $1,500,000 revolving credit line agreement with City National Bank, which matures on April 1, 2017. Borrowings bear interest at the bank’s prime lending rate plus 0.875% (4.625% at December 31, 2016). The debt, including letters of credit outstanding, is collateralized by substantially all of the Company’s assets, and guaranteed by certain members of the Company. The credit agreement requires the Company to meet certain covenants and includes limitations on distributions to members. The Company is in compliance with covenants. At December 31, 2016, the outstanding loan balance was $350,000 and there was no outstanding loan balance at December 31, 2015. The Company incurred interest expense of $21,505 and $14,825 for the years ended December 31, 2016 and 2015, respectively.
 
 
 
12
 
42 West, LLC
 
Notes to Financial Statements
 

7. Note Payable to a Former Member
 
Effective August 31, 2011, the Company redeemed the interest of a member for $2,625,000. The redemption agreement includes certain terms relating to the adjustment of purchase price for failure to collect certain account receivables and provisions for acceleration of scheduled payments under conditions described in the agreement. As of December 31, 2012, all stated accounts receivable were collected. The note is payable in quarterly installments, as defined in the agreement, through September 30, 2018. In the event the Company defaults under the obligation, the former member will be entitled to receive a membership interest in proportion to the unpaid balance. The outstanding principal, along with any accrued interest, shall be payable in full  if any of the following transactions occur prior to December 31, 2018: (i) four or more of the current members sell at least 50% of their membership interest in the Company to any party other than a trust, current members, or employees; (ii) one or more third parties acquire more than 50% of membership interest in the Company, (iii) the Company sells, assigns, transfers, or otherwise disposes all or substantially all of its assets and/or business, or (iv) the Company is merged into another party whereby the Company ceases to exist, or the members no longer own a controlling interest in the Company.
 
Future payments on this redemption are as follows:
 
Period ended December 31,
 
 
 
2017
  $ 300,000  
2018
    225,000  
 
  $ 525,000  
 
8. Investments
 
Investments, at cost, consist of the following:
 
 
 
December 31,
2016
 
 
December 31,
2015
 
The Virtual Reality Company (“VRC”)
  $ 220,000  
  $ -  
 
In exchange for services rendered to VRC throughout the year ended December 31, 2015, the Company received both cash consideration and a promissory note that was convertible into common stock of VRC. On April 7, 2016, VRC closed an equity financing round for approximately $22,700,000 of common stock issued to a third party investor, which triggered the conversion of all outstanding promissory notes into common stock of VRC. The Company’s $220,000 investment in VRC represents 344,890 shares of common stock, a less than 1% ownership interest in VRC.  Investment in VRC is recorded at cost.
 
9. Income Taxes
 
The components of income tax expense are as follows:
 
 
 
13
 
42 West, LLC
 
Notes to Financial Statements
 


 
Year Ended December 31,
 
 
 
2016
 
 
2015
 
Current
  $ 71,252  
  $ 203,140  
Deferred
    (12,000 )
    22,000  
 
  $ 59,752  
  $ 225,140  
 
The Company is a partnership and is not subject to federal or state income tax in general.  It is only subject to tax in New York City which has a statutory rate of 4%.  Net deferred assets and liabilities are as follows:
 
 
 
December 31,
2016
 
 
December 31,
2015
 
Deferred tax assets:
 
 
 
 
 
 
Effect of cash basis accounting adjustments
  $ 54,000  
  $ 34,000  
Deferred tax liabilities:
       
       
Effect of cash basis accounting adjustments
    (55,000 )
    (47,000 )
Net deferred tax liability
  $ (1,000 )
  $ (13,000 )
 
The Company may be subject to examination by the Internal Revenue Service (“IRS”) as well as states for calendar years 2013 through 2016.  The Company has not been notified of any federal or state income tax examinations.
 
10. Employee Benefits Plan
 
The Company has a 401(k) profit sharing plan that covers substantially all employees. Contributions to the plan are at the discretion of the Company’s management. The Company’s contributions were approximately $228,000 and $221,000 for the years ended December 31, 2016 and 2015, respectively.
 
11. Members’ Agreement
 
In the event of death, disability or withdrawal of a member, the Company is obligated to purchase the entire membership interest owned by such member, according to the terms as defined by the operating agreement.
 
In addition, the Company maintains key man life insurance and disability insurance for each member.
 
12. Commitments and Contingencies
 
Leases
 
The Company is obligated under a sublease operating agreement for office space in New York expiring in December 2016. The lease provides for increases in rent for real estate taxes and building operating costs, all of which is personally guaranteed by certain members of the Company so long as the Company remains in possession of the subleased premises. On July 19, 2016, the Company entered into an operating lease agreement for new office space in New York commencing December 1, 2016. The lease is secured by a standby letter of credit amounting to $677,354, and provides for increases in rent for real estate taxes and building operating costs. The lease also contains a renewal option for an additional five years.
 
 
 
14
 
42 West, LLC
 
Notes to Financial Statements
 

The Company is obligated under an operating lease agreement for office space in California, expiring in December 2021. The lease is secured by a cash security deposit of $44,788 and a standby letter of credit amounting to $100,000 at September 30, 2016. The lease also provides for increases in rent for real estate taxes and operating expenses, and contains a renewal option for an additional five years, as well as an early termination option effective as of February 1, 2019. Should the early termination option be executed, the Company will be subject to a termination fee in the amount of approximately $637,000. The Company does not expect to execute such option.
 
Future minimum annual rent payments are as follows:
 
 
Period ended December 31,
 
 
 
2017
  $ 1,289,187  
2018
    1,303,478  
2019
    1,326,535  
2020
    1,433,403  
2021
    1,449,019  
Thereafter
    4,675,845  
 
  $ 11,477,467  
 
Rent expense, including escalation charges, amounted to approximately $1,115,000 and $941,000 for the years ended December 31, 2016 and 2015, respectively.
 
Employment Contract
 
The Company entered into seven new three-year employment contracts with senior level management employees during 2015, none of which are equity partners. The contracts defined each individual’s compensation, along with specific salary increases mid-way through the term of each contract. Each individual was also guaranteed a percentage of proceeds if the Company was sold during the term of their contract. The percentages vary by executive. Termination by cause, death, or by the employee would terminate the Company’s commitment on each contract. Each employee is entitled to severance compensation if terminated without cause.
 
 
 
15
 
42 West, LLC
 
Notes to Financial Statements
 

13. Settlement Expense
 
The Company is a contributing employer to the Motion Picture Industry Pension, Individual Account, and Health Plans (collectively, the “Plans”), two multiemployer pension funds and one multiemployer welfare fund, respectively, that are governed by the Employee Retirement Income Security Act of 1974, as amended. In the past, the Company had disputed that certain employees were not union members and, as such, were not eligible to participate in the Plans. Pursuant to audit results that were settled during the year ended December 31, 2016 between the Plans and the Company, the employees were determined to be union members. Based on the Plans’ audit results for the period from June 6, 2007 through June 6, 2011, the Company was liable to the Plans for delinquent pension plan contributions, health and welfare plan contributions, and union dues in the amount of $340,000, which was expensed prior to January 1, 2014 and paid in August 2016.
 
The Plans intend to conduct a second audit of the Company’s books and records for the period from June 7, 2011 through August 20, 2016 in connection with the Company’s alleged contribution obligations to the Plans. Based on the settled audit by the Plans for the period from June 6, 2007 through June 6, 2011, the Company expects that the Plans may seek to collect approximately $300,000 in delinquent pension plan contributions, health and welfare plan contributions, and union dues from the Company after the audit is completed. The Company believes this exposure to be probable and, therefore, has recorded this liability and recognized the expenses ratably throughout the period under audit.
 
14. Subsequent Events
 
On March 30, 2017 the Company and its members (the “Sellers”) entered into a Membership Interest Purchase Agreement (the “Agreement”) with Dolphin Digital Media, Inc. (“Dolphin”), a Florida corporation, whereby Dolphin agreed to purchase 100% of the membership interests of the Sellers in exchange for shares of common stock in Dolphin.  As of March 30, 2017, the Company became a wholly-owned subsidiary of Dolphin.
 
Simultaneous with the execution of the Agreement, the Sellers transferred their membership interests in exchange for shares of Dolphin common stock, based on purchase price of (i) $18,666,667 (based on the Dolphin’s 30-trading-day average stock price prior to the closing date of $4.61 per share); (ii) minus the Company’s indebtedness at the time of closing; (iii) minus the Company’s transaction expenses; and (iv) plus the Company’s working capital at the time of closing in excess of $500,000, or minus the excess of $500,000 over the Company’s working capital at the time of closing. Pursuant to the Agreement, Dolphin issued 1,230,280 shares of common stock on the closing date to the Sellers, and will issue an additional 1,961,821 shares of common stock to the Sellers and certain employees on January 2, 2018. Dolphin also issued 344,550 shares of common stock to certain employees on April 13, 2017, and may issue up to 118,655 shares of common stock as bonuses to certain employees during 2017.
 
The Agreement provides for additional shares of Dolphin common stock to be calculated and issued to the selling members based on EBITDA of the Company’s business segment for each of the calendar years 2017, 2018, and 2019, subject to certain thresholds as defined in the Agreement. Pursuant to a promissory note agreement with a former member (Note 8), upon closing of this transaction the Company paid $300,000 in cash to the former member with the remaining $225,000 is to be paid in January 2018 as repayment of the promissory note, the total of which decreased the amount of common stock issued to the selling members.
 
 
 
16
 
42 West, LLC
 
Notes to Financial Statements
 

Upon closing, three of the Sellers entered into employment agreements with Dolphin, and all of the Sellers entered into put agreements with Dolphin.  Pursuant to the terms and subject to the conditions set forth in the put agreements, Dolphin has granted the Sellers the right, but not obligation, to cause Dolphin to purchase up to an aggregate of 2,374,187 of their 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 through December 2020.
 
In addition, in connection with the transaction, on March 30, 2017, Dolphin entered into a registration rights agreement with the Sellers (the “Registration Rights Agreement”) pursuant to which the Sellers are entitled to rights with respect to the registration under the Securities Act of 1933, as amended (the “Securities Act”). All fees, costs and expenses of underwritten registrations under the Registration Rights Agreement will be borne by Dolphin. At any time after the one-year anniversary of the Registration Rights Agreement, Dolphin will be required, upon the request of such Sellers holding at least a majority of the consideration received by the Sellers, to file a registration statement on Form S-1 and use its reasonable efforts to effect a registration covering up to 25% of the consideration received by the Sellers. In addition, if Dolphin is eligible to file a registration statement on Form S-3, upon the request of such Sellers holding at least a majority of the consideration received by the Sellers, Dolphin will be required to use its reasonable efforts to effect a registration of such shares on Form S-3 covering up to an additional 25% of the consideration received by the Sellers. Dolphin is required to effect only one registration on Form S-1 and one registration statement on Form S-3, if eligible. The right to have the consideration received by the Sellers registered on Form S-1 or Form S-3 is subject to other specified conditions and limitations.
 
On April 27, 2017, the Company drew $250,000 from the Line of Credit to be used for working capital.  In addition, the maturity date of the Line of Credit was extended to August 1, 2017. All other terms of the Line of Credit remain the same.
 
Subsequent events have been evaluated through June 7, 2017, which is the date the financial statements were available to be issued.
 
 
 
 
17
 
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