As filed with the Securities and Exchange Commission on October 10, 2017
Registration No. 333-219029
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
AMENDMENT NO. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
DOLPHIN ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
 
Florida
7200
86-0787790
(State or other jurisdiction of incorporation or organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer Identification Number)
 
2151 LeJeune Road, Suite 150-Mezzanine
Coral Gables, FL 33134
(305) 774-0407
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
William O’Dowd, IV
Chairman, President and Chief Executive Officer
2151 LeJeune Road, Suite 150-Mezzanine
Coral Gables, FL 33134
(305) 774-0407
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 Copies to:
Kara L. MacCullough, Esq.
Barry I. Grossman, Esq.
Laurie L. Green, Esq.
Sarah Williams, Esq.
Greenberg Traurig, P.A.
Ellenoff Grossman & Schole LLP
401 East Las Olas Boulevard, Suite 2000
1345 Avenue of the Americas
Fort Lauderdale, FL 33301
New York, NY 10105
(954) 765-0500
(212) 370-1300
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
 
              If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
 
              If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
 
              If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
 
              If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
 
              Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 ☐
 Accelerated filer
 ☐
Non-accelerated filer
 ☐
 Smaller reporting company 
 ☒
 
 
 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 7(a)(2)(B) of the Securities Act. ☐
 

 
 
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of Securities to be Registered
 
Proposed Maximum Aggregate Offering Price (1)
 
 
Amount of Registration Fee (1)
 
Units (2)(3)
  $ -  
  $ -    
Shares of common stock, par value $0.015, included in the units (4)(5)
    -
 
    -    
 
Warrants to purchase shares of common stock, included in the units (5)
    -  
    -    
Shares of common stock underlying the warrants included in the units (3)(4)
    -
 
    -    
Underwriters’ warrants (5)
    -
 
    -    
Shares of common stock underlying underwriters’ warrants (4)(6)
  $    
  $ -    
Total:
  $ 18,578,250  
  $ 2,312.99 (7)
 
(1)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).
 
(2)
Each unit consists of one share of common stock, par value $0.015, and a warrant to purchase         share of common stock, par value $0.015.
 
(3)
Includes units and shares of common stock the underwriters have the option to purchase to cover over-allotments, if any.
 
(4)
Pursuant to Rule 416 under the Securities Act, the securities being registered hereunder include such indeterminate number of additional shares of common stock as may be issued after the date hereof as a result of stock splits, stock dividends or similar transactions.
 
(5)
No fee required pursuant to Rule 457(g) under the Securities Act.
 
(6)
The underwriters’ warrants are exercisable at a per share exercise price equal to 110% of the public offering price. As estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the underwriters’ warrants is $1,328,250 (which is equal to 110% of $1,207,500 (7% of $17,250,000)).
 
(7)
$2,897.50 was previously paid upon the initial filing of this registration statement.
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 
 
 
 
 
 
 
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted
 
 
 
 
 
PROSPECTUS
Subject to completion, dated October 10, 2017
  
$15,000,000
        Units
 
DOLPHIN ENTERTAINMENT, INC.
________________________
 
We are offering $15,000,000 of units with each unit consisting of one share of our common stock, $0.015 par value per share and one warrant to purchase        share of our common stock per unit at an exercise price equal to $ per share and expiring five years after the issuance date. The units will not be issued or certificated. Purchasers will receive only shares of common stock and warrants. The common stock and warrants are immediately separable and will be issued separately. The offering also includes the shares issuable from time to time upon exercise of the warrants.
 
Our shares of common stock are currently quoted on the OTC Pink Marketplace, operated by OTC Markets Group. The symbol for our common stock is “DPDM”. There is currently no public market for our warrants. We have applied to have our common stock and warrants offered hereby listed on The NASDAQ Global Market under the symbols “DLPN” and “DLPNW,” respectively. On October 4, 2017, the last reported sale price of our common stock on the OTC Pink Marketplace was $8.00 per share.
 
Our business and an investment in our common stock involve significant risks. See “Risk Factors” beginning on page 5 of this prospectus to read about factors that you should consider before making an investment decision.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
 
Per Unit
 
 
Total
 
Public offering price
  $    
  $    
Underwriting discount (1)
  $    
  $    
Proceeds before expenses (2)
  $    
  $    
 
 
(1)
In addition to the underwriting discount, we have agreed to issue to the underwriter warrants to purchase a number of shares of common stock equal to 7% of the total number of shares being sold in the offering, including the over-allotments, if any, and to reimburse the underwriter for expenses incurred by it in an amount not to exceed $150,000. See “Underwriting” beginning on page 80 of this prospectus for additional information regarding total underwriter compensation.
 
 
(2)
We estimate the total expenses of this offering will be approximately $     . See “Underwriting” for additional information.
 
We have granted the underwriters the option for a period of 45 days to purchase up to             additional units at the public offering price solely to cover over-allotments, if any. If the underwriters exercise their right to purchase additional units to cover over-allotments, we estimate that we will receive gross proceeds of $      from the sale of units being offered and net proceeds of $        after deducting $         for underwriting discounts and commissions.
 
The underwriters expect to deliver our shares and warrants to purchasers in the offering on or about           , 2017.
 
  Joint Book-Running Managers
 
Maxim Group LLC                                                                                     Ladenburg Thalmann
 
The date of this prospectus is                            , 2017.
 
 
 
 
TABLE OF CONTENTS
 
  
 
 Page
PROSPECTUS SUMMARY
 
1
RISK FACTORS
 
5
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
 
19
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
 
21
USE OF PROCEEDS
 
26
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
27
DETERMINATION OF OFFERING PRICE 
 
28
CAPITALIZATION
 
29
DILUTION
 
30
SELECTED FINANCIAL DATA
 
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
33
BUSINESS
 
55
PROPERTIES
 
62
LEGAL PROCEEDINGS
 
62
MANAGEMENT
 
63
EXECUTIVE COMPENSATION
 
67
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
68
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
70
DESCRIPTION OF SECURITIES
 
73
UNDERWRITING
 
80
LEGAL MATTERS
 
83
EXPERTS
 
83
WHERE YOU CAN FIND MORE INFORMATION
 
83
INDEX TO FINANCIAL STATEMENTS
 
F-1
 
You should rely only on the information contained in this prospectus that we have authorized for use in connection with this offering. Neither we nor the underwriters have authorized any other person to provide you with additional or different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the underwriters are making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted. You should assume that the information in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or any sale of our securities. Our business, financial condition, results of operations and prospects may have changed since that date.
 
Industry and Market Data
 
We obtained the industry, market and competitive position data described or referred to in this prospectus from our own internal estimates and research as well as from industry and general publications and research, surveys and studies conducted by third parties. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates.
 
Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.
 
Information contained in, and that can be accessed through, our web site www.dolphinentertainment.com shall not be deemed to be part of this prospectus or incorporated herein by reference and should not be relied upon by any prospective investors for the purposes of determining whether to purchase the securities offered hereunder.
 
 
 
 
 
 
 
 
  PROSPECTUS SUMMARY
 
This summary highlights selected information contained elsewhere in this prospectus.  This summary does not contain all the information that you should consider before investing in the units.  You should carefully read the entire prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements, before making an investment decision.  In this prospectus, the terms “Dolphin,” “company,” “we,” “us” and “our” refer to Dolphin Entertainment, Inc.
 
Our Business
 
We are a leading independent entertainment marketing and premium content development company. Through our recent acquisition of 42West, LLC, we provide expert strategic marketing and publicity services to all of the major film studios, and many of the leading independent and digital content providers, as well as for hundreds of A-list celebrity talent, including actors, directors, producers, recording artists, athletes and authors. The strategic acquisition of 42West brings together premium marketing services with premium content production, creating significant opportunities to serve our respective constituents more strategically and to grow and diversify our business. Our content production business is a long established, leading independent producer, committed to distributing premium, best-in-class film and digital entertainment. We produce original feature films and digital programming primarily aimed at family and young adult markets.

Our Market Opportunity
 
We believe the market for premium content marketing and content development and production is large, growing and rapidly evolving. Drivers of growth in our markets include:
 
             
Global proliferation of high speed data networks and devices among consumers creating more frequent engagement and on demand access to media and content
 
             
Increasing demand for more, engaging and original video content
 
             
Success and growth of new platforms such as Netflix, Amazon, Facebook and more
 
             
Multibillion dollar strategic initiatives by new these new platforms to develop original video content
 
             
Increasing complexity and fragmentation of the media ecosystem driving increased emphasis on and requirements for expert marketing capabilities
 
Entertainment Publicity
 
 On March 30, 2017, we acquired 42West, one of the leading full-service marketing and public-relations firms in the entertainment industry, offering clients preeminent experience, contacts, and expertise. The name 42West symbolizes the agency’s position in the nation’s largest entertainment markets: from Manhattan’s 42nd Street (where the firm got its start) to the West Coast (which it serves from its offices in Los Angeles). 42West’s professional capabilities are equally broad, encompassing talent publicity and strategic communications as well as entertainment, digital, and targeted marketing.
 
 42West grew out of The Dart Group, which was launched by Leslee Dart in 2004. Amanda Lundberg teamed up with Dart a few months later. In 2006, after Allan Mayer joined the partnership, the company was rechristened 42West. Over the next ten years, 42West grew to become the largest independently-owned public-relations firm in the entertainment industry. This past December, the New York Observer listed 42West as one of the six most powerful PR firms of any kind in the United States.

Content Production
 
In addition to 42West’s leading entertainment publicity business, we are dedicated to the production of high-quality digital and motion picture content. We also intend to expand into television production in the near future. Our CEO, William O’Dowd, is an Emmy-nominated producer and recognized leader in family entertainment, with previous productions available in over 300 million homes in more than 100 countries around the world. Mr. O’Dowd received 2017’s prestigious worldwide KidScreen Award for Best New Tween/Teen Series as Executive Producer of sitcom “Raising Expectations,” starring Molly Ringwald and Jason Priestley.
 
 
 
 
 
 
1
 
 
 
 
 
 
Films rated PG or PG-13 constituted 23 of the top 25 domestic grossing films in 2016 and family films are consistently the highest grossing category at the box office. We have developed a production pipeline of feature films and television series aimed at the family market. Furthermore, we have had a dedicated division servicing the digital video market for over 6 years, during which time we have worked with most major ad-supported online distribution channels, including Facebook, Yahoo!, Hulu and AOL. Our digital productions have been recognized for their quality and creativity, earning various awards including two Streamy Awards.
 
Competitive Advantages
 
  We have a long and loyal list of marquee clients. 42West’s list of active clients is both long (upwards of 400 in 2016) and distinguished (including many of the world’s most famous and acclaimed screen and pop stars, its most honored directors and producers, every major movie studio, and virtually every digital platform and content distributor, along with a host of production companies and media firms as well as consumer-product marketers). The extensive A-list nature of 42West’s client list is a huge competitive advantage in an industry where the first question following a new-business pitch is invariably: “Who else is involved?” The firm’s client roster is also highly stable. The churn rate among 42West’s clients is low; many of them have been with the firm for years.
 
A stable and experienced work force, led by an exceptional management team. Our CEO, Mr. O’Dowd, has a 20-year history of producing and delivering high-quality family entertainment. In addition, 42West’s three co-CEO’s, Leslee Dart, Amanda Lundberg, and Allan Mayer, are all longtime PR practitioners, with decades of experience, widely regarded as being among the top communications strategists in the entertainment industry. They lead a staff of roughly 100 PR professionals that is known for both its skill and its longevity. Staff turnover is far below industry norms, and every one of the firm’s six managing directors has been there for more than nine years.
 
We believe that we are one of the only entertainment companies that can offer clients a broad array of interrelated services. We believe that the ability to create content for our 42West clients and the ability to internally develop and execute marketing campaigns for our digital and film productions will allow us to expand and grow each of our business lines. For our 42West clients, celebrities and marketers, the ability to control the content and quality of their digital persona is critical in today’s digital world.  
 
Growth Opportunities
 
 We are focused on driving growth through the following: 
 
Expand and grow 42West to serve more clients with a broad array of interrelated services. As a result of its acquisition by Dolphin, 42West now has the ability to create promotional and marketing content for clients , a critical service for celebrities and marketers alike in today’s digital world. We believe that by adding content creation to 42West’s menu of capabilities, it will provide a great opportunity to capitalize on unique synergies to drive immediate organic growth, which will allow us to both attract new clients and broaden our offering of billable services to existing ones. We also believe that the skills and experience of our 42West business in entertainment PR are readily transferable to related business sectors such as sports or fashion. The growing involvement in non-entertainment businesses by many of our existing entertainment clients has allowed 42West to establish a presence and develop expertise outside its traditional footprint with little risk or expense. Using this as a foundation, we are now working to expand our involvement in these new areas.
 
Organically grow through future synergies between 42West and our digital and film productions . Adding content creation to 42West’s menu of capabilities provides a great opportunity for immediate growth, as it will allow us to both attract new clients and broaden our offering of billable services to existing ones. Furthermore, bringing marketing expertise in-house will allow us to review a prospective digital or film project’s marketing potential prior to making a production commitment, thus allowing our marketing strategy to be a driver of our creative content. In addition, for each project greenlit for production, we can potentially create a comprehensive marketing plan before the start of principal photography, allowing for relevant marketing assets to be created while filming. We can also create marketing campaigns for completed films, across all media channels, including television, print, radio, digital and social media.
 
Opportunistically grow through more complementary acquisitions. We plan to selectively pursue acquisitions in the future, to further enforce our competitive advantages, scale and grow our business and increase profitability. Our acquisition strategy is based on identifying and acquiring companies that complement our existing content production and entertainment publicity services businesses. We believe that complementary businesses, such as data analytics and digital marketing, can create synergistic opportunities and bolster profits and cash flow. 
 
Build a portfolio of premium film, television and digital content. We intend to grow and diversify our portfolio of film and digital content by capitalizing on demand for high quality digital media and film content throughout the world marketplace. We plan to balance our financial risks against the probability of commercial success for each project. We believe that our strategic focus on content and creation of innovative content distribution strategies will enhance our competitive position in the industry, ensure optimal use of our capital, build a diversified foundation for future growth and generate long-term value for our shareholders. Finally, we believe that marketing strategies that will be developed by 42West will drive our creative content, thus creating greater potential for profitability. 
 
Our Company Background
 
We were first incorporated in the State of Nevada on March 7, 1995 and were domesticated in the State of Florida on December 4, 2014. Effective July 6, 2017, we changed our name from Dolphin Digital Media, Inc. to Dolphin Entertainment, Inc. Our principal executive offices are located at 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, Florida 33134. We also have an office located at 10866 Wilshire Boulevard, Suite 800, Los Angeles, California, 90024. 42West, LLC has offices located at 600 3rd Avenue, 23rd Floor, New York, New York, 10016 and 1840 Century Park East, Suite 700, Los Angeles, California 90067. Our telephone number is (305) 774-0407 and our website address is www.dolphinentertainment.com. Neither our website nor any information contained on our website is part of this prospectus.
 
Recent Developments
 
Effective September 14, 2017, we amended our Amended and Restated Articles of Incorporation to effectuate a 1-to-2 reverse stock split. The reverse stock split was approved by our Board of Directors, or the Board, on August 10, 2017 and shareholder approval was not required. Immediately after the reverse stock split, the number of authorized shares of common stock was reduced from 400,000,000 to 200,000,000 shares. 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. Unless otherwise indicated, the numbers set forth in this prospectus have been adjusted to reflect the reverse stock split.
 
 
 
 
 
 
2
 
 
 
 
The Offering
 
The following summary contains basic information about the offering and the securities we are offering and is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the securities we are offering, please refer to the section of this prospectus titled “Description of Securities.”
 
 
 
Securities being offered 
 
$15,000,000 of units, each consisting of one share of common stock and one warrant to purchase        share of common stock at an exercise price of $ per share and.
 
 
 
 
 
 
 
Offering Price
 
$      per unit.
 
 
 
 
 
 
 
Over-allotment option
 
We have granted the underwriters an option for a period of up to 45 days to purchase up to      additional units to cover over-allotments, if any.
 
 
 
 
 
 
 
Underwriters’ warrants
 
The Underwriting Agreement provides that we will issue to the underwriters warrants covering a number of shares of common stock equal to 7% of the total number of shares being sold in the offering, including the over-allotments, if any.
 
 
 
 
 
 
 
Common stock outstanding before this offering 
 
9,367,057 shares of common stock (1)
 
 
 
 
      
 
 
Common stock outstanding after this offering
 
        shares of common stock (or     shares if the underwriters exercise their over-allotment option in full). (2)
 
 
 
 
      
 
 
Common stock underlying the warrants
 
         shares of common stock.
 
 
 
 
 
 
 
Use of proceeds
 
We intend to use the net proceeds from this offering for (i) growth initiatives of our entertainment publicity business, including acquisitions of comparable businesses and groups with public relations expertise, (ii) the budget for our content production business and (iii) general corporate purposes, including working capital. See “Use of Proceeds” for additional information.
 
 
 
 
 
 
 
Risk factors
 
Investing in our securities involves risks. You should read carefully the “Risk Factors” section of this prospectus for a discussion of factors that you should carefully consider before deciding to invest in our securities.
 
 
 
 
 
 
 
OTC Pink Marketplace ticker symbol
 
“DPDM”
 
 
 
 
 
 
 
(1)   The number of shares of our common stock outstanding is based on 9,367,057 shares outstanding as of October 2, 2017, which excludes: 
   1,612,115 shares of our common stock issuable upon the exercise of outstanding warrants having exercise prices ranging from $6.20 to $10.00 per share. For a discussion on the terms of the outstanding warrants, see “Description of Securities - Warrants.”;
  shares of our common stock issuable upon the conversion of 50,000 shares of Series C Convertible Preferred Stock outstanding.  For a discussion of the conditions upon which the shares of Series C Convertible Preferred Stock become convertible, and the number of shares of common stock into which such preferred stock would be convertible upon satisfaction of such conditions, see “Description of Securities - Series C Convertible Preferred Stock”;
  shares of our common stock issuable in connection with the 42West acquisition as follows: (i) 980,911 shares of our common stock that we will issue to the sellers on January 2, 2018 and (ii) up to 981,563 shares of our common stock that we may issue to the sellers based on the achievement of specified financial performance targets over a three-year period as set forth in the membership interest purchase agreement;
● 78,757 shares of our common stock issuable upon the conversion of seven convertible promissory notes in the aggregate principal amount of $725,000 (calculated based on the 90-trading day average price per share as of October 2, 2017). For a discussion of the terms of conversion of the promissory notes and the number of common stock into which such promissory notes would be convertible, see “Description of Securities - Convertible Promissory Notes;” and 
  940,680 shares of our common stock reserved for future issuance under our 2017 Equity Incentive Plan.
In addition, we may be required to purchase up to 1,070,503 shares of our common stock from the sellers during certain specified exercise periods up until December 2020, pursuant to certain put agreements.  For a discussion of the terms of the put agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 
 
(2) Includes the issuance of the shares of common stock sold as part of the units, but excludes the issuances of the shares underlying the warrants issued as part of the units and the underwriters' warrants.
 
Except as otherwise stated herein, the information in this prospectus assumes no exercise by the underwriters of their option to purchase up to an additional       units to cover over-allotments, if any.
 
 
 
 
3
 
 
 
 
 
 
  Summary Consolidated Financial Data and Pro Forma Data
 
The following tables include our summary historical financial data. The historical financial data as of December 31, 2016 and 2015 and for the years ended December 31, 2016 and 2015 have been derived from our audited financial statements, which are included elsewhere in this prospectus. The historical financial data as of December 31, 2014 and for the year ended December 31, 2014 have been derived from our audited financial statements, which are not included in this prospectus. The historical financial data as of June 30, 2017 and for the six months ended June 30, 2017 and 2016 have been derived from our unaudited financial statements, which are included elsewhere in this prospectus. Certain items have been reclassified for presentation purposes. Our financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States. The results indicated below are not necessarily indicative of our future performance.
 
The following tables also include summary unaudited pro forma financial data reflecting our acquisition of 42West that was completed on March 30, 2017. The unaudited pro forma financial data for the year ended December 31, 2016 and the six months ended June 30, 2017 have been derived from the unaudited pro forma combined financial information included elsewhere in this prospectus. The unaudited pro forma financial data for the year ended December 31, 2016 gives effect to the transaction as if it had occurred on January 1, 2016. The unaudited pro forma financial data for the six months ended June 30, 2017 gives effect to the transaction as if it had occurred on January 1, 2017.
 
The financial information set forth below is only a summary. You should read this information together with our “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Selected Financial Data”, “Unaudited Pro Forma Combined Statements of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
 
 
Pro Forma Data:
 
Pro Forma
 
 
Pro Forma
 
 
 
For the year ended
December 31, 2016
 
 
For the six months ended
June 30, 2017
 
 
 
(unaudited)
 
 
(unaudited)
 
Revenues 
  $ 27,959,374  
  $ 13,054,074  
Operating Loss
    (14,989,692 )
    (131,112 )
Net Income (Loss) 
  $ (35,769,543 )
  $ 4,542,982  
Net Income (Loss) attributable to common shareholders 
  $ (41,016,770 )
  $ 4,542,982  
Net loss attributable to common shareholders for fully diluted calculation
  $ (41,016,770 )
  $ (1,746,531 )
 
       
       
Income (Loss) Per share:
       
       
Basic
  $ (6.66 )
  $ 0.52  
Diluted
  $ (6.66 )
  $ (0.18 )
Weighted average number of shares used in per share calculation:
       
       
Basic:
    6,157,425  
    8,661,185  
Diluted:
    6,157,425  
    9,910,688  
  
 
Consolidated Financial Data:
 
 
 
Historical
 
 
Historical
 
 
 
  For the year ended
December 31,
 
 
  For the six months ended
June 30,
 
 
 
2014
 
 
2015 (1)
 
 
2016
 
 
2016
 
 
2017
 
 
 
(audited)
 
 
(unaudited)
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Production and distribution 
  $ 51,192  
  $ 3,031,073  
  $ 9,367,222  
  $ 4,157  
  $ 3,226,962  
Entertainment publicity
    -  
    -  
    -  
    -  
    5,137,556  
Service 
    2,000,000  
    -  
    -  
    -  
    -  
Membership 
    19,002  
    69,761  
    28,403  
    21,028  
    -  
Total Revenue 
    2,070,194  
    3,100,834  
    9,395,625  
    25,185  
    8,364,518  
Loss before other income (expense)
    (1,252,925 )
    (5,373,132 )
    (17,702,264 )
    (2,258,553 )
    (779,092 )
Net Income (Loss) 
  $ (1,873,505 )
  $ (8,836,362 )
  $ (37,189,679 )
  $ (11,247,780 )
  $ 3,402,623  
Net Income (Loss) attributable to common shareholders 
  $ (1,873,505 )
  $ (8,836,362 )
  $ (42,436,906 )
  $ (16,475,027 )
  $ 3,402,623  
Income (Loss) Per Share
       
       
       
       
       
Basic 
  $ (0.92 )
  $ (4.32 )
  $ (9.67 )
  $ (5.45 )
  $ 0.41  
Diluted 
  $ (0.92 )
  $ (4.32 )
  $ (9.67 )
  $ (5.45 )
  $ (0.30 )
Weighted average number of shares used in per share calculation:
       
       
       
       
       
Basic 
    2,047,309  
    2,047,309  
    4,389,097  
    3,025,448  
    8,293,343  
Diluted 
    2,047,309  
    2,047,309  
    4,389,097  
    3,025,448  
    9,542,846  
 
       
       
       
       
       
 
 
As of December 31,
 
 
As of June 30,  
 
 
 
2014
 
 
2015 (1)
 
 
2016
 
 
2017
 
 
 
(audited)
 
 
(unaudited)  
 
 
       
       
       
   Actual  
  Adjusted (2)  
Cash and cash equivalents
  $ 198,470  
  $ 2,392,685  
  $ 662,546  
  1,071,813  
       
Intangible assets
     
     
     
    8,860,667  
       
Goodwill
     
     
     
    14,336,919  
       
Total Assets
  $ 1,493,240  
  $ 21,369,113  
  $ 14,197,241  
  35,544,894  
        
Total Liabilities
    10,285,083  
    54,233,031  
    46,065,038  
    38,569,454  
       
Total Stockholders’ Deficit
    (8,791,843 )
    (32,863,918 )
    (31,867,797 )
    (3,024,560 )
       
 
 
 
 
(1) Financial information has been retrospectively adjusted for the acquisition of Dolphin Films. See Notes 1 and 4 to our consolidated financial statements included elsewhere in this prospectus.
(2) The as adjusted balance sheet data give effect to our issuance and sale of units in this offering at an offering price of $     per unit, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
 
 
 
 
 
4
 
 
RISK FACTORS
 
An investment in our securities involves a high degree of risk. You should carefully consider the risks described below before deciding to purchase our securities. If any of the events, contingencies, circumstances or conditions described in the risks below actually occur, our business, financial condition or results of operations could be seriously harmed. The trading price of our securities could, in turn, decline and you could lose all or part of your investment.
 
Risks Related to our Business and Financial Condition
 
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
 
For each of the years ended December 31, 2016 and 2015, our independent auditors issued an explanatory paragraph in their audit report expressing substantial doubt about our ability to continue as a going concern based upon our net losses and negative cash flows from operations for the years ended December 31, 2016 and 2015 and our levels of working capital as of December 31, 2016 and 2015. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Management is planning to raise any necessary additional funds to fund our operating expenses through loans and additional sales of our common stock, securities convertible into our common stock, debt securities or a combination of such financing alternatives, including the proceeds from this offering; however, there can be no assurance that we will be successful in raising any necessary additional capital. If we are not successful in raising additional capital, we may not have enough financial resources to support our business and operations and, as a result, may not be able to continue as a going concern and could be forced to liquidate.
 
We have a history of net losses and may continue to incur net losses.
 
We have a history of net losses and may be unable to generate sufficient revenue to achieve profitability in the future. For the fiscal year ended December 31, 2016, our net loss was $37,189,679. Although we had net income of $3,402,623 for the six months ended June 30, 2017, it was primarily due to a change in the fair value of the warrant liability. Our accumulated deficit was $96,409,581 and $99,812,204 at June 30, 2017 and December 31, 2016, respectively. Our ability to generate net profit in the future will depend on our ability to successfully produce and commercialize multiple web series and films, as no single project is likely to generate sufficient revenue to cover our operating expenses, and to realize the financial benefits from the operations of 42West. If we are unable to generate net profit at some point, we will not be able to meet our debt service requirements or our working capital requirements. As a result we may need to (i) issue additional equity, which could dilute the value of your share holdings, (ii) sell a portion or all of our assets, including any project rights which might have otherwise generated revenue, or (iii) cease operations.
 
We currently have substantial indebtedness which may adversely affect our cash flow and business operations and may affect our ability to continue to operate as a going concern.
 
We currently have a substantial amount of debt.  We do not currently have sufficient assets to repay such debt in full when due, and our available cash flow may not be adequate to maintain our current operations if we are unable to repay, extend or refinance such indebtedness.  The table below sets forth our total principal amount of debt and stockholders’ equity as of December 31, 2016 and June 30, 2017.  Approximately $4 million of the total debt as of June 30, 2017 represents the fair value of the put options in connection with the 42West acquisition, which may or may not be exercised by the sellers. Approximately $12.9 million of our current indebtedness ($9.7 million outstanding under the prints and advertising loan agreement plus $3.2 million outstanding under the production service agreement) was incurred by our subsidiary Max Steel Holdings LLC and Max Steel Productions, a variable interest entity (or VIE) created in connection with the financing and production of Max Steel (the "Max Steel VIE"). Repayment of these loans was intended to be made from revenues generated by Max Steel in the U.S. and outside of the U.S. These loans are non-recourse to us. Max Steel did not generate sufficient funds to repay either of these loans prior to the maturity date. As a result, we may lose the copyright for Max Steel and, consequently, may no longer receive any revenues from Max Steel .
 
 
 
 
 
 
As of
 
 
As of
 
 
 
December 31,
2016
 
 
June 30,
2017
 
Related party debt
  $ 684,326  
  1,818,659  
Max Steel debt
  18,743,069
  12,892,544
Total Debt (including related party debt)
  $ 19,727,395  
  20,611,203  
Total Stockholders’ Deficit
  $ 31,867,797  
  3,024,560  
 
Our indebtedness could have important negative consequences, including:
 
our ability to obtain additional financing for working capital, capital expenditures, future productions or other purposes may be impaired or such financing may not be available on favorable terms or at all;
 
we may have to pay higher interest rates upon obtaining future financing, thereby reducing our cash flows; and
 
we may need a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, reducing the funds that would otherwise be available for operations and future business opportunities.
 
Our ability to service our indebtedness will depend upon, among other things, our future financial and operating performance and our ability to obtain additional financing, which will be affected by prevailing economic conditions, the profitability of our content production and entertainment publicity businesses and other factors contained in these Risk Factors , some of which are beyond our control.
 
If we are not able to generate sufficient cash to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying digital or film productions, selling assets, restructuring or refinancing our indebtedness or seeking additional debt or equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms or at all and our indebtedness may affect our ability to continue to operate as a going concern.
 
  Litigation or legal proceedings could expose us to significant liabilities.
 
We are, and in the future may become, party to litigation claims and legal proceedings.  For example, 42West was named as one of the defendants in a putative class action alleging fraudulent misrepresentation, negligent misrepresentation, fraud in the inducement, breach of contract, and violation of various state consumer protection laws.  The putative class action, which was filed in the U.S. District Court for the Southern District of Florida on May 5, 2017, alleged that 42West and the other defendants made false and misleading representations in promoting the “Fyre Festival”, which did not live up to the luxury experience that it was represented to be. The plaintiffs seek to certify a nationwide class action and seek damages in excess of $5,000,000 on behalf of themselves and the class.  A class action lawsuit would require significant management time and attention and would result in significant legal expenses.  While we believe the claims against 42West are without merit, regardless of the merit or ultimate results of any litigation, such claims could divert management’s attention and resources from our business, which could harm our financial condition and results of operations.
 
Our management has determined that our disclosure controls and procedures are not effective and we have identified material weaknesses in our internal control over financial reporting.
 
In connection with the preparation of our financial statements for the years ended December 31, 2016 and 2015, our management concluded that our internal control over financial reporting was not effective and we identified several material weaknesses. A material weakness is a   deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In addition, as of December 31, 2016 and June 30, 2017, our management concluded that our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting. The material weaknesses result from the following:
 
 
5
 
 
Design deficiencies related to the entity level control environment, including risk assessment, information and communication and monitoring controls:
 
There is no documented fraud risk assessment or risk management oversight function.
 
There are no documented procedures related to financial reporting matters (both internal and external) to the appropriate parties.
 
There is no budget prepared and therefore monitoring controls are not designed effectively as current results cannot be compared to expectations.
 
There is no documented process to monitor and remediate deficiencies in internal controls.
 
Inadequate documented review and approval of certain aspects of the accounting process including the documented review of accounting reconciliations and journal entries that they considered to be a material weakness in internal control. Specifically:
 
There is no documented period end closing procedures, specifically the individuals that are responsible for preparation, review and approval of period end close functions.
 
Reconciliations are performed on all balance sheet accounts, including noncontrolling interest on at least a quarterly basis; however there is no documented review and approval by a member of management that is segregated from the period end financial reporting process.
 
There is no review and approval for the posting of journal entries.
 
Inadequate segregation of duties within the accounting process, including the following:
 
One individual has the ability to add vendors to the master vendor file. This individual also has access to the company checkbook that is maintained in a secured location.
 
One individual has sole access to our information technology system to initiate, process and record financial information. We have not developed any internal controls related to information technology systems including change management, physical security, access or program development.
 
In order to remediate the other material weaknesses in internal control over financial reporting, we are in the process of finalizing a remediation plan, under the direction of our Board, and intend to implement improvements during fiscal year 2017 as follows:
 
Our Board will review the COSO “Internal Control over Financial Reporting - Guidance for Smaller Public Companies” that was published in 2006 including the control environment, risk assessment, control activities, information and communication and monitoring. Based on this framework, the Board will implement controls as needed assuming a cost benefit relationship. In addition, our Board will also evaluate the key concepts of the updated 2013 COSO “Internal Control – Integrated Framework” as it provides a means to apply internal control to any type of entity
 
Document all significant accounting policies and ensure that the accounting policies are in accordance with accounting principles generally accepted in the U.S. and that internal controls are designed effectively to ensure that the financial information is properly reported. Management will engage independent accounting specialists, if necessary, to ensure that there is an independent verification of the accounting positions taken.
 
 
6
 
 
We will implement a higher standard for document retention and support for all items related to revenue recognition. All revenue arrangements that are entered into by us will be evaluated under the applicable revenue guidance and management should document their position based on the facts and circumstances of each agreement.
 
In connection with the reported inadequately documented review and approval of certain aspects of the accounting process, management has plans to assess the current review and approval processes and implement changes to ensure that all material agreements, accounting reconciliations and journal entries are reviewed and approved on a timely basis and that this review process is documented by a member of management separate from the preparer. A documented quarter end close procedure will be established whereby management will review and approve reconciliations and journal entries. Management will formally approve new vendors that are added to the master vendor file.
 
In connection with the reported inadequate segregation of duties, management intends to hire additional personnel in the accounting and finance area. This will allow for adequate segregation of duties in performing the accounting processes.
 
Each of the material weaknesses described above could result in a misstatement of our accounts or disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weaknesses described above or avoid potential future material weaknesses. If we are unable to report financial information timely and accurately or to maintain effective disclosure controls and procedures, our stock price could be negatively impacted and we could be subject to, among other things, regulatory or enforcement actions by the Securities and Exchange Commission, which we refer to as the SEC or the Commission. 
 
The operation of our business could be adversely affected if Max Steel VIE goes bankrupt or becomes subject to a dissolution or liquidation proceeding.  
 
Max Steel VIE holds certain of our intellectual property and film distribution rights which are security for certain of the Max Steel VIE’s debt obligations.  Max Steel VIE is currently in default on all or a portion of those debt obligations.  If Max Steel VIE is unable to repay such debts and the debt holders foreclose on such debts and take control of  the intellectual property and film distribution rights, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. In addition, if Max Steel VIE undergoes a voluntary or involuntary liquidation proceeding, independent third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our future revenue from such film.
 
 
7
 
 
Entertainment Publicity Business
 
Our business could be adversely affected if we fail to retain the principal sellers, and other key employees of 42West and the clients they serve.
 
The success of our 42West business substantially depends on our ability to retain the services of Leslee Dart, Amanda Lundberg and Allan Mayer, each a former owner of 42West, who we refer to as the principal sellers. If we lose the services of one or more of these individuals, our ability to successfully implement our business plan with respect to our entertainment publicity business and the value of our common stock could be materially adversely affected. Although we entered into three-year employment agreements with each of the principal sellers in connection with the 42West acquisition, there can be no assurance that they will serve the term of their employment agreements or choose to remain with us following the expiration of such terms. In addition, the employees of 42West, and their skills and relationships with clients, are among our most valuable assets. An important aspect of the business’ competitiveness is its ability to retain these key employees. If 42West fails to hire and retain a sufficient number of these key employees, it may have a material adverse effect on our overall business and results of operations.
 
42West’s talent roster currently includes some of the best known and most highly respected members of the entertainment community in addition to major studios and networks, corporations and well-known consumer brands. These clients often form highly loyal relationships with certain public relations and marketing professionals rather than with a particular firm. The employment agreements with the principal sellers currently contain non-competition provisions that will prevent the principal sellers from continuing to provide services to such clients should they leave our company, however, clients are free to engage other public relations and marketing professionals and there can be no assurance that they will choose to remain with our company. The success of the 42West acquisition, therefore, depends on our ability to continue to successfully maintain such client relationships should the principal sellers or other key employees leave our company. If we are unable to retain the current 42West clients or attract new clients, we may lose all of the benefits of the acquisition which would materially adversely affect our business and results of operations.
 
42West operates in a highly competitive industry.
 
The entertainment publicity business is highly competitive. Through 42West, we must compete with other agencies, and with other providers of entertainment publicity services, in order to maintain existing client relationships and to win new clients. The client’s perception of the quality of an agency’s creative work and the agency’s reputation are critical factors in determining its competitive position. 
 
The success of our 42West business depends on its ability to consistently and effectively deliver marketing and public relations services to its clients.
 
42West’s success depends on its ability to effectively and consistently staff and execute client engagements to achieve the clients’ unique personal or professional goals. 42West works to design customized communications or publicity campaigns tailored to the particular needs and objectives of particular projects. In some of its engagements, 42West relies on other third parties to provide some of the services to its clients, and we cannot guarantee that these third parties will effectively deliver their services or that we will have adequate recourse against these third parties in the event they fail to effectively deliver their services. Other contingencies and events outside of our control may also impact 42West’s ability to provide its services. 42West’s failure to effectively and timely staff, coordinate and execute its client engagements may adversely impact existing client relationships, the amount or timing of payments from clients, its reputation in the marketplace and ability to secure additional business and our resulting financial performance. In addition, our contractual arrangements with our clients may not provide us with sufficient protections against claims for lost profits or other claims for damages.
 
If we are unable to adapt to changing client demands, social and cultural trends or emerging technologies, we may not remain competitive and our business, revenues and operating results could suffer.
 
We operate in an industry characterized by rapidly changing client expectations, marketing technologies, and social mores and cultural trends that impact our target audiences. The entertainment industry continues to undergo significant developments as advances in technologies and new methods of message delivery and consumption emerge. These developments drive changes in our target audiences’ behavior to which we must adapt in order to reach our target audiences. In addition, our success depends on our ability to anticipate and respond to changing social mores and cultural trends that impact the entertainment industry and our target audiences. We must adapt our business to these trends, as well as shifting patterns of content consumption and changing behaviors and preferences of our target audiences, through the adoption and exploitation of new technologies. If we cannot successfully exploit emerging technologies or if the marketing strategies we choose misinterpret cultural or social trends and prove to be incorrect or ineffective, any of these could have   a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
 
 
8
 
 
  A significant labor dispute in our clients’ industries could have a material adverse effect on our business.
 
An industry-wide strike or other job action by or affecting the Writers Guild, Screen Actors Guild or other major entertainment industry union could reduce the supply of original entertainment content, which would in turn reduce the demand for our talent and entertainment marketing services. An extensive work stoppage would affect feature film production as well as television and commercial production and could have a material adverse effect on our clients and the motion picture production industry in general. For example, on November 5, 2007, the Writers Guild declared a strike affecting the script writing for television shows and films. The strike, which lasted until February 12, 2008, significantly affected the entertainment industry which consequently, had a material adverse impact on revenue generated by public relations and entertainment marketing agencies. Contracts between entertainment industry unions and the Alliance of Motion Picture and Television Producers, which we refer to as AMPTP, expire from time to time. The failure to finalize and ratify a new agreement with the AMPTP or the failure to enter into new commercial contracts upon expiration of the current contracts could lead to a strike or other job action. Any such severe or prolonged work stoppage could have an adverse effect on the television and/or motion picture production industries and could severely impair our clients’ prospects. Any resulting decrease in demand for our talent and entertainment marketing and other public relations services would have a material adverse effect on our cash flows and results of operations.
 
Clients may terminate or reduce their relationships with us on short notice.
 
42West’s entertainment clients may choose to reduce their relationships with us, on a relatively short time frame and for any reason and can terminate their contracts with us with 30 days’ notice. If a significant number of the 42West clients were to terminate their relationships with us, this could have a material adverse effect upon our business and results of operations.
 
42West’s ability to generate new business from new and existing clients may be limited.
 
To increase its revenues, 42West needs to obtain additional clients or generate demand for additional services from existing clients. 42West’s ability to generate initial demand for its services from new clients and additional demand from existing clients is subject to such clients’ and potential clients’ needs, trends in the entertainment industry, financial conditions, strategic plans and internal resources of corporate clients, as well as the quality of 42West’s employees, services and reputation. To the extent 42West cannot generate new business from new or existing clients due to these limitations, the ability of 42West to grow its business, and our ability to increase our revenues, will be limited.
 
42West’s revenues are susceptible to declines as a result of unfavorable economic conditions.
 
Economic downturns often severely affect the marketing services industry. Some of our corporate clients may respond to weak economic performance by reducing their marketing budgets, which are generally discretionary in nature and easier to reduce in the short-term than other expenses related to operations. In addition, economic downturns could lead to reduced public demand for varying forms of entertainment for which we are engaged to provide public relations and media strategy and promotional services. Such reduced demand for our services could have a material adverse effect on our revenues and results of operations.
 
Content Production Business
 
Our content production business requires a substantial investment of capital and failure to access sufficient capital while awaiting delayed revenues will have a material adverse effect on our results of operation.
 
The production, acquisition and distribution of film or digital media content require a significant amount of capital. The budget for the projects we plan to produce will require between $6 and $8 million to produce. In addition, if a distributor does not provide the funds for the distribution and marketing of our film, we will require additional capital to distribute and market the film. We estimate distribution and marketing fees to be approximately $10,000 per theatrical screen. A significant amount of time may elapse between our expenditure of funds and the receipt of revenues from our productions. Our content production business does not have a traditional credit facility with a financial institution on which to depend for our liquidity needs and a time lapse may require us to fund a significant portion of our capital requirements through related party transactions with our CEO or other financing sources. There can be no assurance that any additional financing resources will be available to us as and when required, or on terms that will be acceptable to us. Our inability to raise capital necessary to sustain our operations while awaiting delayed revenues would have a material adverse effect on our liquidity and results of operations.
 
 
9
 
 
Our success is highly dependent on audience acceptance of our films and digital media productions, which is extremely difficult to predict and, therefore, inherently risky.
 
We cannot predict the economic success of any of our films because the revenue derived from the distribution of a film (which does not necessarily directly correlate with the production or distribution costs incurred) depends primarily upon its acceptance by the public, which cannot be accurately predicted. The economic success of a film also depends upon the public’s acceptance of competing films, the availability of alternative forms of entertainment and leisure-time activities, general economic conditions and other tangible and intangible factors, all of which can change and cannot be predicted with certainty.
 
The economic success of a film is largely determined by our ability to produce content and develop stories and characters that appeal to a broad audience and by the effective marketing of the film. The theatrical performance of a film is a key factor in predicting revenue from post-theatrical markets. If we are unable to accurately judge audience acceptance of our film content or to have the film effectively marketed, the commercial success of the film will be in doubt, which could result in costs not being recouped or anticipated profits not being realized. Moreover, we cannot assure you that any particular feature film will generate enough revenue to offset its distribution, fulfillment services and marketing costs, in which case we would not receive any revenues for such film from our distributors.
  
In addition, changing consumer tastes affect our ability to predict which digital media productions will be popular with web audiences. As we invest in various digital projects, stars and directors, it is highly likely that at least some of the digital projects in which we invest will not appeal to our target audiences. If we are unable to produce web content that appeals to our target audiences the costs of such digital media productions could exceed revenues generated and anticipated profits may not be realized. Our failure to realize anticipated profits could have a material adverse effect on our results of operations.
 
We may incur significant write-offs if our feature films and other projects do not perform well enough to recoup production, marketing, distribution and other costs.
 
We are required to amortize capitalized production costs over the expected revenue streams as we recognize revenue from our films or other projects. The amount of production costs that will be amortized each quarter depends on, among other things, how much future revenue we expect to receive from each project. Unamortized production costs are evaluated for impairment each reporting period on a project-by-project basis. If estimated remaining revenue is not sufficient to recover the unamortized production costs, the unamortized production costs will be written down to fair value. In any given quarter, if we lower our previous forecast with respect to total anticipated revenue from any individual feature film or other project, we may be required to accelerate amortization or record impairment charges with respect to the unamortized costs, even if we have previously recorded impairment charges for such film or other project. For example, in the year ended December 31, 2016, we recorded a $2 million impairment of the capitalized production costs for our feature film, Max Steel . Such impairment charges have had and in the future could have, a material adverse impact on our business, operating results and financial condition.
 
In the past, we purchased several scripts and project ideas for our digital media productions totaling approximately $0.6 million that failed to generate interest among distributors or advertisers. As a result of the write off of the costs incurred in purchasing such scripts and project ideas, our operating results were negatively impacted.
 
Our content production business is currently substantially dependent upon the success of a limited number of film releases and digital media productions each year and the unexpected delay or commercial failure of any one of them could have a material adverse effect on our financial results and cash flows.
 
We generally expect to release one to two feature films and one digital production in the next year. The unexpected delay in release or commercial failure of just one of these films or digital media productions could have a significant adverse impact on our results of operations and cash flows in both the year of release and in the future. Historically, feature films that are successful in the domestic theatrical market are generally also successful in the international theatrical and ancillary markets, although each film is different and there is no way to guarantee such results. If our films fail to achieve domestic box office success, their success in the international box office and ancillary markets and our business, results of operations and financial condition could be adversely affected. Further, we can make no assurances that the historical correlation between results in the domestic box office and results in the international box office and ancillary markets will continue in the future. If our feature films do not perform well in the domestic or international theatrical markets and ancillary markets, or our digital media productions do not perform as anticipated, the failure of any one of these could a material adverse effect on our financial results and cash flows.
 
 
10
 
 
Delays, cost overruns, cancellation or abandonment of the completion or release of our web series or films may have an adverse effect on our business.
 
There are substantial financial risks relating to production, completion and release of web series and films. Actual costs may exceed their budgets due to factors   such as labor disputes, unavailability of a star performer, equipment shortages, disputes with production teams or adverse weather conditions, any of which may cause cost overruns and delay or hamper film completion. We are typically responsible for paying all production costs in accordance with a budget and receive a fixed producer’s fee for our services plus a portion of any project income. However to the extent that delays or cost overruns result in us not completing the web series or film within budget, there may not be enough funds left to pay us our producer’s fee, to generate any project income or complete the project at all. If this were to occur, it would significantly and adversely affect our revenue and results of operations.
 
We rely on third party distributors to distribute our films and their failure to perform or promote our films could negatively impact our ability to generate revenues and have a material adverse effect on our operating results.
 
Our films are primarily distributed and marketed by third party distributors. If any of these third party distributors fails to perform under their respective arrangements, such failure could negatively impact the success of our films and have a material adverse effect on our business, reputation and ability to generate revenues.
 
We generally do not control the timing and manner in which our distributors distribute our films; their decisions regarding the timing of release and promotional support are important in determining success. Any decision by those distributors not to distribute or promote one of our films or to promote our competitors’ films or related products to a greater extent than they promote ours could have a material adverse effect on our business, cash flows and operating results.
 
We rely on third party relationships with online digital platforms for our advertising revenue and we may be unable to secure such relationships.
 
We anticipate entering into distribution agreements containing revenue share provisions with online digital platforms to distribute our digital media productions. Pursuant to these revenue share provisions, we will earn a portion of advertising revenues once our digital media productions are distributed online. If we fail to secure such relationships with online digital platforms, we will not be able to earn advertising revenues from our digital projects, which could have a material adverse effect on our liquidity and results of operations. In addition, some of our distributors have moved from an advertisement-based model to a subscription-based model which makes it more difficult for us to use our funding and distribution methods.
 
We may be unable to attract or retain advertisers, which could negatively impact our results of operation.
 
Typically, online digital platforms are responsible for securing advertisers and, as such, our ability to earn advertising revenues would depend on their success in doing so. However, at times we have, and may continue to, proactively secure advertising commitments against anticipated web series. Our ability to retain advertisers is contingent on our ability to successfully complete and deliver online projects which are commercially successful, which we may fail to do. Advertising revenues could also be adversely impacted by factors outside our control such as failure of our digital media productions to attract our target viewer audiences, lack of future demand for our digital media productions, the inability of third party online digital platforms to deliver ads in an effective manner, competition for advertising revenue from existing competitors or new digital media companies, declines in advertising rates, adverse legal developments relating to online advertising, including legislative and regulatory developments and developments in litigation. The existence of any of these factors could result in a decrease of our anticipated advertising revenues.
 
Our success depends on the services of our CEO.
 
Our success greatly depends on the skills, experience and efforts of our CEO, Mr. O’Dowd. We do not have an employment agreement with Mr. O’Dowd.  If Mr. O’Dowd resigns or becomes unable to continue in his present role and is not adequately replaced, the loss of his services could have a material adverse effect on our business, operating results or financial condition.
 
 
11
 
 
Risks Related to our Industry
 
The popularity and commercial success of our digital media productions and films are subject to numerous factors, over which we may have limited or no control.
 
The popularity and commercial success of our digital media productions and films depends on many factors including, but not limited to, the key talent involved, the timing of release, the promotion and marketing of the digital media production or film, the quality and acceptance of other competing productions released into the marketplace at or near the same time, the availability of alternative forms of entertainment, general economic conditions, the genre and specific subject matter of the digital media production or film, its critical acclaim and the breadth, timing and format of its initial release. We cannot predict the impact of such factors on any digital media production or film, and many are factors that are beyond our control. As a result of these factors and many others, our digital media productions and films may not be as successful as we anticipate, and as a result, our results of operations may suffer. 
 
The creation of content for the entertainment industry is highly competitive and we will be competing with companies with much greater resources than we have.
 
The business in which we engage is highly competitive. Our primary business operations are subject to competition from companies which, in many instances, have greater development, production and distribution and capital resources than us. We compete for the services of writers, producers, directors, actors and other artists to produce our digital media and motion picture content, as well as for advertisement dollars. Larger companies have a broader and more diverse selection of scripts than we do, which translates to a greater probability that they will be able to more closely fit the demands and interests of advertisers than we can.
 
As a small independent producer, we compete with major U.S. and international studios. Most of the major U.S. studios are part of large diversified corporate groups with a variety of other operations that can provide both the means of distributing their products and stable sources of earnings that may allow them better to offset fluctuations in the financial performance of their film and other operations. In addition, the major studios have more resources with which to compete for ideas, storylines and scripts created by third parties, as well as for actors, directors and other personnel required for production. Such competition for the industry’s talent and resources may negatively affect our ability to acquire, develop, produce, advertise and distribute digital media and motion picture content.
 
We must successfully respond to rapid technological changes and alternative forms of delivery or storage to remain competitive.
 
The entertainment industry continues to undergo significant developments as advances in technologies and new methods of product delivery and storage, and certain changes in consumer behavior driven by these developments emerge. New technologies affect the demand for our content, the manner in which our content is distributed to consumers, the sources and nature of competing content offerings and the time and manner in which consumers acquire and view our content. We and our distributors must adapt our businesses to shifting patterns of content consumption and changing consumer behavior and preferences through the adoption and exploitation of new technologies. If we cannot successfully exploit these and other emerging technologies, it could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
 
We rely on information technology systems and could face cybersecurity risks.
 
We rely on information technologies and infrastructure to manage our business, including digital storage of marketing strategies, client information, films and digital programming and delivery of digital marketing services. Data maintained in digital form is subject to the risk of intrusion, tampering and theft. The incidence of malicious technology-related events, such as cyberattacks, computer hacking, computer viruses, worms or other destructive or disruptive software, denial of service attacks or other malicious activities is on the rise worldwide. Power outages, equipment failure, natural disasters (including extreme weather), terrorist activities or human error may also affect our systems and result in disruption of our services or loss or improper disclosure of personal data, business information or other confidential information.
 
 
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Likewise, data privacy breaches, as well as improper use of social media, by employees and others may pose a risk that sensitive data, such as personally identifiable information, strategic plans and trade secrets, could be exposed to third parties or to the general public. We also utilize third parties, including third-party “cloud” computing services, to store, transfer or process data, and system failures or network disruptions or breaches in the systems of such third parties could adversely affect its reputation or business. Any such breaches or breakdowns could expose us to legal liability, be expensive to remedy, result in a loss of clients or clients’ proprietary information and damage our reputation. Efforts to develop, implement and maintain security measures are costly, may not be successful in preventing these events from occurring and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become more sophisticated.
 
We have and may in the future be adversely affected by union activity.
 
We retain the services of actors who are covered by collective bargaining agreements with Screen Actors Guild – American Federation of Television and Radio Artists, which we refer to as SAG-AFTRA, and we may also become signatories to certain guilds such as Directors Guild of America and Writers Guild of America in order to allow us to hire directors and talent for our productions. Collective bargaining agreements are industry-wide agreements, and we lack practical control over the negotiations and terms of these agreements. In addition, our digital projects fall within SAG-AFTRA’s definition of “new media”, which is an emerging category covered by its New Media and Interactive Media Agreements for actors. As such, our ability to retain actors is subject to uncertainties that arise from SAG-AFTRA’s administration of this relatively new category of collective bargaining agreements. Such uncertainties have resulted and may continue to result in delays in production of our digital projects.
 
In addition, if negotiations to renew expiring collective bargaining agreements are not successful or become unproductive, the union could take actions such as strikes, work slowdowns or work stoppages. Strikes, work slowdowns or work stoppages or the possibility of such actions could result in delays in production of our digital projects. We could also incur higher costs from such actions, new collective bargaining agreements or the renewal of collective bargaining agreements on less favorable terms. Depending on their duration, union activity or labor disputes could have an adverse effect on our results of operations.
 
Others may assert intellectual property infringement claims or liability claims for digital media or film content against us which may force us to incur substantial legal expenses.
 
There is a possibility that others may claim that our productions and production techniques misappropriate or infringe the intellectual property rights of third parties with respect to their previously developed web series, films, stories, characters, other entertainment or intellectual property. In addition, as distributors of digital media and film content, we may face potential liability for such claims as defamation, invasion of privacy, negligence, copyright or trademark infringement or other claims based on the nature and content of the materials distributed. If successfully asserted, our insurance may not be adequate to cover any of the foregoing claims. Irrespective of the validity or the successful assertion of such claims, we could incur significant costs and diversion of resources in defending against them, which could have a material adverse effect on our operating results.
 
If we fail to protect our intellectual property and proprietary rights adequately, our business could be adversely affected.
 
Our ability to compete depends, in part, upon successful protection of our intellectual property. We attempt to protect proprietary and intellectual property rights to our productions through available copyright and trademark laws and distribution arrangements with companies for limited durations. Unauthorized parties may attempt to copy aspects of our intellectual property or to obtain and use property that we regard as proprietary. We cannot assure you that our means of protecting our proprietary rights will be adequate. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as the laws of the United States. Intellectual property protections may also be unavailable, limited or difficult to enforce in some countries, which could make it easier for competitors to steal our intellectual property. Our failure to protect adequately our intellectual property and proprietary rights could adversely affect our business and results of operations.
 
 
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Our online activities are subject to a variety of laws and regulations relating to privacy and child protection, which, if violated, could subject us to an increased risk of litigation and regulatory actions.
 
In addition to our company websites and applications, we use third-party applications, websites, and social media platforms to promote our digital media productions and engage consumers, as well as monitor and collect certain information about users of our online forums. A variety of laws and regulations have been adopted in recent years aimed at protecting children using the internet such as the Children’s Online Privacy and Protection Act of 1998, which we refer to as COPPA. COPPA sets forth, among other things, a number of restrictions on what website operators can present to children under the age of 13 and what information can be collected from them. Many foreign countries have adopted similar laws governing individual privacy, including safeguards which relate to the interaction with children. If our online activities were to violate any applicable current or future laws and regulations, we could be subject to litigation and regulatory actions, including fines and other penalties.
 
  Risks Related to Acquisitions
 
We are subject to risks associated with acquisitions and we may not realize the anticipated benefits of such acquisitions.
 
We have in the past completed acquisitions, and may in the future engage in discussions and activities with respect to possible acquisitions, intended to complement or expand our business, some of which may be significant transactions for us. For example, in March 2016, we acquired Dolphin Films, a content producer of motion pictures, and on March 30, 2017, we acquired 42West, a full-service entertainment marketing agency. Identifying suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to identify suitable candidates or complete acquisitions in a timely manner, on a cost-effective basis or at all.
 
Even if we complete an acquisition, we may not realize the anticipated benefits of such transaction. Our recent acquisitions have required, and any similar future transactions may also require, significant efforts and expenditures, including with respect to integrating the acquired business with our historical business. We may encounter unexpected difficulties, or incur unexpected costs, in connection with acquisition activities and integration efforts, which include:
 
diversion of management attention from managing our historical core business;
 
potential disruption of our historical core business or of the acquired business;
 
the strain on, and need to continue to expand, our existing operational, technical, financial and administrative infrastructure;
 
inability to achieve synergies as planned;
 
challenges in controlling additional costs and expenses in connection with and as a result of the acquisition;
 
dilution to existing shareholders from the issuance of equity securities;
 
becoming subject to adverse tax consequences or substantial depreciation;
 
difficulties in assimilating employees and corporate cultures or in integrating systems and controls;
 
difficulties in anticipating and responding to actions that may be taken by competitors;
 
difficulties in realizing the anticipated benefits of the transaction;
 
 
 
14
 
 
inability to generate sufficient revenue from acquisitions to offset the associated acquisition costs;
 
potential loss of key employees, key clients or other partners of the acquired business as a result of the change of ownership; and
 
the assumption of and exposure to unknown or contingent liabilities of the acquired businesses.
 
If any of our acquisitions do not perform as anticipated for any of the reasons noted above or otherwise, there could be a negative impact on our results of operations and financial condition.
 
Any due diligence by us in connection with potential future acquisition may not reveal all relevant considerations or liabilities of the target business, which could have a material adverse effect on our financial condition or results of operations.
 
We intend to conduct such due diligence as we deem reasonably practicable and appropriate based on the facts and circumstances applicable to any potential acquisition. The objective of the due diligence process will be to identify material issues which may affect the decision to proceed with any one particular acquisition target or the consideration payable for an acquisition. We also intend to use information revealed during the due diligence process to formulate our business and operational planning for, and our valuation of, any target company or business. While conducting due diligence and assessing a potential acquisition, we may rely on publicly available information, if any, information provided by the relevant target company to the extent such company is willing or able to provide such information and, in some circumstances, third party investigations.
 
There can be no assurance that the due diligence undertaken with respect to an acquisition, including the Dolphin Films acquisition or the 42West acquisition, will reveal all relevant facts that may be necessary to evaluate such acquisition including the determination of the price we may pay for an acquisition target or to formulate a business strategy. Furthermore, the information provided during due diligence may be incomplete, inadequate or inaccurate. As part of the due diligence process, we will also make subjective judgments regarding the results of operations, financial condition and prospects of a potential target. For example, the due diligence we conducted in connection with the Dolphin Films acquisition and the 42West acquisition may not have been complete, adequate or accurate and may not have uncovered all material issues and liabilities to which we are now subject. If the due diligence investigation fails to correctly identify material issues and liabilities that may be present in a target company or business, or if we consider such material risks to be commercially acceptable relative to the opportunity, and we proceed with an acquisition, we may subsequently incur substantial impairment charges or other losses.
 
 In addition, following an acquisition, including the Dolphin Films acquisition and the 42West acquisition, we may be subject to significant, previously undisclosed liabilities of the acquired business that were not identified during due diligence and which could contribute to poor operational performance, undermine any attempt to restructure the acquired company or business in line with our business plan and have a material adverse effect on our financial condition and results of operations.
 
Claims against us relating to any acquisition may necessitate our seeking claims against the seller for which the seller may not indemnify us or that may exceed the seller’s indemnification obligations.
 
As discussed above, there may be liabilities assumed in any acquisition that we did not discover or that we underestimated in the course of performing our due diligence. Although a seller generally will have indemnification obligations to us under an acquisition or merger agreement, these obligations usually will be subject to financial limitations, such as general deductibles and maximum recovery amounts, as well as time limitations, as was the case in the 42West acquisition. We cannot assure you that our right to indemnification from any seller will be enforceable, collectible or sufficient in amount, scope or duration to fully offset the amount of any undiscovered or underestimated liabilities that we may incur. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and operating results. 
 
 
15
 
 
Risks Related to our Common Stock and Preferred Stock
 
We have recently issued, and may in the future issue, a significant amount of equity securities and, as a result, your ownership interest in our company has been, and may in the future be, substantially diluted and your investment in our common stock could suffer a material decline in value.
 
From January 1, 2016 to October 2, 2017, the number of shares of our common stock issued and outstanding has increased from 2,047,309 (adjusted for a 1-to-20 reverse stock split on May 10, 2016 and further adjusted for a 1-to-2 reverse stock split on September 14, 2017) to 9,367,057 shares. Of this amount, approximately 2,832,880 shares of common stock have been issued in private placements as payment to certain holders of our Company’s debt pursuant to debt exchange agreements. Consequently, we have not received any cash proceeds in connection with such issuances of common stock. In addition, 762,500 shares of common stock were issued in private placements pursuant to subscription agreements. Generally, these subscription agreements and debt exchange agreements provide for past or future purchases of, or exchanges of debt for, our common stock at a price of $10.00 per share which, upon each exercise or exchange thus far, has been below the market price of our common stock. In addition, during 2016, we issued Warrants G, H, I, J and K. Warrants G, H and I are exercisable for an aggregate of 1,250,000 shares of common stock and originally had exercise prices ranging from $10.00 to $14.00 per share. As of June 30, 2017, Warrants G, H and I were exercisable at a price of $9.22 per share. Warrants J and K were issued in exchange for debt, and to purchase the remaining membership interests in Dolphin Kids Club, and were exercised for an aggregate of 1,170,000 shares of common stock at an exercise price of $0.03 per share. Furthermore, as consideration for our 42West acquisition, we (i) issued 615,140 shares of common stock on the closing date, 172,275 shares of common stock to certain 42West employees on April 13, 2017 and 59,320 shares of common stock as employee stock bonuses on August 21, 2017 and (ii) will issue 980,911 shares of common stock on January 2, 2018. In addition, we may issue up to 981,563 shares of common stock based on the achievement of specified financial performance targets over a three-year period. Subsequent to the quarter ended June 30, 2017, we also issued seven convertible promissory notes in the aggregate amount of $725,000   that are convertible into 78,757 shares of our common stock (calculated based on the 90-trading day average price per share as of October 2, 2017) . As a result of these past issuances and potential future issuances, your ownership interest in our company has been, and may in the future be, substantially diluted. The market price for our common stock has been volatile in the past, and these issuances could cause the price of our common stock to fluctuate substantially in the future. In addition, we have historically experienced significantly low trading volumes. Once restricted stock issued in the private placements and in the 42West acquisition becomes freely tradable, these current or future shareholders may decide to trade their shares of common stock and, if our stock is thinly traded, this could have a material adverse effect on its market price.
 
In the near term, we will need to raise additional capital and may seek to do so by conducting one or more private placements of equity securities, securities convertible into equity securities or debt securities, selling additional securities in a registered public offering, or through a combination of one or more of such financing alternatives, including the proceeds from this offering. Such issuances of additional securities would further dilute the equity interests of our existing shareholders, perhaps substantially, and may further exacerbate any or all of the above risks.
 
  The Series C Convertible Preferred Stock has anti-dilution protections and super voting rights that may adversely affect our shareholders.
 
For a period of five years from March 7, 2016, the date of issuance, the Series C Convertible Preferred Stock, which are all held by Mr. O’Dowd, will have certain anti-dilution protections. Upon triggers specified in the Series C Certificate of Designation, the number of shares of common stock into which Series C Convertible Preferred Stock held by Mr. O’Dowd (or any entity directly or indirectly controlled by Mr. O’Dowd) can be converted will be increased, such that the total number of shares of common stock held by Mr. O’Dowd (or any entity directly or indirectly controlled by Mr. O’Dowd) (based on the number of shares of common stock held as of the date of issuance) will be preserved at the same percentage of shares of common stock outstanding held by such persons on such date. As a result, your ownership interests may be further diluted.
 
Except as required by law, holders of Series C Convertible Preferred Stock will only have voting rights once the independent directors of the Board determine that an optional conversion threshold (as defined in the Series C Certificate of Designation) has occurred. Upon such determination by the Board, a holder of Series C Convertible Preferred Stock (Mr. O’Dowd) will be entitled to super voting rights of three votes for each share of common stock into which such holder’s shares of Series C Convertible Preferred Stock could then be converted. Holders of Series C Convertible Preferred Stock will be entitled to vote together as a single class on all matters upon which common stock holders are entitled to vote. Your voting rights will be diluted as a result of these super voting rights. In addition, the anti-dilution protections may result in an increase in the number of shares of common stock into which Series C Convertible Preferred Stock held by Mr. O’Dowd and certain eligible persons can be converted, which could further dilute your percentage of voting rights. 
 
 
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If you purchase the securities sold in this offering, the exercise price of certain outstanding warrants will be reduced and you will experience immediate dilution in your investment.
 
As of September 30, 2017, we have 1,262,115 warrants to purchase shares of our common stock which contain full ratchet anti-dilution price protection (the “Warrants”).  This generally means that if we issue certain additional securities while the Warrants are outstanding at a price or with an exercise price less than the then current exercise price of the Warrants, the exercise price of those Warrants would be reduced to this lower sale price or exercise price. The Warrants were initially exercisable at $10.00 to $14.00 per share. The initial exercise price of the Warrants was reset to $9.22 per share in connection with the acquisition of 42West described elsewhere in this prospectus. If the price paid in this offering is below $9.22 per share, the exercise price of the Warrants will be reduced to such price making it more likely that the Warrants will be exercised which will result in additional dilution to our shareholders and may make it more difficult to raise additional capital in future periods.
 
Changes in the fair value of warrants to purchase shares of our common stock may have a material impact on, and result in significant volatility in, our reported operating results.
 
We have determined that our Series G Warrants, Series H Warrants and Series I Warrants to purchase shares of our common stock should be accounted for as derivatives. These warrants require us to “mark to market” (i.e., record the derivatives at fair value) based on the price as of the end of each reporting period as liabilities on our balance sheet and to record the change in fair value during each period as income or expense in our current period consolidated statements of operations. The fair value is most sensitive to changes, at each valuation date, in our common stock price, the volatility rate assumption, and the exercise price, which could change if we were to do a dilutive future financing (such as this offering). This accounting treatment could have a material impact on, and could significantly increase the volatility of, our reported operating results, even though there is no related cash flow impact to us.
 
Accounting for the put rights could cause variability in the results we report.
 
In connection with the 42West acquisition, we granted put rights to the sellers to cause us to purchase up to an aggregate of 1,187,094 of their shares of common stock received as consideration for a purchase price equal to $9.22 per share during certain specified exercise periods set forth in the put agreements up until December 2020. As of the date of this prospectus, we have repurchased an aggregate of 116,591 shares of common stock from the sellers pursuant to the put rights. The put rights are an embedded equity derivative within our common stock requiring certain fair value measurements at each reporting period. We record the fair value of the liability in the consolidated balance sheets and we record changes to the liability against earnings or loss in the consolidated statements of operations. The put rights are inherently difficult to value. Additionally, derivative accounting for the put rights also affects the accounting for other items in our financial statements, including our exercisable warrants, and these effects are inherently difficult to determine, require difficult estimates and are very subjective. We could have substantial variability in the related periodic fair value measurements, which would affect our operating results and in turn could impact our stock price.
 
Our common stock is quoted only on the OTC Pink Marketplace, which may have an unfavorable impact on our stock price and liquidity.
 
Our common stock is quoted on the OTC Pink Marketplace. The OTC Pink Marketplace is a significantly more limited market than the New York Stock Exchange or NASDAQ system. The quotation of our shares on the OTC Pink Marketplace may result in an illiquid market available for existing and potential shareholders to trade shares of our common stock and depress the trading price of our common stock, and may have a long-term adverse impact on our ability to raise capital in the future.
 
You may experience additional dilution as a result of future equity offerings.
 
In order to raise additional capital, we have issued equity securities in the past and may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not be the same as the price per unit in this offering. The price per share at which we sell additional shares of our common stock, or securities convertible or exchangeable into common stock, in future transactions, may be lower than the price per share paid by investors in this offering.
 
 
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Risks Related to the Offering
 
We will have broad discretion as to the use of the net proceeds from this offering, and we may not use the proceeds effectively.
 
We currently intend to use the net proceeds received from the sale of the securities for (i) growth initiatives of our entertainment publicity business, including acquisitions of comparable businesses and groups with public relations expertise, (ii) the budget for our content production business and (iii) general corporate purposes, including working capital. Our management has broad discretion over how these proceeds are used and could spend the proceeds in ways with which you may not agree. Pending the use of the proceeds in this offering, we will invest them. However, the proceeds may not be invested in a manner that yields a favorable or any return.
 
You will experience immediate and substantial dilution in the book value of the shares you purchase in this offering.
 
The offering price is substantially higher than the net tangible book value per share of our outstanding common stock. As a result, based on our capitalization as of June 30, 2017, you will incur immediate dilution in the book value of the shares you purchase in the offering. Based upon the issuance and sale of the units on an assumed closing date of      , 2017 at an assumed public offering price of $     per unit, you will incur immediate dilution of approximately $      in the net tangible book value per share if you purchase units in this offering. In addition to this offering, subject to market conditions and other factors, we may pursue additional financings in the future, as we continue to build our business, which may result in further dilution to you.
 
Future sales of our common stock by our existing shareholders may negatively impact the trading price of our common stock.
 
If a substantial number of our existing shareholders decide to sell shares of their common stock in the public market following the completion of this offering, the price at which our common stock trades could decline. Additionally, the public market’s perception that such sales might occur may also depress the price of our common stock.
 
The warrants may not have any value.
 
The warrants will be exercisable for      years from the date of the closing of the offering at an initial exercise price per share equal to $       . In the event that the price of a share does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value.
 
Holders of the warrants will have no rights as a shareholder until they acquire our common stock.
 
Until you acquire shares upon exercise of your warrants, you will have no rights with respect to our common stock. Upon exercise of your warrants, you will be entitled to exercise the rights of a common shareholder only as to matters for which the record date occurs after the exercise date.
 
An effective registration statement may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise his, her or its warrants at that time.
 
No warrant held by an investor will be exercisable and we will not be obligated to issue common stock unless at the time such holder seeks to exercise such warrant, a prospectus relating to the common stock issuable upon exercise of the warrant is current (or an exemption from registration is available) and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the warrant agreement, we have agreed to use our best efforts to meet these conditions and to maintain a current prospectus relating to the common stock issuable upon exercise of the warrants until the expiration of the warrants. However, we cannot assure you that we will be able to do so, and if we do not maintain a current prospectus related to the common stock issuable upon exercise of the warrants (and an exemption from registration is not available), holders will be unable to exercise their warrants and we will not be required to net cash settle any such warrant exercise. If we are unable to issue the shares upon exercise of the warrants by an investor because there is no current prospectus relating to the common stock issuable upon exercise of the warrant (and an exemption from registration is not available) or the common stock has not been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants, the warrants will not expire until ten days after the date we are first able to issue the shares. Nevertheless, because an investor may not be able to exercise the warrants at the most advantageous time, the warrants held by an investor may have no value, the market for such warrants may be limited and such warrants may expire worthless.
 
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus may contain “forward-looking statements” that involve certain risks and uncertainties. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and intentions and are not historical facts and typically are identified by use of terms such as “may,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” and similar words, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included herein represent management’s current judgment and expectations, but our actual results, events and performance could differ materially from those in the forward-looking statements. Specifically, this prospectus contains forward-looking statements regarding:
 
our expectations regarding the potential benefits and synergies we can derive from our acquisitions;
 
our expectations to offer clients a broad array of interrelated services, the impact of such strategy on our future profitability and growth and our belief regarding our resulting market position;
 
our expectations regarding the growth potential of the content marketing, development and production markets;
 
our intention to expand into television production in the near future;
 
our belief regarding the transferability of 42West’s skills and experience to related business sectors and our intention to expand our involvement in those areas;
 
our intention to grow and diversify our portfolio of film and digital content and our beliefs regarding our strategies to accomplish such growth and diversification;
 
our beliefs regarding the impact of our strategic focus on content and creation of innovative content distribution strategies on our competitive position in the industry, use of capital, growth and long-term shareholder value;
 
our plan to balance our financial risks against the probability of commercial success for each project;
 
our intention to selectively pursue complementary acquisitions to enforce our competitive advantages, scale and grow and our belief that such acquisitions will create synergistic opportunities and increased profits and cash flows;
 
our expectations concerning our ability to derive future cash flows and revenues from the production, release and advertising of future web series on online platforms, and the timing of receipt of such cash flows and revenues;
 
our expectations concerning the timing of production and distribution of future feature films and digital projects;
 
our intention to source potential distribution partners for our web series, South Beach – Fever, and to enter into distribution agreements for future digital productions;
 
our expectation that we will continue to receive revenues from our motion picture, Max Steel from (i) international revenues expected to be derived through license agreements with international distributors and (ii) other secondary distribution revenues;
 
our intention to use our purchased scripts for future motion picture and digital productions;
 
 
 
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our expectations to raise funds through loans, additional sales of our common stock, securities convertible into our common stock, debt securities or a combination of financing alternatives, including the proceeds from this offering;
 
our beliefs regarding the merits of claims asserted in the class action against 42West and other defendants and our defenses against such claims; and
 
our intention to implement improvements to address material weaknesses in internal control over financial reporting.
 
 These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:
 
our ability to realize the anticipated benefits of the 42West acquisition, including synergies, expanded interrelated service offerings, growth and increased revenues;
 
our ability to accurately predict 42West’s clients’ acceptance of our differentiated business model that offers interrelated services;
 
our ability to profitably exploit the transferability of 42West’s skills and experience to related business sectors;
 
our ability to successfully identify and complete acquisitions in line with our growth strategy, and to realize the anticipated benefits of those acquisitions;
 
our ability to accurately interpret trends and predict future demand in the digital media and film industries;
 
our ability to repay our P&A Loan in accordance with the terms of the agreement so that we will be able to continue to receive revenues from Max Steel ;
 
adverse trends and changes in the entertainment or entertainment marketing industries that could negatively impact 42West’s operations and ability to generate revenues;
 
unpredictability of the commercial success of our current and future web series and motion pictures;
 
economic factors that adversely impact the entertainment industry, as well as advertising, production and distribution revenue in the online and motion picture industries;
 
our ability to identify, produce and develop online digital entertainment and motion pictures that meet industry and customer demand;
 
competition for talent and other resources within the industry and our ability to enter into agreements with talent under favorable terms;
 
our ability to attract and/or retain the highly specialized services of the 42West executives and employees and our CEO;
 
availability of financing from our CEO and other investors under favorable terms;
 
our ability to adequately address material weaknesses in internal control over financial reporting;
 
uncertainties regarding the outcome of pending litigation; and
 
the factors included under "Risk factors" in this prospectus.
 
Any forward-looking statement speaks only as to the date on which that statement is made. We assume no obligation to update any forward-looking statement to reflect events or circumstances that occur after the date on which the statement is made.
 
 
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 UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
 
              The following unaudited pro forma combined statements of operations and related notes present our historical combined statements of operations with that of 42West, after giving effect to our acquisition of 42West that was completed on March 30, 2017.  The pro forma adjustments are based upon available information and assumptions that we believe are reasonable.
 
The unaudited pro forma combined statements of operations for the year ended December 31, 2016 are presented as if the acquisition had occurred on January 1, 2016. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2017 are presented as if the acquisition had occurred on January 1, 2017.  The historical statements of operations are adjusted in the unaudited pro forma combined statements of operations to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable and (3) expected to have a continuing impact on the combined results.
 
Dolphin has not completed the detailed valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed from 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. Although the unaudited pro forma financial information presented herein do not contain a pro forma balance sheet, the preliminary estimated fair value of intangible assets was used to prepare certain adjustments to the combined statements of operations presented herein. Dolphin’s preliminary estimates of  the fair value of 42West’s assets and liabilities is based on discussions 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, some of which may affect the statement of operations, and 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 and the historical financial statements of 42West as of and for the years ended December 31, 2016 and 2015 included elsewhere in this prospectus.
 
 
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  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(1)
    (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
  $ (9.67 )
     
     
 
  $ (6.66 )
Weighted average number of shares used in share calculation
    4,389,096
     
     
(E)
    6,157,425  
 
(1) Depreciation and amortization have been reclassified from operating (loss) income for presentation purposes.
 
See accompanying notes to the Unaudited Pro Forma Combined Statements of Operations
 
 
22
 
Unaudited Pro Forma Condensed Combined Statements of Operations
For the six months ended June 30, 2017
 
 
 
Dolphin Entertainment, Inc. (Historical)
 
 
42West - Acquiree (Historical)
 
 
Pro Forma Adjustments
 
Notes
 
Pro Forma Combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
  $ 3,226,962  
  $ 9,827,112  
  $ -  
 
  $ 13,054,074  
 
       
       
       
 
    -  
Operating expenses
    4,687,734  
    8,497,452  
    -  
 
    13,185,186  
 
       
       
       
 
    -  
Operating (loss) income
    (1,460,772 )
    1,329,660  
    -  
 
    (131,112 )
 
       
       
       
 
    -  
Amortization of intangible assets
    -  
    -  
    (498,667 )
 (A)
    (498,667 )
Interest expense
    (838,242 )
    (14,318 )
    -  
 
    (852,560 )
Loss on extinguishment of debt
    (4,167 )
    -  
    -  
 
    (4,167 )
Change in fair value of warrant liability
    6,289,513  
    -  
    -  
 
    6,289,513  
Change in fair value of put rights
    -  
    -  
    (100,000 )
 (B)
    (100,000 )
Change in fair value of contingent consideration
    -  
    -  
    (116,000 )
 (B)
    (116,000 )
Acquistion related expense
    (537,708 )
    (207,564 )
    745,272  
 (C)
    -  
Loss on disposal of furniture, office equipment and leasehold improvements
    (28,025 )
    -  
    -  
 
    (28,025 )
Other expense
    (16,000 )
  $ -  
    -  
 
    (16,000 )
Total other income (expenses)
    4,865,371  
  $ (221,882 )
  $ 30,605  
 
    4,674,094  
Provision for Income Taxes
       
    (268,743 )
    268,743  
 (D)
    -  
Net Income
  $ 3,404,599  
  $ 839,035  
  $ 299,348  
 
  $ 4,542,982  
 
       
       
       
 
       
Income Per Share:
       
       
       
 
       
Basic
  $ 0.41
       
       
 
  $ 0.52  
Diluted
  $ (0.30 )
       
       
 
  $ (0.18 )
 
       
       
       
 
       
Weighted average number of share used in per share calculation:                        
 
       
Basic
    8,293,343  
       
       
 (E)
    8,661,185  
Diluted
    9,542,846  
       
       
 
    9,910,688  
  
See accompanying notes to the Unaudited Pro Forma Combined Financial Information
 
 
23
 
 
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
 
NOTE 1 – DESCRIPTION OF THE TRANSACTION
 
 On March 30, 2017, we completed our acquisition of 42West.  Pursuant to the terms of the purchase agreement we acquired from the members of 42West, 100% of the membership interests of 42West and 42West became our wholly-owned subsidiary. The consideration paid by us in connection with the 42West acquisition was approximately $18.7 million in shares of common stock, based on our 30-trading-day average stock price prior to the closing date of $9.22 per share as adjusted for the 1-to-2 reverse stock split (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. Pursuant to the terms of the purchase agreement, (i) 615,140 shares of common stock were issued on March 30, 2017, 172,275 shares of common stock were issued on April 13, 2017 and 59,320 shares of common stock were issued as employee stock bonuses on August 21, 2017 and (ii) 980,911 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, 2017.
 
Also in connection with the 42West acquisition, on March 30, 2017, we entered into put agreements with each of the sellers. Pursuant to the terms and subject to the conditions set forth in the put agreements, we granted the sellers the right, but not obligation, to cause us to purchase up to an aggregate of 1,187,094 of the shares of common stock received as consideration for a purchase price equal to $9.22 per share as adjusted for the 1-to-2 reverse stock split during certain specified exercise periods set forth in the put agreements up until December 2020.
 
NOTE 2 –BASIS OF PRO FORMA PRESENTATION
 
The unaudited pro forma combined statement of operations for the year ended December 31, 2016 and the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2017 combine our historical statement of operations with the historical statement of operations of 42West and (i) for the year ended December 31, 2016, was prepared as if the acquisition occurred on January 1, 2016 and (ii) for the six months ended June 30, 2017, was prepared as if the acquisition occurred on January 1, 2017.  The historical statements of operations are adjusted in the unaudited pro forma combined statements of operations to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) expected to have a continuing impact on the combined results. 
 
              We accounted for the acquisition in the unaudited pro forma combined statements of operations using the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations” or “ASC 805”.  In accordance with ASC 805, we used our 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 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 statements of operations after the final valuation procedures are performed and the amounts are finalized. 
 
The unaudited pro forma combined statements of operations are provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations of the combined company would have been had the acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations. 
 
              We expect to incur costs and realize benefits associated with integrating our operations and those of 42West.  The unaudited pro forma combined statements of operations 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 for the year ended December 31, 2016 and the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2017 do not reflect any non-recurring charges directly related to the acquisition that the combined companies incurred upon completion of the 42West acquisition. 
 
 
24
 
 
NOTE 3 – PRO FORMA ADJUSTMENTS
 
The following is a description of the unaudited pro forma adjustments reflected in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2016 and the six months ended June 30, 2017:
 
(A)
The Company adjusted the amortization of the acquired intangible asset to reflect annual amortization for the year ended December 31, 2016 and six months of amortization for the six months ended June 30, 2017. The amortization of the acquired intangible assets are calculated as follows:
 
 
 
Acquisition Date Opening Balance
 
 
Useful Live (Years)
 
 
 
Annual Amortization
 
 
Quarterly Amortization
 
Intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
  $ 5,980,000  
    10  
  $ 598,000  
  $ 149,500  
Trade name
    2,760,000  
    10  
  $ 276,000  
  $ 69,000  
Non-competition agreements
    370,000  
    3  
  $ 123,833  
  $ 30,833  
 
  $ 9,110,000  
       
  $ 997,333  
  $ 249,333  
 
(B)
The Company adjusted the pro forma statement of operations for the six months ended June 30, 2017 to reflect changes in the fair value of the put rights in the amount of $100,000 and contingent consideration in the amount of $116,000.
 
(C)
The Company adjusted the pro forma statement of operations for the six months ended June 30, 2017 to eliminate $745,272 of acquisition related costs since they are not expected to have a continuing impact on the operating results of the combined entities.
 
(D)
The Company adjusted the pro forma statement of operations for the six months ended June 30, 2017 to eliminate $268,743 of provision for income taxes that was reflected on the historical statement of operations of 42West because the Company expects to have sufficient net accumulated operating tax losses to offset the net taxable revenues.
 
(E)
The Company recalculated income per share to give effect to the acquisition as if it had occurred on January 1, 2017.
 
  
 
Historical
 
 
Pro Forma
 
Numerator
 
6/30/2017
 
 
6/30/2017
 
Net income (loss) attributable to Dolphin shareholders
  $ 3,402,623  
  $ 4,542,982  
Numerator for basic earnings per share
    3,402,623  
    4,542,982  
Change in fair value of G, H and I warrants
    (6,289,513 )
    (6,289,513 )
Numerator for diluted earnings per share
    (2,886,890 )
    (1,746,531 )
 
       
       
Denominator
       
       
Denominator for basic EPS - weighted-average shares
    8,293,343  
    8,661,185  
Effect of dilutive securities:
       
       
Warrants
    756,338  
    756,338  
Shares issuable in January 2018 as part of the Additional Consideration for the 42West acquisition
    493,165  
    493,165  
Denominator for diluted EPS - adjusted weighted-average shares assuming exercise of warrants
    9,542,846  
    9,910,688  
 
       
       
Basic income (loss) per share
  $ 0.41  
  $ 0.52  
Diluted income (loss) per share
  $ (0.30 )
  $ (0.18 )
   
 
25
 
 
USE OF PROCEEDS
 
We estimate that the net proceeds from our sale of the units in this offering, assuming a public offering price of $      per unit and all securities are sold, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $        million. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $       million. This amount does not include the proceeds which we may receive in connection with the exercise of the warrants. We cannot predict when or if the warrants will be exercised, and it is possible that the warrants may expire and never be exercised. The principal reason for this offering is to raise capital for general corporate purposes, including working capital.
 
We intend to use the net proceeds from this offering for (i) growth initiatives of our entertainment publicity business, including acquisitions of comparable businesses and groups with public relations expertise, (ii) the budget for our content production business and (iii) general corporate purposes, including working capital.
 
A $0.50 increase or decrease in the assumed public offering price of $      per unit would increase or decrease the net proceeds from this offering by approximately $     million, assuming that the number of units offered by us, as set forth on the cover page of this prospectus, and the assumed public offering price remain the same and after deducting the estimated underwriting discounts and commissions.
 
We will have broad discretion over the manner in which the net proceeds of the offering will be applied, and we may not use these proceeds in a manner desired by our shareholders. Although we have no present intention of doing so, future events may require us to reallocate the offering proceeds.
 
 
 
26
 
 
 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
Market for our Common Stock
 
Our common stock currently trades on the over-the-counter market and is quoted on the OTC Pink Marketplace under the symbol “DPDM”. The high and low bid information for each quarter since January 1, 2015, as quoted on the OTC Pink Marketplace, is as follows:
 
Quarter
 
High Bid
 
 
Low Bid
 
2017:
 
 
 
 
 
 
October 1 to 4
  $ 8.15
  $ 8.00  
Third Quarter
  $ 10.00  
  $ 6.06  
Second Quarter
  $ 10.50  
  $ 6.00  
First Quarter                                
  $ 12.00  
  $ 7.00  
 
       
       
2016:
       
       
Fourth Quarter                                                                                                                
  $ 13.50  
  $ 4.00  
Third Quarter                                                                                                                 
  $ 14.50  
  $ 8.00  
Second Quarter                                                                                                                 
  $ 16.54  
  $ 10.80  
First Quarter                                                                                                                
  $ 15.20  
  $ 3.20  
 
       
       
2015:
       
       
Fourth Quarter                                                                                                                 
  $ 12.00  
  $ 1.20  
Third Quarter                                                                                                                 
  $ 2.00  
  $ 1.20  
Second Quarter                                                                                                                 
  $ 2.40  
  $ 1.60  
First Quarter                                                                                                                
  $ 3.60  
  $ 1.60  
  
The over-the-counter quotations above reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not reflect actual transactions. Such quotes are not necessarily representative of actual transactions or of the value of our securities, and are, in all likelihood, not based upon any recognized criteria of securities valuation as used in the investment banking community.
 
The trading volume for our common stock is relatively limited. There is no assurance that an active trading market will continue to provide adequate liquidity for our existing shareholders or for persons who may acquire our common stock in the future.
 
The closing price per share of our common stock on October 4, 2017 was $ 8.00 , as reported by the OTC Pink Marketplace.
 
Holders of our Common Stock
 
As of October 2, 2017, an aggregate of 9,367,057 shares of our common stock were issued and outstanding and were owned by approximately 360 shareholders of record, based on information provided by our transfer agent.
 
Dividends
 
We have never paid dividends on our common stock and do not anticipate that we will do so in the near future.
 
 
27
 
 
DETERMINATION OF OFFERING PRICE
 
In determining the offering price for the units, and the exercise price of the warrants, we will consider a number of factors including, but not limited to, the current market price of our common stock, trading prices of our common stock over a period of time, the illiquidity and volatility of our common stock, prevailing market conditions, our historical performance, our future prospects and the future prospects of our industry in general, our capital structure, estimates of our business potential and earnings prospects, the present state of our development and an assessment of our management and the consideration of the above factors in relation to market valuation of companies engaged in businesses and activities similar to ours.
 
It is also possible that after the offering, the shares of common stock will not trade in the public market at or above the offering price.
 
 
 
 
 
 
28
 
 
  CAPITALIZATION
 
The following table summarizes our capitalization and cash and cash equivalents as of June 30, 2017:
 
on an actual basis; and
 
on an as adjusted basis to reflect (i) the sale by us of units in this offering on an assumed closing date of      , 2017, based on an assumed public offering price of $       per unit, assuming no exercise of the underwriters’ option to purchase additional units, and (ii) the deduction of estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” as well as our financial statements and related notes and the other financial information, appearing elsewhere in this prospectus.
 
 
 
As of June 30, 2017
 
 
 
(Unaudited)
 
 
 
Actual
 
 
As Adjusted
 
Cash and cash equivalents
  1,071,813  
 
 
Debt:
       
       
Current line of credit
  750,000  
  750,000
 
Current debt (1)
    12,892,544  
    12,892,544
 
Current loan from related party
    1,818,659  
    1,818,659
 
Current note payable
    850,000  
    850,000
 
Current put rights (2)
    750,343  
    750,343
 
Non-current put rights (2)
    3,149,657  
    3,149,657
 
Note payable
    400,000  
    400,000  
Total debt
  20,611,203  
  20,611,203
 
Common stock, $0.015 par value, 200,000,000 shares authorized, 9,345,396 issued and outstanding, actual, and , issued and outstanding, as adjusted
  140,181  
       
Series C Convertible Preferred stock, $0.001 par value, 50,000 shares authorized, 50,000 issued and outstanding
    1,000  
    1,000  
Additional paid in capital
    93,243,840  
       
Accumulated deficit
    (96,409,581 )
       
Total stockholders’ deficit
    (3,024,560 )
       
Total capitalization
  17,186,643  
 
 
_________
(1) 
Consists of debt of our subsidiaries used to produce and pay the print and advertising expenses of Max Steel .
(2) 
Consists of our obligation to purchase up to 1,070,503 shares of our common stock from the sellers of 42West during certain specified exercise periods up until December 2020, pursuant to put agreements. For a discussion of the terms of the put agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
The number of shares of our outstanding common stock, actual and as adjusted, excludes:
 
1,612,115 shares of our common stock issuable upon the exercise of outstanding warrants having exercise prices ranging from $6.20 to $10.00 per share;
shares of our common stock issuable upon the conversion of 50,000 shares of Series C Convertible Preferred Stock outstanding. For a discussion of the conditions upon which the shares of Series C Convertible Preferred Stock become convertible, and the number of shares of common stock into which such preferred stock would be convertible upon satisfaction of such conditions, see “Description of Securities—Series C Convertible Preferred Stock”;
shares of our common stock issuable in connection with the 42West acquisition as follows: (i) 980,911 shares of our common stock that we will issue to the sellers on January 2, 2018 and (ii) up to 981,563 shares of our common stock that we may issue to the sellers based on the achievement of specified financial performance targets over a three-year period as set forth in the membership interest purchase agreement;
78,757 shares of our common stock issuable upon the conversion of seven convertible promissory notes in the aggregate principal amount of $725,000 (calculated based on the 90-trading day average price per share as of October 2, 2017). For a discussion of the terms of conversion of the promissory notes and the number of common stock into which such promissory notes would be convertible, see “Description of Securities—Convertible Promissory Notes;” and
940,680 shares of our common stock reserved for future issuance under our 2017 Equity Incentive Plan.
  
 
29
 
 
 DILUTION
 
If you invest in the securities being offered by this prospectus, you will suffer immediate and substantial dilution in the net tangible book value per share of common stock. Our net tangible deficit as of June 30, 2017 was approximately $(26.2) million, or approximately $(2.81) per share. Net tangible deficit per share represents our total tangible assets less total tangible liabilities, divided by the number of shares of common stock outstanding as of June 30, 2017.
 
Dilution in net tangible book value per share represents the difference between the public offering price per unit paid by purchasers in this offering, attributing no value to the warrants offered hereby, and the net tangible book value per share of our common stock immediately after this offering. After giving effect to the sale by us of units in this offering, assuming all units are sold, at a public offering price of $      per unit and attributing no value to the warrants, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of June 30, 2017 would have been approximately $     million, or approximately $    per share of common stock. This represents an immediate increase of $    in net tangible book value per share to our existing shareholders and an immediate dilution of $     per share to purchasers of securities in this offering. The following table illustrates this per share dilution:
 
Assumed public offering price per unit
 
$
 
 
Net tangible book value deficit per share as of June 30, 2017 
 
$
(2.81)
 
Increase in net tangible book value per share attributable to new investors
 
$
 
 
Adjusted net tangible book value deficit per share as of June 30, 2017, after giving effect to the offering
 
$
 
 
Dilution per share to new investors in the offering 
 
$
 
 
 
If the underwriters exercise their over-allotment option in full, the adjusted net tangible book value will increase to $     per share, representing an immediate dilution of $       per share to new investors, assuming that the assumed public offering price remains the same and after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. Investors exercising their warrants may experience additional dilution.
 
The above discussion and tables do not include the following:
 
shares of common stock issuable upon the exercise of the warrants offered hereby;
1,612,115 shares of our common stock issuable upon the exercise of outstanding warrants having exercise prices ranging from $6.20 to $10.00 per share;
shares of our common stock issuable upon the conversion of 50,000 shares of Series C Convertible Preferred Stock outstanding. For a discussion of the conditions upon which the shares of Series C Convertible Preferred Stock become convertible, and the number of shares of common stock into which such preferred stock would be convertible upon satisfaction of such conditions, see “Description of Securities—Series C Convertible Preferred Stock”;
Shares of our common stock issuable in connection with the 42West acquisition as follows: (i) 980,911 shares of our common stock that we will issue to the sellers on January 2, 2018 and (ii) up to 981,563 shares of our common stock that we may issue to the sellers based on the achievement of specified financial performance targets over a three-year period as set forth in the membership interest purchase agreement;
78,757 shares of our common stock issuable upon the conversion of seven convertible promissory notes in the aggregate principal amount of $725,000 (calculated based on the 90-trading day average price per share as of October 2, 2017). For a discussion of the terms of conversion of the promissory notes and the number of common stock into which such promissory notes would be convertible, see “Description of Securities—Convertible Promissory Notes;” and
940,680 shares of our common stock reserved for future issuance under our 2017 Equity Incentive Plan.
 
In addition, we may be required to purchase up to 1,070,503 shares of our common stock from the sellers during certain specified exercise periods up until December 2020, pursuant to put agreements.  For a discussion of the terms of the put agreements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
 
30
 
 
SELECTED FINANCIAL DATA
 
The following table includes our selected historical financial data. The historical financial data as of December 31, 2016 and 2015 and for the years ended December 31, 2016 and 2015 have been derived from our audited financial statements, which are included elsewhere in this prospectus. The historical financial data as of December 31, 2014 and for the year ended December 31, 2014 have been derived from our audited financial statements, which are not included in this prospectus. The historical financial data as of June 30, 2017 and for the six months ended June 30, 2017 and 2016 have been derived from our unaudited financial statements, which are included elsewhere in this prospectus. Our financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States. The results indicated below are not necessarily indicative of our future performance.
 
 
 
For the year ended December 31,
 
 
For the six months ended June 30,
 
 
 
2014
 
 
2015(1)
 
 
2016
 
 
2016
 
 
2017
 
 
 
(audited)
 
 
(unaudited)
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Production and distribution
    51,192  
    3,031,073  
    9,367,222  
    4,157  
    3,226,962  
Entertainment publicity
     
     
     
     
    5,137,556  
Service 
    2,000,000  
     
     
     
     
Membership 
    19,002  
    69,761  
    28,403  
    21,028  
     
Total Revenue 
    2,070,194  
    3,100,834  
    9,395,625  
    25,185  
    8,364,518  
Expenses: 
       
       
       
       
       
Direct costs 
    159,539  
    2,587,257  
    10,661,241  
    2,429  
    2,500,772  
Distribution and marketing 
     
    213,300  
    11,322,616  
     
    629,493  
Selling, general and administrative
    1,533,211  
    1,845,088  
    1,245,689  
    562,576  
    1,213,400  
Legal and professional 
     
    2,392,556  
    2,405,754  
    967,531  
    997,434  
Payroll 
    1,630,369  
    1,435,765  
    1,462,589  
    751,202  
    3,802,511  
Loss before other income (expense)
    (1,252,925 )
    (5,373,132 )
    (17,702,264 )
    (2,258,553 )
    (779,092 )
Other Income (Expenses):
       
       
       
       
       
Other income 
    40,000  
    96,302  
    9,660  
    9,660  
    (16,000 )
Amortization of loan fees 
     
     
    (476,250 )
     
     
Amortization of intangible assets
     
     
     
     
    (249,333 )
Change in fair value of warrant liability
     
     
    2,195,542  
     
    6,289,513  
Change in fair value of put rights
     
     
     
     
    (100,000 )
Loss on disposal of furniture, office equipment and leasehold improvements
     
     
     
     
    (28,025 )
Change in fair value of contingent consideration
     
     
     
     
    (116,000 )
Warrant issuance expense 
     
     
    (7,372,593 )
     
     
Loss on extinguishment of debt 
     
     
    (9,601,933 )
    (5,843,811 )
    (4,167 )
Acquisition related costs 
     
     
     
     
    (745,272 )
Interest expense 
    (660,580 )
    (3,559,532 )
    (4,241,841 )
    (3,155,076 )
    (849,001 )
Total Other Income (Expenses) 
    (620,580 )
    (3,463,230 )
    (19,487,415 )
    (8,989,227 )
    4,181,715  
Net Income (Loss) 
  $ (1,873,505 )
  $ (8,836,362 )
  $ (37,189,679 )
  (11,247,780 )
  3,402,623  
Net Income attributable to noncontrolling interest 
    4,750  
    17,440  
     
    5,257  
     
Net Loss attributable to Dolphin Films, Inc. 
     
    (4,786,341 )
     
     
     
Net Loss attributable to Dolphin Digital Media, Inc. 
    (1,878,255 )
    (4,067,461 )
    (37,189,679 )
    (11,253,037 )
    3,402,623  
 
  $ (1,873,505 )
  $ (8,836,362 )
  $ (37,189,679 )
  (11,247,780 )
  3,402,623  
Deemed dividend on preferred stock 
     
     
    5,247,227  
    (5,227,247 )
     
Net loss attributable to common shareholders 
  $ (1,873,505 )
  $ (8,836,362 )
  $ (42,436,906 )
  (16,475,027 )
  3,402,623  
Income (Loss) Per Share
       
       
       
       
       
Basic 
  $ (0.92 )
  $ (4.32 )
  $ (9.67 )
  (5.45 )
  0.41  
Diluted 
  $ (0.92 )
  $ (4.32 )
  $ (9.67 )
  (5.45 )
  (0.30 )
Weighted average number of shares used in per share calculation:
       
       
       
       
       
Basic 
    2,047,309  
    2,047,309  
    4,389,097  
    3,025,448  
    8,293,343  
Diluted 
    2,047,309  
    2,047,309  
    4,389,097  
    3,025,448  
    9,542,846  
 
 
31
 
 
 
 
As of December 31,
 
 
  As of June 30,
 
 
 
2014
 
 
2015(1)
 
 
2016
 
 
2017
 
 
 
(audited)
 
 
  (unaudited)
 
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents 
  $ 198,470  
  $ 2,392,685  
  $ 662,546  
  1,071,813  
Restricted cash 
     
     
    1,250,000  
     
Capitalized production costs 
    693,526  
    15,170,768  
    4,654,013  
    2,626,461  
Intangible assets 
     
     
     
    8,860,667  
Goodwill 
     
     
     
    14,336,919  
Total Assets 
  $ 1,493,240  
  $ 21,369,113  
  $ 14,197,241  
  35,544,894  
Total Liabilities 
    10,285,083  
    54,233,031  
    46,065,038  
    38,569,454  
Total Stockholders’ Deficit 
    (8,791,843 )
    (32,863,918 )
    (31,867,797 )
    (3,024,560 )
 
The accompanying notes are an integral part of these consolidated financial statements.
 
(1) 
Financial information has been retrospectively adjusted for our acquisition of Dolphin Films. See Notes 1 and 4 to the consolidated financial statements included elsewhere in this prospectus.
 
 
32
 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
The following discussion of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and the notes thereto, which are included elsewhere in this prospectus. The following discussion includes forward-looking statements that involve certain risks and uncertainties, including, but not limited to, those described in “Risk Factors”. Our actual results may differ materially from those discussed below. See “Special Note Regarding Forward-Looking Statements” and “Risk Factors”.
 
Overview
 
We are a leading independent entertainment marketing and premium content development company. Through our recent acquisition of 42West, we provide expert strategic marketing and publicity services to all of the major film studios, and many of the leading independent and digital content providers, as well as for hundreds of A-list celebrity talent, including actors, directors, producers, recording artists, athletes and authors. The strategic acquisition of 42West brings together premium marketing services with premium content production, creating significant opportunities to serve our respective constituents more strategically and to grow and diversify our business. Our content production business is a long established, leading independent producer, committed to distributing premium, best-in-class film and digital entertainment. We produce original feature films and digital programming primarily aimed at family and young adult markets.
 
On March 30, 2017, we acquired 42West, an entertainment public relations agency offering talent publicity, strategic communications and entertainment content marketing. As consideration for the 42West acquisition, we paid approximately $18.7 million in shares of common stock, par value $0.015, based on our company’s 30-trading-day average stock price prior to the closing date of $9.22 per share, as adjusted for the 1-to-2 reverse stock split, (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. As a result, we (i) issued 615,140 shares of common stock on the closing date, 172,275 shares of common stock to certain 42West employees on April 13, 2017 and 59,320 shares of common stock as employee stock bonuses on August 21, 2017 and (ii) will issue 980,911 shares of common stock on January 2, 2018. In addition, we may issue up to 981,563 shares of common stock based on the achievement of specified financial performance targets over a three-year period as set forth in the membership interest purchase agreement.
 
Prior to its acquisition, 42West was the largest independently-owned public relations firm in the entertainment industry. Among other benefits, we believe that the 42West acquisition will strengthen and complement our current content production business, while expanding and diversifying our operations.
 
The principal sellers have each entered into employment agreements with us and will continue as employees of our company until March 2020. The nonexecutive employees of 42West were retained as well. In connection with the 42West acquisition, pursuant to put agreements we granted the sellers the right, but not the obligation, to cause us to purchase up to an aggregate of 1,187,094 of their shares of common stock received as consideration for a purchase price equal to $9.22 per share, as adjusted for the 1-to-2 reverse stock split, during certain specified exercise periods up until December 2020. During the six months ended June 30, 2017, certain of the sellers exercised these rights and we purchased 75,919 shares of our common stock for an aggregate purchase price of $700,000. Subsequent to the six months ended June 30, 2017, we purchased an additional 40,672 shares of our common stock for $375,000 from certain of the sellers who exercised their put rights.
 
In connection with the 42West acquisition, we acquired an estimated $9.1 million of intangible assets and recorded approximately $14 million of goodwill. The purchase price allocation and related consideration for the intangible assets and goodwill are provisional and subject to completion and adjustment. We amortize our intangible assets over useful lives of between 3 and 10 years. We have recorded amortization in the amount of approximately $0.2 million during the six months ended June 30, 2017.
 
 
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On March 7, 2016, we acquired Dolphin Films from Dolphin Entertainment, LLC, an entity wholly owned by our President, Chairman and Chief Executive Officer, Mr. William O’Dowd, IV. Dolphin Films is a content producer of family feature films. In 2016, we released our feature film, Max Steel , which was produced by Dolphin Films. All financial information has been retrospectively adjusted at the historical values of Dolphin Films, as the merger was between entities under common control.
 
Effective May 10, 2016, we amended our Articles of Incorporation to effectuate a 1-to-20 reverse stock split.
 
Effective July 6, 2017, we amended our Articles of Incorporation to (i) change our name to Dolphin Entertainment, Inc.; (ii) cancel previous designations of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock; (iii) reduce the number of Series C Convertible Preferred Stock (described below) outstanding in light of our 1-to-20 reverse stock split from 1,000,000 to 50,000 shares; and (iv) clarify the voting rights of the Series C Convertible Preferred Stock that, except as required by law, holders of Series C Convertible Preferred Stock will only have voting rights once the independent directors of the Board determine that an optional conversion threshold has occurred.'
 
Effective September 14, 2017, we amended our Amended and Restated Articles of Incorporation to effectuate a 1-to-2 reverse stock split. Shares of common stock have been retrospectively adjusted to reflect the reverse stock split in the following management discussion and analysis.
 
As a result of the acquisition of 42West, we have determined that as of the second quarter of 2017, we operate in two reportable segments, the entertainment publicity division and the content production division. The entertainment publicity division is comprised of 42West and provides clients with diversified services, including public relations, entertainment content marketing and strategic marketing consulting. The content production division is comprised of Dolphin Films and Dolphin Digital Studios and specializes in the production and distribution of digital content and feature films.
  
Going Concern
 
In the audit opinion for our financial statements as of and for the year ended December 31, 2016, our independent auditors included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern based upon our net loss for the year ended December 31, 2016, our accumulated deficit as of December 31, 2016 and our level of working capital. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Management is planning to raise any necessary additional funds through loans and additional sales of our common stock, securities convertible into our common stock, debt securities or a combination of such financing alternatives, including the proceeds from this offering; however, there can be no assurance that we will be successful in raising any necessary additional loans or capital. Such issuances of additional securities would further dilute the equity interests of our existing shareholders, perhaps substantially.
 
Revenues
 
During the year ended December 31, 2015, we derived revenue through (1) the online distribution rights of our web series, South Beach – Fever and international distribution rights to our motion picture, Believe ; and (2) a portion of fees obtained from the sale of memberships to online kids clubs. During the year ended December 31, 2016, our primary source of revenue was from the release of our motion picture, Max Steel . During the six months ended June 30, 2016, we derived revenues from a portion of fees obtained from the sale of memberships to online kids clubs and international distribution rights of our motion picture, Believe . During the six months ended June 30, 2017, we derived the majority of our revenues from our recently acquired subsidiary 42West. 42West derives its revenues from providing talent publicity, strategic communications and entertainment content marketing. During the six months ended June 30, 2017, revenues from production and distribution were derived from the release of our motion picture, Max Steel . The table below sets forth the components of revenue for the years ended December 31, 2015 and 2016 and for the six months ended June 30, 2016 and 2017:
 
 
34
 
 
 
 
For the year ended  
December 31,
 
 
  For the six months ended
June 30,
 
Revenues:
 
2015
 
 
2016
 
 
2016
 
 
2017
 
Production and distribution 
    98.0 %
    99.7 %
    16.5 %
    38.6 %
Entertainment publicity
    0.0 %
    0.0 %
    0.0 %
    61.4 %
Membership 
    2.0 %
    0.3 %
    83.5 %
    0.0 %
Total revenue 
    100.0 %
    100.0 %
    100.0 %
    100.0 %
 
Dolphin Digital Studios
 
In April 2016, we entered into a co-production agreement to produce Jack of all Tastes , a digital project that showcases favorite restaurants of NFL players. The show was produced during 2016 throughout several cities in the U.S. The show was released on Destination America, a digital cable and satellite television channel, on September 9, 2017 and we do not expect to derive any revenues from this initial release. We are currently sourcing distribution platforms in which to release completed projects and those for which we have the rights, and which we intend to produce. We earn production and online distribution revenue solely through the following:
 
Producer’s Fees – We earn fees for producing each web series, as included in the production budget for each project. We either recognize producer’s fees on a percentage of completion or a completed contract basis depending on the terms of the producer agreements, which we negotiate on a project by project basis. During 2016, we began production of our new web series but it had not been completed as of June 30, 2017. In addition, we concentrated our efforts in identifying potential distribution partners.
Initial Distribution/Advertising Revenue – We earn revenues from the distribution of online content on advertiser supported video-on-demand, or AVOD, platforms. Distribution agreements contain revenue sharing provisions which permit the producer to retain a percentage of all domestic and international advertising revenue generated from the online distribution of a particular web series. Typically, these rates range from 30% to 45% of such revenue. We have previously distributed our productions on various online platforms including Yahoo!, Facebook, Hulu and AOL. No revenues from this source have been derived during the six months ended June 30, 2017 and 2016.
Secondary Distribution Revenue – Once our contractual obligation with the initial online distribution platform expires, we have the ability to derive revenues from distributions of the web series in ancillary markets such as DVD, television and subscription video-on-demand, or SVOD. No revenues from this source have been derived during the years ended December 31, 2015 and 2016 or during the six months ended June 30, 2016 and 2017. We intend to source potential secondary distribution partners for our web series, South Beach–Fever , that was released in 2015, once our agreement with the initial distributor expires.
 
 
35
 
 
Dolphin Films
 
During the years ended December 31, 2015 and 2016, we derived revenues through the international distribution of the motion picture, Believe . During the six months ended June 30, 2017, we derived revenues from Dolphin Films primarily through the domestic and international distribution of our motion picture, Max Steel .
 
The production of the motion picture, Max Steel , was completed during 2015 and released in the United States on October 14, 2016. The motion picture did not perform as well as expected domestically but we have secured approximately $8.2 million in international distribution agreements. Unamortized film costs are to be tested for impairment whenever events or changes in circumstances indicate that the fair value of the film may be less than its unamortized costs. We determined that Max Steel’s domestic performance was an indicator that the capitalized production costs may need to be impaired. We used a discounted cash flow model to help determine the fair value of the capitalized production costs and determined that the carrying value of the capitalized production costs were below the fair value and recorded an impairment of $2 million during 2016.
 
Revenues from the motion picture, Max Steel , were generated from the following sources:
 
Theatrical – Theatrical revenues were derived from the domestic theatrical release of motion pictures licensed to a U.S. theatrical distributor that had agreements with theatrical exhibitors. The financial terms negotiated with the U.S. theatrical distributor provided that we receive a percentage of the box office results, after related distribution fees.
International – International revenues were derived through license agreements with international distributors to distribute our motion pictures in an agreed upon territory for an agreed upon time. Several of the international distribution agreements were contingent on a domestic wide release that occurred on October 14, 2016.
Other – Dolphin Films’ U.S. theatrical distributor has existing output arrangements for the distribution of productions to home entertainment, video-on-demand, or VOD, pay-per-view, or PPV, electronic-sell-through, or EST, SVOD and free and pay television markets. The revenues expected to be derived from these channels are based on the performance of the motion picture in the domestic box office. We anticipate that the revenues from these channels will be received in 2017 and thereafter.
 
Our ability to receive additional revenues from Max Steel depends on the ability to repay our loans under our production service agreement and prints and advertising loan agreement from the profits of Max Steel. MaxSteel did not generate sufficient funds to repay either of the loans when they became due. As a result, we may lose our copyright from the film and will, consequently, no longer receive revenues related to Max Steel . The film is not expected to generate sufficient funds to repay these loans. For a discussion of the terms of such agreements, see “Liquidity and Capital Resources” below.
 
Project Development and Related Services
 
We have a development team that dedicates a portion of its time and resources to sourcing scripts for future developments. The scripts can be for either digital or motion picture productions. During 2015 and 2016, we acquired the rights to certain scripts, one that we intend to produce in the fourth quarter of 2017 and the others in 2018. During the six months ended June 30, 2017, we acquired the rights to a book from which we intend to develop a script and produce in 2018. We have not yet determined if these projects would be produced for digital or theatrical distribution.
 
Entertainment Publicity
 
Our revenue is directly impacted by the retention and spending levels of existing clients and by our ability to win new clients. We have a stable client base and continue to grow organically through referrals and actively soliciting new business. Our revenue is directly impacted by the retention and spending levels of existing clients and by our ability to win new clients. We have a stable client base and continue to grow organically through referrals and actively soliciting new business. We earn revenues primarily from three sources. We provide entertainment marketing services under multiyear master service agreements in exchange for fixed project-based fees ranging from $25,000 to $300,000 per project. We have numerous projects per year per client for durations between three and six months. We provide talent publicity services in exchange for monthly fees of approximately $5,000 per client. We provide strategic communications services in exchange for monthly fees ranging from $10,000 to $30,000 per client.
 
 
36
 
 
Entertainment Content Marketing – We earn fees from providing marketing direction, public relations counsel and media strategy for productions (including theatrical films, DVD and VOD releases, television programs, and online series) as well as content producers ranging from individual filmmakers and creative artists to production companies, film financiers, DVD distributors, and other entities. Our capabilities include worldwide studio releases, independent films, television programming and web productions. In addition, we provide entertainment marketing services in connection with film festivals, awards campaigns, event publicity and red carpet management. As part of our services we offer marketing and publicity services that are tailored to reach diverse audiences. Our clients for this type of service may include major studios and independent producers for whom they create strategic multicultural marketing campaigns and provide strategic guidance aimed at reaching diverse audiences.
 
Talent Publicity – We earn fees from creating and implementing strategic communication campaigns for performers and entertainers, including television and film stars, recording artists, authors, models, athletes, and theater actors. Our talent roster includes Oscar- and Emmy-winning actors and Grammy-winning singers and musicians and New York Times best-selling authors. Our services in this area include ongoing strategic counsel, media relations, studio, network, charity, corporate liaison and event and tour support. Many of our clients have been with 42West since it was founded in 2004. Our services may be ongoing or related to a specific project that our talent is associated with.
   
Strategic Communication – We earn fees through our strategic communications team by advising high-profile individuals and companies faced with sensitive situations or looking to raise, reposition, or rehabilitate their public profiles. We also help studios and filmmakers deal with controversial movies.
 
Online Kids Clubs
 
We partnered with US Youth Soccer in 2012, and with United Way Worldwide in 2013, to create online kids clubs. Our online kids clubs derive revenue from the sale of memberships in the online kids clubs to various individuals and organizations. We shared in a portion of the membership fees as outlined in our agreements with the respective entities. During 2016, we terminated, by mutual accord, the agreement with United Way Worldwide. We have retained the trademark to the online kids club and will continue to operate the site. Pursuant to the terms of our agreement with US Youth Soccer, we notified them that we did not intend to renew our agreement that terminated on February 1, 2017. We operate our online kids club activities through our subsidiary, Dolphin Kids Clubs, LLC. On December 29, 2016, we entered into a purchase agr