Business Context and Reporting Period
This Form 8-K Current Report was filed by Dolphin Digital Media, Inc. (formerly Dolphin Entertainment, Inc.) on December 7, 2015. The filing discloses the entry into a material definitive agreement involving the issuance of a convertible note to an accredited investor.
Key Financial Metrics
- Debt Issuance: The Company issued a Convertible Note in the principal amount of $3,164,000.
- Interest Rate: The note bears interest at 10% per annum on the unpaid principal balance.
- Maturity: The note is due on the first anniversary of the issue date (December 7, 2016), with an option for the Company to extend the maturity by up to six months.
- Conversion Price: The initial conversion price is $0.25 per share of Common Stock.
- Liquidity Impact: Proceeds are intended to strengthen the Company's financial condition.
Note: The filing does not provide specific values for revenue, net profit, operating cash flow, or existing debt levels prior to this transaction.
Material Changes
The primary material change is the creation of a new direct financial obligation of $3,164,000. This represents a significant increase in the Company's debt load, which is convertible into equity under specific conditions. No comparative financial data for prior periods is included in this specific filing.
Outlook, Risks, and Unusual Items
- Management Commentary: Management intends to use the proceeds to strengthen the financial condition of the Company.
- Conversion Mechanics: The note includes a mandatory automatic conversion feature if the average market price of the Common Stock over the preceding 20 trading days equals or exceeds the conversion price ($0.25).
- Risks and Contingencies: The note contains customary events of default, including failure to pay, failure to maintain corporate existence, insolvency, or receipt of final non-appealable judgments.
- Regulatory Status: The securities were issued unregistered under Section 4(a)(2) or Rule 504, 505, or 506 of the Securities Act of 1933.
Investor Verification Checklist
- Verify the Company's current cash position and ability to service the 10% interest on the $3,164,000 note.
- Review the current trading price of Common Stock relative to the $0.25 conversion price to assess the likelihood of mandatory conversion.
- Confirm the total outstanding debt load of the Company to evaluate leverage ratios post-issuance.
- Examine the specific terms of the "triggering event" for mandatory conversion in the full text of the Convertible Note (Exhibit 10.9).