SEC Company Response from Dolphin Entertainment, Inc. (DLPN) (CIK 0001282224) (DLPN) — Jan 20, 2015
Dolphin Entertainment, Inc. (DLPN) (CIK 0001282224)
Date: Jan. 20, 2015 · CIK: 0001282224 · Accession: 0001354488-15-000256
AI Filing Summary & Sentiment
Reasoning
Referenced dates: December 5, 2014
Letter
Division of Corporation Finance United States Securities and Exchange Commission Filed August 15, 2014 Form 10-Q for Fiscal Quarter Ended June 30, 2014 Filed August 21, 2014 File No 0-50621
Dear Mr. Spirgel:
We hereby respond to the comments provided by the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) in its letter to Dolphin Digital Media, Inc. (the “Company”) dated December 5, 2014, regarding the Company’s Form 10-K for the fiscal year ended December 31, 2013 and the Company’s Form 10-Q for the fiscal quarter ended June 30, 2014. For ease of reference, we have included the Staff’s comments in their entirety in italicized text preceding each of our responses.
Special Note Regarding Forward Looking Statements, page 1
1.
Please delete the reference to the safe harbor provided by the Private Securities Litigation Reform Act of 1995 as this protection does not apply to you because your common stock is considered a penny stock. Please note this comment applies to periodic reports filed on Form 10-Q.
Response:
The Company respectfully acknowledges the Staff’s comment and will not include reference to the safe harbor provided by the Private Securities Litigation Reform Act of 1995 in future filings of Form 10-Q and Form 10-K.
Item 1. Business, page 1
2.
Please update this section. Clearly distinguish and balance historical, current and aspirational operation, and do not place an undue emphasis on cancelled agreements or defunct projects.
Response:
The Company respectfully acknowledges the Staff’s comment and will provide in a subsequent correspondence an updated Business section responsive to the Staff’s comment.
Dolphin Digital Studios, Page 2
3.
Please tell us why you completed only one project as of December 31, 2013 under your finance and production pursuant to the equity finance agreements from 2011 and 2012. We note you have invested funds from your equity finance agreements into eleven projects. Please tell us the amount of funds invested in each project and the material terms of the agreements, including but not limited to, the number of investors participating and whether revenue share percentages are to be split between investors and the company evenly among the different web series productions. Lastly, please confirm that you will disclose this information in future filings.
Response:
The Company respectfully acknowledges the Staff’s comment. For the year ended December 31, 2011, the Company received $895,000 and an additional $105,000 in the year ended December 31, 2012 of financing from three persons, all of whom are accredited investors. Each of the persons lending money to the Company executed a separate financing agreement which entitled them to participation interests in any project for which funds were expended prior to December 31, 2012. Pursuant to the terms of the agreement, the Company agreed to produce no less than one and no more than eight productions before December 31, 2012. The financing proceeds were allocated across eleven projects and the Company produced two productions. Lenders are entitled to receive, from the producers’ gross receipts (as defined in the agreements) generated by the project, (i) first, a return of their principal, (ii) second, a preferential return of 15% of their principal and (iii) third, a fifty percent (50%) split of any additional producers’ gross receipts (with the Company receiving the other fifty percent). Each of the agreements provides that the Company is entitled to earn a producer’s fee of up to $250,000 per production which is considered part of the expenses of the project and paid prior to calculation of the producers’ gross receipts.
The Company respectively advises the Staff that, of the total amount received, (i) approximately $532,000 was used to produce Cybergeddon and Hiding, the two projects that have been completed and (ii) the other $468,000 was used to develop or purchase scripts for the other nine projects. While the Company currently owns all rights with respect to these projects, it does not anticipate commencing production until and unless it or one of its content distributors has secured advertising for the specific project. The Company respectively advises the Staff that providing the actual expenses incurred, or investments made, on a project by project basis would cause the Company competitive harm and, the Company believes, would not provide investor additional material information. In future filings, the Company will provide the following information (1) the aggregate amount of funds received from lenders and the number of such persons, (ii) the number of projects in which such funds have been invested, and (iii) the amount of funds invested in projects which (A) have been completed, (B) are in pre-production or production and (C) are still pending development.
4.
We note that your statement “Dolphin Digital Studios expects to produce several web series a year” appears overly aspirational and not based in fact. Please remove this statement in future filings.
Response:
The Company respectfully acknowledges the Staff’s comment. The Company will remove such statement in future filings until such time as the Company has a track record of producing multiple web series within a year period.
5.
Please make clear that your online distribution revenue projections are aspirational and forward-looking. Revise your disclosure on page 12 as well.
Response:
The Company respectfully acknowledges the Staff’s comment and in future filings will make clear that such projections are aspirational and forward-looking unless firm commitments exist with respect to online distribution revenue. The Company will include in its revised Business Section the revised disclosure on page 12 accordingly.
Cambio Distribution Partnership, page 4
6.
It appears this project has been cancelled. Please remove and update your disclosure accordingly.
Response:
The Company respectfully acknowledges the Staff’s comment and confirms that the subject project has been cancelled. The Company has already deleted reference to such project from its Form 10-Q for the fiscal quarter ended September 30, 2014 and will not include it in any subsequent filings.
Kids Club, page 4
7.
Please disclose the name of the philanthropic organization you partnered with to create Club Connect. Please tell us why you did not file this agreement on a Form 10-Q during the appropriate interim period for 2013.
Response:
The Company respectively acknowledges the Staff’s comment. The Company entered into this agreement in the ordinary course of business with United Way Worldwide. The Company has determined that the Company’s business is not “substantially dependent” on the referenced contract, as such term is used in Regulation S-K, Item 601(b)(10)(ii)(B). Regulation S-K, Item 601(b)(10)(ii)(B) requires the filing of a material agreement entered into the ordinary course of a company’s business if such company is substantially dependent on such material agreement. The relevant example provided in this Item and our interpretation of this Item’s fundamental purpose leads us to conclude that the determination of whether a company is substantially dependent on a contract should include two primary concepts:
●
whether the loss of such contract would have a materially adverse effect on the company’s financial condition so significant that it would result in a fundamental change in the nature or structure of the company’s business; and
●
whether the company has at its disposal, within a reasonable period of time, access to adequate alternate means on commercially reasonable terms to replace the lost contract in the event it is terminated.
For the three and nine months ended September 30, 2014, the Company recognized $16,501 in revenue related to services provided under the Club Connect agreement. The Company anticipates that the revenue generated during 2015 pursuant to this agreement will be less than five percent (5%) of the Company’s aggregate revenue for 2015. In future filings, the Company will include in the description of Club Connect that United Way Worldwide is the name of the philanthropic organization that we partnered with to create Club Connect. In addition, in future filings the Company will confirm, to the extent true, that this project is in its early development stage and that the Company does not anticipate generating material revenue pursuant to this agreement in the succeeding twelve months.
Item 1A. Risk Factors, page 6
Certain Risk Factors Relating to our Business, page 7
8.
We note that a large number of risk factors appear overly generic and could apply to any business. Please revise your risk factors so that they are narrowly tailored towards your particular business plan and highlight the current status of your business operations. For example, please include separate factors to address, among other items:
●
your failure to complete ten of eleven projects financed under your equity finance agreements from 2011 and 2012, and your failure to generate revenues from your sole production as of December 31, 2013;
●
your ability or inability to finance production and programming projects. Please discuss specifically the amount of funds set aside to finance projects for 2014 and whether these funds are adequate.
●
your net loss and accumulated deficit. We note these figures total $944,640 and $37,627,079, respectively, for the period ending June 30, 2014.
Response:
The Company respectfully acknowledges the Staff’s comment and will provide in a subsequent correspondence an updated Risk Factor section responsive to the Staff’s comment above.
9.
Please disclose that a majority of your 2013 revenue, $1,500,000 of your $2,293,880, or 65% did not come from your intended business operations---production of digital content and advertising. Rather, disclose that your service revenue come from a related party agreement with your chief executive officer to provide management personnel and office space.
Response:
The Company respectfully acknowledges the Staff’s comment and has included a discussion of the related party agreement in the proposed revisions of the Management Discussion and Analysis sections of each of the Form 10-K for fiscal year ended December 31, 2014 and the Form 10-Q for fiscal quarter ended June 30, 2014, attached hereto as Annex A and Annex B, respectively.
Certain Factors Relating to our Common Stock, page 8
10.
Please disclose the Securities and Exchange Commission judgments against Messrs. Malcolm Stockdale, Pino Baldassarre and Robert Mouallem, and how these judgments have impacted your stock and may impact your stock moving forward. Provide the following citation, Securities and Exchange Commission v. Giuseppe Pino Baldassarre, Robert Mouallem, and Malcolm Stockdale, Civil Action No. 11 Civ 5970 (ARR) (E.D.N.Y.).
Response:
The Company respectfully acknowledges the Staff’s comment. However, the Company respectively advises the Staff that it does not believe that these judgments will impact our stock price moving forward. Mr. Baldassarre’s employment with the Company was terminated with cause on March 20, 2009 and settled all pending claims with Mr. Baldassarre in February 2010. The Company has not had any association with Malcolm Stockdale since 2010 and Robert Mouallem was never associated with the Company. The Company does not currently have any relationship or affiliation with any of these individuals nor any current liabilities or obligations arising from its prior relationship with these individuals. Furthermore, none of the three individuals are “covered persons” as defined in Rule 506(d). Therefore the Company does not believe that these judgments will impact the Company’s stock or its ability to raise future capital and, consequently, does not believe it would be appropriate to include any disclosure regarding these judgments in its risk factors.
Item 7. Management’s Discussion and Analysis, page 12
11.
Please revise your overview section to provide a balanced, executive-level discussion that identifies the most important themes or other significant matters with which management is concerned in evaluating the company’s financial condition and operating results. In doing so, provide a tabular disclosure to summarize results of operations for the past two fiscal years. Please discuss any known trends, demands, commitments, events and uncertainties that pose a risk or threat to the company in your narrative to the results of operations disclosure. See Item 303(a) of Regulation S-K and SEC Release No. 33-8350. For example, based upon your recent production history, tell us how you intend to fund and complete production for digital products expected for release in the first quarter of 2015.
Response:
The Company respectfully acknowledges the Staff's comment concerning the Management's Discussion and Analysis sections of the Form 10-K for fiscal year ended December 31, 2013 and the form 10-Q for fiscal quarter ended June 30, 2014. In future filings the Company will provide a Management Discussion and Analysis section in line with the Staff’s requested revisions. Attached hereto are Annex A and Annex B as a sample of the Management Discussion and Analysis sections that the Company will file for future Forms 10-K and 10-Q, respectively.
Item 15. Exhibits and Financial Statement Schedules, page 26
12.
It does not appear that you filed your employment agreement with Mr. William O’Dowd, IV, dated September 7, 2012, effective January 1, 2012, during the interim period September 30, 2012. Please advise. Refer to Item 601(b)(10)(iii)(A).
Response:
The Company respectfully acknowledges the Staff’s comment and advises that the employment agreement between the Company and Mr. William O’Dowd, IV was filed on Form 8-K on September 19, 2012.
13.
Please file Exhibit 21 as required by Item 601(b)(21) of Regulation S-K.
Response:
The Company respectfully acknowledges the Staff’s comment and plans to file Exhibit 21 as required by Item 601(b)(21) with the Form 10-K for fiscal year ended December 31, 2014.
14.
Please advise whether you filed the equity finance agreements from 2011 and 2012. If not, please file these agreements in your next Form 10-Q as required by Item 601(b)(10) of Regulation S-K.
Response:
The Company respectfully acknowledges the Staff’s comment and will file the form of equity finance agreement used in connection with the financing received during 2011 and 2012 with the Form 10-K for fiscal year ended December 31, 2014.
15.
It appears you did not file the related party agreement with your chief executive officer to provide management personnel and office services. Please advise or file this agreement in your next 10-Q as required by Item 601(b)(10) of Regulation S-K.
Response:
The Company respectfully acknowledges the Staff’s comment and will file the related party agreement with the chief executive officer with the Form 10-K for fiscal year ended December 31, 2014.
Form 10-Q for Fiscal Quarter Ended June 30, 2014
General
16.
We note that your recent periodic reports contain a version of the following statement, “The Company expects to generate additional gross producer revenues subsequent to quarter end at which time the investors will receive their pro rata share of the revenue.” Please delete these types of statements as they do not appear to reflect an accurate description of your past, present or prospective results of operations.
Response:
The Company respectfully acknowledges the Staff’s comment and will delete the referenced statement and a
Show Raw Text
CORRESP
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filename1.htm
dpdm_corresp.htm
January 16, 2015
Larry Spirgel
Assistant Director
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549-3561
Re:
Dolphin Digital Media, Inc.
Form 10-K for Fiscal Year Ended December 31, 2013
Filed August 15, 2014
Form 10-Q for Fiscal Quarter Ended June 30, 2014
Filed August 21, 2014
File No 0-50621
Dear Mr. Spirgel:
We hereby respond to the comments provided by the Staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) in its letter to Dolphin Digital Media, Inc. (the “Company”) dated December 5, 2014, regarding the Company’s Form 10-K for the fiscal year ended December 31, 2013 and the Company’s Form 10-Q for the fiscal quarter ended June 30, 2014. For ease of reference, we have included the Staff’s comments in their entirety in italicized text preceding each of our responses.
Special Note Regarding Forward Looking Statements, page 1
1.
Please delete the reference to the safe harbor provided by the Private Securities Litigation Reform Act of 1995 as this protection does not apply to you because your common stock is considered a penny stock. Please note this comment applies to periodic reports filed on Form 10-Q.
Response:
The Company respectfully acknowledges the Staff’s comment and will not include reference to the safe harbor provided by the Private Securities Litigation Reform Act of 1995 in future filings of Form 10-Q and Form 10-K.
1
Item 1. Business, page 1
2.
Please update this section. Clearly distinguish and balance historical, current and aspirational operation, and do not place an undue emphasis on cancelled agreements or defunct projects.
Response:
The Company respectfully acknowledges the Staff’s comment and will provide in a subsequent correspondence an updated Business section responsive to the Staff’s comment.
Dolphin Digital Studios, Page 2
3.
Please tell us why you completed only one project as of December 31, 2013 under your finance and production pursuant to the equity finance agreements from 2011 and 2012. We note you have invested funds from your equity finance agreements into eleven projects. Please tell us the amount of funds invested in each project and the material terms of the agreements, including but not limited to, the number of investors participating and whether revenue share percentages are to be split between investors and the company evenly among the different web series productions. Lastly, please confirm that you will disclose this information in future filings.
Response:
The Company respectfully acknowledges the Staff’s comment. For the year ended December 31, 2011, the Company received $895,000 and an additional $105,000 in the year ended December 31, 2012 of financing from three persons, all of whom are accredited investors. Each of the persons lending money to the Company executed a separate financing agreement which entitled them to participation interests in any project for which funds were expended prior to December 31, 2012. Pursuant to the terms of the agreement, the Company agreed to produce no less than one and no more than eight productions before December 31, 2012. The financing proceeds were allocated across eleven projects and the Company produced two productions. Lenders are entitled to receive, from the producers’ gross receipts (as defined in the agreements) generated by the project, (i) first, a return of their principal, (ii) second, a preferential return of 15% of their principal and (iii) third, a fifty percent (50%) split of any additional producers’ gross receipts (with the Company receiving the other fifty percent). Each of the agreements provides that the Company is entitled to earn a producer’s fee of up to $250,000 per production which is considered part of the expenses of the project and paid prior to calculation of the producers’ gross receipts.
The Company respectively advises the Staff that, of the total amount received, (i) approximately $532,000 was used to produce Cybergeddon and Hiding, the two projects that have been completed and (ii) the other $468,000 was used to develop or purchase scripts for the other nine projects. While the Company currently owns all rights with respect to these projects, it does not anticipate commencing production until and unless it or one of its content distributors has secured advertising for the specific project. The Company respectively advises the Staff that providing the actual expenses incurred, or investments made, on a project by project basis would cause the Company competitive harm and, the Company believes, would not provide investor additional material information. In future filings, the Company will provide the following information (1) the aggregate amount of funds received from lenders and the number of such persons, (ii) the number of projects in which such funds have been invested, and (iii) the amount of funds invested in projects which (A) have been completed, (B) are in pre-production or production and (C) are still pending development.
4.
We note that your statement “Dolphin Digital Studios expects to produce several web series a year” appears overly aspirational and not based in fact. Please remove this statement in future filings.
Response:
The Company respectfully acknowledges the Staff’s comment. The Company will remove such statement in future filings until such time as the Company has a track record of producing multiple web series within a year period.
5.
Please make clear that your online distribution revenue projections are aspirational and forward-looking. Revise your disclosure on page 12 as well.
Response:
The Company respectfully acknowledges the Staff’s comment and in future filings will make clear that such projections are aspirational and forward-looking unless firm commitments exist with respect to online distribution revenue. The Company will include in its revised Business Section the revised disclosure on page 12 accordingly.
2
Cambio Distribution Partnership, page 4
6.
It appears this project has been cancelled. Please remove and update your disclosure accordingly.
Response:
The Company respectfully acknowledges the Staff’s comment and confirms that the subject project has been cancelled. The Company has already deleted reference to such project from its Form 10-Q for the fiscal quarter ended September 30, 2014 and will not include it in any subsequent filings.
Kids Club, page 4
7.
Please disclose the name of the philanthropic organization you partnered with to create Club Connect. Please tell us why you did not file this agreement on a Form 10-Q during the appropriate interim period for 2013.
Response:
The Company respectively acknowledges the Staff’s comment. The Company entered into this agreement in the ordinary course of business with United Way Worldwide. The Company has determined that the Company’s business is not “substantially dependent” on the referenced contract, as such term is used in Regulation S-K, Item 601(b)(10)(ii)(B). Regulation S-K, Item 601(b)(10)(ii)(B) requires the filing of a material agreement entered into the ordinary course of a company’s business if such company is substantially dependent on such material agreement. The relevant example provided in this Item and our interpretation of this Item’s fundamental purpose leads us to conclude that the determination of whether a company is substantially dependent on a contract should include two primary concepts:
●
whether the loss of such contract would have a materially adverse effect on the company’s financial condition so significant that it would result in a fundamental change in the nature or structure of the company’s business; and
●
whether the company has at its disposal, within a reasonable period of time, access to adequate alternate means on commercially reasonable terms to replace the lost contract in the event it is terminated.
For the three and nine months ended September 30, 2014, the Company recognized $16,501 in revenue related to services provided under the Club Connect agreement. The Company anticipates that the revenue generated during 2015 pursuant to this agreement will be less than five percent (5%) of the Company’s aggregate revenue for 2015. In future filings, the Company will include in the description of Club Connect that United Way Worldwide is the name of the philanthropic organization that we partnered with to create Club Connect. In addition, in future filings the Company will confirm, to the extent true, that this project is in its early development stage and that the Company does not anticipate generating material revenue pursuant to this agreement in the succeeding twelve months.
Item 1A. Risk Factors, page 6
Certain Risk Factors Relating to our Business, page 7
8.
We note that a large number of risk factors appear overly generic and could apply to any business. Please revise your risk factors so that they are narrowly tailored towards your particular business plan and highlight the current status of your business operations. For example, please include separate factors to address, among other items:
●
your failure to complete ten of eleven projects financed under your equity finance agreements from 2011 and 2012, and your failure to generate revenues from your sole production as of December 31, 2013;
●
your ability or inability to finance production and programming projects. Please discuss specifically the amount of funds set aside to finance projects for 2014 and whether these funds are adequate.
●
your net loss and accumulated deficit. We note these figures total $944,640 and $37,627,079, respectively, for the period ending June 30, 2014.
3
Response:
The Company respectfully acknowledges the Staff’s comment and will provide in a subsequent correspondence an updated Risk Factor section responsive to the Staff’s comment above.
9.
Please disclose that a majority of your 2013 revenue, $1,500,000 of your $2,293,880, or 65% did not come from your intended business operations---production of digital content and advertising. Rather, disclose that your service revenue come from a related party agreement with your chief executive officer to provide management personnel and office space.
Response:
The Company respectfully acknowledges the Staff’s comment and has included a discussion of the related party agreement in the proposed revisions of the Management Discussion and Analysis sections of each of the Form 10-K for fiscal year ended December 31, 2014 and the Form 10-Q for fiscal quarter ended June 30, 2014, attached hereto as Annex A and Annex B, respectively.
Certain Factors Relating to our Common Stock, page 8
10.
Please disclose the Securities and Exchange Commission judgments against Messrs. Malcolm Stockdale, Pino Baldassarre and Robert Mouallem, and how these judgments have impacted your stock and may impact your stock moving forward. Provide the following citation, Securities and Exchange Commission v. Giuseppe Pino Baldassarre, Robert Mouallem, and Malcolm Stockdale, Civil Action No. 11 Civ 5970 (ARR) (E.D.N.Y.).
Response:
The Company respectfully acknowledges the Staff’s comment. However, the Company respectively advises the Staff that it does not believe that these judgments will impact our stock price moving forward. Mr. Baldassarre’s employment with the Company was terminated with cause on March 20, 2009 and settled all pending claims with Mr. Baldassarre in February 2010. The Company has not had any association with Malcolm Stockdale since 2010 and Robert Mouallem was never associated with the Company. The Company does not currently have any relationship or affiliation with any of these individuals nor any current liabilities or obligations arising from its prior relationship with these individuals. Furthermore, none of the three individuals are “covered persons” as defined in Rule 506(d). Therefore the Company does not believe that these judgments will impact the Company’s stock or its ability to raise future capital and, consequently, does not believe it would be appropriate to include any disclosure regarding these judgments in its risk factors.
Item 7. Management’s Discussion and Analysis, page 12
11.
Please revise your overview section to provide a balanced, executive-level discussion that identifies the most important themes or other significant matters with which management is concerned in evaluating the company’s financial condition and operating results. In doing so, provide a tabular disclosure to summarize results of operations for the past two fiscal years. Please discuss any known trends, demands, commitments, events and uncertainties that pose a risk or threat to the company in your narrative to the results of operations disclosure. See Item 303(a) of Regulation S-K and SEC Release No. 33-8350. For example, based upon your recent production history, tell us how you intend to fund and complete production for digital products expected for release in the first quarter of 2015.
Response:
The Company respectfully acknowledges the Staff's comment concerning the Management's Discussion and Analysis sections of the Form 10-K for fiscal year ended December 31, 2013 and the form 10-Q for fiscal quarter ended June 30, 2014. In future filings the Company will provide a Management Discussion and Analysis section in line with the Staff’s requested revisions. Attached hereto are Annex A and Annex B as a sample of the Management Discussion and Analysis sections that the Company will file for future Forms 10-K and 10-Q, respectively.
Item 15. Exhibits and Financial Statement Schedules, page 26
12.
It does not appear that you filed your employment agreement with Mr. William O’Dowd, IV, dated September 7, 2012, effective January 1, 2012, during the interim period September 30, 2012. Please advise. Refer to Item 601(b)(10)(iii)(A).
Response:
The Company respectfully acknowledges the Staff’s comment and advises that the employment agreement between the Company and Mr. William O’Dowd, IV was filed on Form 8-K on September 19, 2012.
4
13.
Please file Exhibit 21 as required by Item 601(b)(21) of Regulation S-K.
Response:
The Company respectfully acknowledges the Staff’s comment and plans to file Exhibit 21 as required by Item 601(b)(21) with the Form 10-K for fiscal year ended December 31, 2014.
14.
Please advise whether you filed the equity finance agreements from 2011 and 2012. If not, please file these agreements in your next Form 10-Q as required by Item 601(b)(10) of Regulation S-K.
Response:
The Company respectfully acknowledges the Staff’s comment and will file the form of equity finance agreement used in connection with the financing received during 2011 and 2012 with the Form 10-K for fiscal year ended December 31, 2014.
15.
It appears you did not file the related party agreement with your chief executive officer to provide management personnel and office services. Please advise or file this agreement in your next 10-Q as required by Item 601(b)(10) of Regulation S-K.
Response:
The Company respectfully acknowledges the Staff’s comment and will file the related party agreement with the chief executive officer with the Form 10-K for fiscal year ended December 31, 2014.
Form 10-Q for Fiscal Quarter Ended June 30, 2014
General
16.
We note that your recent periodic reports contain a version of the following statement, “The Company expects to generate additional gross producer revenues subsequent to quarter end at which time the investors will receive their pro rata share of the revenue.” Please delete these types of statements as they do not appear to reflect an accurate description of your past, present or prospective results of operations.
Response:
The Company respectfully acknowledges the Staff’s comment and will delete the referenced statement and a