UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
SCHEDULE 14A
 
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
 
Filed by the Registrant þ
 
Filed by a Party other than the Registrant o
 
Check the appropriate box:
 
þ Preliminary Proxy Statement
o
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material Pursuant to §240.14a-12
 
DOLPHIN DIGITAL MEDIA, INC.
(Name of Registrant as Specified in its Charter)
 
Payment of Filing Fee (Check the appropriate box):
 
o
No fee required.
 
þ
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)  
Title of each class of securities to which transaction applies:
 
 
Series B Convertible Preferred Stock, par value $0.10 per share, of Dolphin Digital Media, Inc.
  Series C Convertible Preferred Stock, par value $0.001per share, of Dolphin Digital Media, Inc.
 
(2)  
Aggregate number of securities to which transaction applies:
 
  2,300,000 shares of Series B Convertible Preferred Stock (convertible into 43,700,000 shares of common stock)
 
1,000,000 shares of Series C Convertible Preferred Stock (convertible into 1,000,000 shares of common stock)
 
(3)  
Per unit or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
The underlying value of the transaction was determined based on the market value of shares of Dolphin Digital Media, Inc. and the number of shares Dolphin Digital Media, Inc. common stock to be issued in the transaction as follows: (A) $0.195, the average of the high and low price of Dolphin Digital Media, Inc. common stock as of December 17, 2015 as quoted on the OTC Markets Group, Inc. multiplied by (B) (x) 43,700,000, the number of shares of Dolphin Digital Media, Inc. common stock issuable upon conversion of the 2,300,000 shares of Series B Convertible Preferred Stock plus (y) 1,000,000, the number of shares of Dolphin Digital Media, Inc. common stock issuable upon conversion of the 1,000,000 shares of Series C Convertible Preferred Stock
 
 
(4)  
Proposed maximum aggregate value of transaction:  $8,716,500
 
 
(5)  
Total fee paid:  $1,743.30
 
o
Fee paid previously with Preliminary materials.
 
o
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing fee for which the offsetting fee was paid previously.  Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
(1)
Amount Previously Paid:
 
 
(2)
Form, Schedule or Registration Statement No.
 
 
(3)
Filing Party:
 
 
(4)
Date Filed:
 


 
 
 
 
 
DOLPHIN DIGITAL MEDIA, INC.
2151 Le Jeune Road, Suite 150-Mezzanine
Coral Gables, Florida 33134
_________________________
 
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
_________________________
 
[·]
 
Dear Shareholder:
 
It is my pleasure to invite you to attend the annual meeting of the shareholders of Dolphin Digital Media, Inc. (the “Annual Meeting”).  The meeting will be held on [·], at [·] a.m. local time at the offices of Greenberg Traurig, located at Greenberg Traurig, P.A., 333 S.E. 2nd Avenue, Suite 4400, Miami, FL 33131.  At the meeting, you will be asked to:
 
 
1.
Approve the Agreement and Plan of Merger, dated as of October 14, 2015, by and among Dolphin Digital Media, Inc., DDM Merger Sub, Inc., Dolphin Films, Inc. and Dolphin Entertainment, Inc. (the “Merger Agreement”), including the issuance of 2,300,000 shares of Series B Convertible Preferred Stock and 1,000,000 shares of Series C Convertible Preferred Stock as consideration for the Merger.
 
 
2.
Approve an amendment to our Articles of Incorporation to create the Series C Convertible Preferred Stock and to increase the number of authorized shares of common stock of the Company from 200,000,000 to 400,000,000 shares.
 
 
3.
Elect five directors to hold office until the 2016 Annual Meeting of the Shareholders or until their successors are elected and qualified.
 
 
4.
Ratify the appointment of BDO USA, LLP as our independent registered public accounting firm for the 2015 fiscal year.
 
 
5.
Approve, on a non-binding advisory basis, the compensation paid to our named executive officers.
 
 
6.
Approve, on a non-binding advisory basis, the frequency of the shareholder vote on the compensation of our named executive officers (every three, two or one year).
 
 
7.
Transact such other business as may properly come before the Annual Meeting.
 
Only shareholders of record as of the close of business on [·] may vote at the Annual Meeting.  In order for the merger to be completed, the holders of at least a majority of the shares of common stock of Dolphin Digital Media, Inc. outstanding and entitled to vote must vote in favor of approval of the Merger Agreement.  The proxy statement provides a detailed description of the merger, the Merger Agreement and related matters.  We urge you to read the proxy statement, including any documents incorporated in the proxy statement by reference, and its annexes carefully and in their entirety.
 
It is important that your shares be represented at the Annual Meeting, regardless of the number you may hold.  Whether or not you plan to attend, please vote using the Internet, by telephone, by fax or by mail, in each case by following the instructions in our proxy statement.  This will not prevent you from voting your shares in person if you are present.
 
A full set of proxy materials has been provided to you, including the proxy statement, a copy of our annual report and a form of proxy.
 
I look forward to seeing you on [·].
 
 
Sincerely,
/s/ William O’Dowd, IV                                           
WILLIAM O’DOWD, IV
Chief Executive Officer
 
This proxy statement, including the form of proxy, was first mailed to shareholders on or about [·].
 
 
 

 
 
TABLE OF CONTENTS
 
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE ANNUAL MEETING
4
SUMMARY
10
Parties to the Merger
10
The Merger and the Merger Agreement
10
The Merger Consideration
10
Role and Recommendation of the Special Committee
11
Recommendation of the Board of Directors and its Reasons for the Merger
11
Financial Analyses of the Financial Advisor to the Special Committee
11
Interests of Certain Persons in the Merger
11
Shares Held by Directors and Executive Officers
12
The Annual Meeting
12
Vote Required to Approve the Merger Agreement
12
Ownership of the Company After the Merger
12
Conditions to the Merger
13
Go-Shop; Acquisition Proposals; Change in Recommendation
13
Termination of the Merger Agreement
14
Regulatory Approvals
14
Appraisal Rights
14
Accounting Treatment of the Merger
14
Risk Factors
14
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
21
RISK FACTORS
22
PROPOSAL 1 – APPROVAL OF THE MERGER PROPOSAL
32
THE MERGER
33
General
33
The Merger Consideration
33
Background of the Merger
34
Financial Analyses of the Financial Advisor to the Special Committee
37
Role and Recommendation of the Special Committee
38
Recommendation of the Board of Directors and its Reasons for the Merger
39
Interests of Certain Persons in the Merger
40
No “Golden Parachute” Compensation
41
Closing and Effective Time of the Merger
41
Regulatory Approvals
41
Transaction in Connection with the Merger 41
Ownership of the Company After the Merger
41
Appraisal Rights
42
Accounting Treatment of the Merger
42
 
 
1

 
 
THE MERGER AGREEMENT
43
Explanatory Note Regarding the Merger Agreement
43
Structure and Effective Time
43
Merger Consideration
44
Directors and Officers
44
Representations and Warranties
44
Conduct of Business Pending the Closing
46
Shareholder Meeting; Preparation of Proxy Statement
47
Go-Shop; Acquisition Proposals; Change in Recommendation
47
Survival and Indemnification
48
Access to Information
49
Conditions to the Merger
49
Termination of the Merger Agreement
50
Transaction Expenses; No Termination Fees
51
Amendment; Extension; Waiver
51
Assignment
52
Governing Law
52
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DOLPHIN FILMS, INC.
53
PROPOSAL 2 – APPROVAL OF THE CREATION OF SERIES C CONVERTIBLE PREFERRED STOK AND an INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMPANY COMMON STOCK FROM 200,000,000 TO 400,000,000
61
PROPOSAL 3 – ELECTION OF DIRECTORS
63
CORPORATE GOVERNANCE
65
Controlled Company
65
Board Leadership Structure and Role in Risk Oversight
65
Board Meetings
65
Director Independence
65
Board Committees
66
Code of Ethics
66
Certain Relationships and Related Transactions
66
Director Compensation
67
Involvement in Certain Legal Proceedings
67
Arrangements
67
EXECUTIVE COMPENSATION
68
PROPOSAL 4 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
71
Audit Committee Report
72
PROPOSAL 5 – ADVISORY VOTE ON EXECUTIVE COMPENSATION
73
PROPOSAL 6 – ADVISORY VOTE ON FREQUENCY OF  SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION
74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
75
OTHER MATTERS
76
Compliance with Section 16(a) of the Exchange Act
76
Shareholder Proposals for 2016 Annual Meeting of Shareholders
76
 
 
2

 
 
Transaction of Other Business
77
List of Shareholders Entitled To Vote at the Annual Meeting
77
Expenses Relating to this Proxy Solicitation
77
Communication with the Company’s Board of Directors
77
Available Information
78
Householding
78
INDEX TO COMBINED FINANCIAL STATEMENTS
 
 
ANNEXES
 
ANNEX A
Agreement and Plan of Merger by and among Dolphin Digital Media, Inc., DDM Merger Sub, Inc., Dolphin Films, Inc. and Dolphin Entertainment, Inc.
 
ANNEX B
Articles of Amendment to Articles of Incorporation of Dolphin Digital Media, Inc. designating Series C Convertible Preferred Stock.
 
ANNEX C
Articles of Amendment to Articles of Incorporation of Dolphin Digital Media, Inc. to increase the number of authorized shares of Common Stock of the Company.
 
 
3

 
 

DOLPHIN DIGITAL MEDIA, INC.
2151 Le Jeune Road, Suite 150-Mezzanine
Coral Gables, Florida 33134
_________________________
 
PROXY STATEMENT
_________________________
 
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE ANNUAL MEETING
 
The following are some questions that you, as a shareholder of the Company, may have regarding the merger and the Annual Meeting and brief answers to such questions.  We urge you to carefully read this entire proxy statement, the annexes to this proxy statement and the documents enclosed with, referred to or incorporated by reference in this proxy statement because the information in this section does not provide all the information that may be important to you as a shareholder of the Company with respect to the merger and the Annual Meeting.  Additional important information is also contained in the documents incorporated by reference into this proxy statement.  See “Available Information” beginning on page 79.
 
Q:           Why am I receiving this proxy statement?
 
A:           You are receiving this proxy statement in connection with our solicitation of proxies to be voted at the Annual Meeting and any adjournments or postponements thereof.  At the Annual Meeting you will have the opportunity to vote on the proposal to approve the Merger Agreement and other proposals.
 
Q:           What is the Merger Agreement and the Merger?
 
A:           On October 14, 2015, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) among the Company, DDM Merger Sub, Inc. (“Merger Subsidiary”), Dolphin Entertainment, Inc., (“Dolphin Entertainment”) and Dolphin Films, Inc. (“Dolphin Films”).  Merger Subsidiary is a wholly-owned subsidiary of the Company and Dolphin Films is a wholly-owned subsidiary of Dolphin Entertainment.  Pursuant to the Merger Agreement, Merger Subsidiary agreed to merge with and into Dolphin Films (the “Merger”) with Dolphin Films surviving the Merger.  As a result of the Merger, we will acquire Dolphin Films.
 
Q:           Why is the Company undertaking the Merger?
 
A:           The Board believes that the Merger is in the best interests of our shareholders because of the similar nature of our business and that of Dolphin Films and because of the synergy that we anticipate will result from the Merger.  You should be aware that our President, Chairman and Chief Executive Officer, Mr. William O’Dowd, is also the indirect owner of 100% of Dolphin Films equity interests.  The Board expects that the proposed Merger would simplify the current ownership structure of the affiliated entities, and focus the energies of Mr. O’Dowd on one combined company with a shared strategy.  The Board has determined that it is advisable, fair to and in the best interests of the Company and our shareholders, other than Mr. O’Dowd, to consummate the Merger and the other transactions contemplated by the Merger Agreement.  In making this determination, the Board considered the recommendation of the Special Committee (defined below) and various other factors described in the section titled “Recommendation of the Board of Directors and its Reasons for the Merger” beginning on page 40 of this proxy statement.
 
Q:           What was the role of the Special Committee in the Merger and what is its recommendation?
 
A:           The Special Committee of independent directors of the Board (the “Special Committee”) was appointed to evaluate and negotiate the Merger Agreement and related transactions with the assistance of independent legal counsel and a financial advisor.  After consideration, the Special Committee unanimously determined that the Merger Agreement is fair to, and in the best interests of, our shareholders, other than Mr. O’Dowd, and that it is advisable for us to enter into the Merger Agreement. The Special Committee recommended to the Board that the Board approve the Merger Agreement.  In making its determination, the Special Committee considered various factors described in the section titled “Role and Recommendation of the Special Committee” beginning on page 39 of this proxy statement.
 
 
4

 
 
Q:           What will be the impact of the Merger to my stock ownership in the Company?
 
A:           In the Merger, we will issue to Dolphin Entertainment 2,300,000 shares of Series B convertible preferred stock of the Company, par value $0.10 (the “Series B Convertible Preferred Stock”) and 1,000,000 shares of Series C convertible preferred stock of the Company, par value $0.001 (the “Series C Convertible Preferred Stock”).  Each share of Series B Convertible Preferred Stock is exercisable into nineteen shares of Common Stock and each share of Series C Convertible Preferred Stock is exercisable into one share of Common Stock.  As a result of these stock issuances, your ownership interest in the Company will be diluted, meaning that you will own a smaller percentage of the Company.  In addition, for a period of five years from the date of issuance, the Series C Convertible Preferred Stock will have certain anti-dilution protections.  Upon specified triggers, 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 currently held by such persons, which currently is approximately 53% of the shares of Common Stock outstanding.  Your ownership interest may be further diluted if there are any additional issuances of Common Stock as a result of these anti-dilution protections.  For a detailed discussion of the anti-dilution protections of the Series C Convertible Preferred Stock, please see the section titled “The Merger Consideration – Series C Convertible Preferred Stock” beginning on page 34 of this proxy statement.
 
Q:           Will the Merger affect my voting rights?
 
A:           Yes.  Holders of Series C Convertible Preferred Stock will have super voting rights of three votes per preferred share and will be also 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, for a period of five years from the date of issuance, the Series C Convertible Preferred Stock will have certain anti-dilution protections.  These anti-dilution protections may cause an increase in the number of shares of Common Stock into which Series C Convertible Preferred Stock held by certain eligible persons can be converted which could further dilute your percentage of voting rights.
 
Q:           Why does the Company want to increase its number of authorized shares?
 
A.           As consideration for the Merger we plan to issue shares of Series B Convertible Preferred Stock and new shares of Series C Convertible Preferred Stock, all of which are exercisable into shares of Common Stock.  To ensure that a sufficient number of shares of Common Stock will be available for issuance by us in connection with the Merger, including as a result of anti-dilution protections, and for our future business needs, the Board has approved, subject to shareholder approval, the amendment of the Company’s Articles of Incorporation to increase the number of shares of Common Stock authorized for issuance from 200,000,000 to 400,000,000.
 
Q:           Why does the Company want to create a new Series C Convertible Preferred Stock?
 
A.           The Company wants to create the new Series C Convertible Preferred Stock to issue as part of the consideration for the Merger.  The Series C Convertible Preferred Stock will have certain rights and obligations, including automatic conversion upon the occurrence of certain events and the right to conversion upon the Company satisfying an optional conversion threshold (defined on page 34).  This is intended to reduce the dilutive impact of the proposed merger on currently outstanding shares of Common Stock unless and until the Company achieves certain post-merger performance targets.  The Series C Convertible Preferred Stock will also have anti-dilution protections, super voting rights and the ability to vote as a class with the Common Stock on any matters on which the Common Stock is entitled to vote.  For a further description of the Series C Convertible Preferred Stock, please see the section titled “The Merger Consideration – Series C Convertible Preferred Stock” beginning on page 33 of this proxy statement.
 
Q:           When do you expect the Merger to be completed?
 
A:           We hope to complete the Merger in the first quarter of 2016.
 
 
5

 
 
Q:           What am I being asked to vote on and what is the Board’s recommendation?
 
A:           You will be asked to vote on the following six proposals at the Annual Meeting.  Our Board recommendation for each of these proposals is set forth below.
 
Proposal
Board
Recommendation
1.     Approve the Merger Agreement (the “Merger Proposal”), including the issuance of preferred shares as consideration for the Merger.
FOR
2.     Approve an amendment to our Articles of Incorporation to create the Series C Convertible Preferred Stock and to increase the number of authorized shares of Common Stock.
FOR
3.     Elect five directors.
FOR each director nominee
4.     Ratify the appointment of BDO USA, LLP (“BDO”) as our independent registered public accounting firm for the 2015 fiscal year.
FOR
5.     Approve, on a non-binding advisory basis, the compensation paid to our named executive officers (the “say-on-pay” vote).
FOR
6.     Approve, on a non-binding advisory basis, the frequency of the shareholder vote on the compensation of our named executive officers (every three, two or one year) (the “say-on-frequency” vote).
FOR every one year

We will also consider any other business properly brought before the Annual Meeting.
 
Q:           When and where will the Annual Meeting take place?
 
A:           The Annual Meeting will be held on [·] at [·] a.m., local time, at the offices of Greenberg Traurig, located at Greenberg Traurig, P.A., 333 S.E. 2nd Avenue, Suite 4400, Miami, FL 33131.
 
Q:           Who may vote at the Annual Meeting?
 
A:           Only holders of record of shares of our Common Stock at the close of business on [·] (the “Record Date”), are entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement of the Annual Meeting.  On the Record Date, we had [·]shares of our Common Stock outstanding and entitled to be voted at the Annual Meeting.
 
Q:           How many votes do I have?
 
A:           You may cast one vote for each share of our Common Stock held by you as of the Record Date on all matters presented at the Annual Meeting.  Holders of the Company’s Common Stock do not possess cumulative voting rights.
 
Q:           How do I vote?
 
A:           If you are a shareholder of record as of the Record Date, there are five ways you can vote:
 
Method
Process for Voting
By Internet
You may vote over the Internet by going to www.iproxydirect.com/DPDM and entering your Control ID and following the instructions for voting.
By Telephone
You may vote by telephone by calling 1-866-752-VOTE (8683) and following the recorded instructions.  If you vote by telephone, you will also need your Control ID referred to above.
By Fax
You may vote by fax by filling out the proxy card and faxing to 202-521-3464.
By Mail
You may vote by mail by filling out the proxy card and returning it in the enclosed envelope.
In Person
You may vote in person at the Annual Meeting.
 
 
6

 

If you are a beneficial owner of shares, you must follow the voting procedures of your nominee included with your proxy materials.  If your shares are held by a nominee and you intend to vote at the Annual Meeting, please bring with you evidence of your ownership as of the Record Date (such as a letter from your nominee confirming your ownership or a bank or brokerage firm account statement).
 
Q:           What is the difference between a shareholder of record and a beneficial owner?
 
A:           If your shares are registered directly in your name with our transfer agent, Nevada Agency and Transfer Company, you are considered the “shareholder of record” with respect to those shares.
 
If your shares are held by a brokerage firm, bank, trustee or other agent, which we refer to as a nominee, you are considered the “beneficial owner” of shares held in street name.  As the beneficial owner, you have the right to direct your nominee on how to vote your shares by following its instructions for voting by internet, telephone, fax or the voting instruction card included in the enclosed proxy materials.
 
Q:           What constitutes a quorum, and why is a quorum required?
 
A:           We are required to have a quorum of shareholders present to conduct business at the Annual Meeting.  The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the shares entitled to vote on the record date will constitute a quorum, permitting us to conduct the business of the Annual Meeting.  Proxies received but marked as “ABSTAIN” or “WITHHOLD”, if any, and broker non-votes (described below), if applicable, will be included in the calculation of the number of shares considered to be present at the Annual Meeting for quorum purposes.  If a quorum is not present, we will be required to reconvene the Annual Meeting at a later date.
 
Q:           How many votes are needed to approve each Proposal and what is the impact of abstentions?
 
Proposal
Votes Required for Approval
Impact of Abstentions
Proposal 1:
Approval of the Merger Agreement
Majority of votes outstanding and entitled to be cast.
Same effect as a vote “AGAINST”
Proposal 2:
Amendment of the Articles of Incorporation
Majority of votes cast.
No impact
Proposal 3:
Election of five
director nominees
Plurality of votes cast.
This means that the five nominees who receive the highest number of “FOR” Votes will be elected as the directors to serve until the next Annual Meeting of shareholders or until their successors are elected and qualified, even if those nominees do not receive a majority of the votes cast.
Withhold votes have no impact
Proposal 4:
Ratification of auditors
Majority of votes cast.
No impact
Proposal 5:
Say-on-pay vote
Majority of votes cast.
No impact
Proposal 6:
Say-on-frequency vote
Greatest number of votes cast for whichever option (three, two or one year).
No impact
 
 
7

 
 
Q:           How are votes counted for the advisory proposals regarding say-on-pay (Proposal 5) and say-on-frequency (Proposal 6)?
 
A:           Proposals 5 and 6 are advisory votes which are mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  This means that while we ask shareholders to approve resolutions regarding say-on-pay and say-on-frequency, these are not actions that require shareholder approval.  Consequently, our Bylaw provisions regarding voting requirements do not apply to these two proposals.  We will report the results of the shareholder vote on these two proposals based on the number of shares cast.  If more shares vote “FOR” the say-on-pay proposal than vote “AGAINST,” we will consider that the proposal was approved.  For the say-on-frequency vote, we will consider that the shareholders have recommended whichever option (three, two or one year) that receives the greatest number of votes cast.
 
Q:           What is the effect of the advisory votes on Proposals 5 and 6?
 
A:           Although the advisory votes on Proposals 5 and 6 are non-binding, our Board will review the results of the votes and take them into account in making a determination concerning executive compensation and the frequency of such advisory votes.
 
Q:           What if I sign and return my proxy without making any selections?
 
A:           If you sign and return your proxy without making any selections, your shares will be voted “FOR” Proposals 1 through 5 and “EVERY 1 YEAR” for Proposal 6.
 
Q:           What happens if additional matters are presented at the Annual Meeting?
 
A:           Other than the items of business described in this proxy statement, we are not aware of any other business to be acted upon at the Annual Meeting.  If you grant a proxy, the proxy holder, Mr. O’Dowd will not vote your shares on any additional matters presented for a vote at the Annual Meeting.
 
Q:           What if I am a beneficial shareholder and I do not give the nominee voting instructions?
 
A:           If you are a beneficial shareholder and your shares are held in the name of a broker, the broker has the authority to vote shares for which you do not provide voting instructions only with respect to certain “routine” matters.  A broker non-vote occurs when a nominee who holds shares for another does not vote on a particular matter because the nominee does not have discretionary voting authority for that matter and has not received instructions from the beneficial owner of the shares.  Broker non-votes are included in the calculation of the number of votes considered to be present at the Annual Meeting for purposes of determining the presence of a quorum.  The Proposals 1, 2, 3, 5 and 6 described in this proxy statement do not relate to “routine” matters.  As a result, a broker will only be able to vote your shares with respect to Proposal 4, “Ratification of Auditors”, absent your voting instructions.
 
Q:           Can I change my vote after I have delivered my proxy?
 
A:           Yes.  If you are a shareholder of record, you may revoke your proxy at any time before its exercise by:
 
Written notice to Mirta A. Negrini at Dolphin Digital Media, Inc., 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134; or
 
Executing and delivering to Mirta A. Negrini a proxy with a later date (which may be done by internet, phone, fax, mail or attending the Annual Meeting and voting in person).
 
 
8

 
 
If you are a beneficial shareholder, you must contact your nominee to change your vote or obtain a proxy to vote your shares if you wish to cast your vote in person at the Annual Meeting.
 
Q:           What does it mean if I receive more than one proxy card?
 
A:           If you receive more than one proxy card, it means that you hold shares of the Company in more than one account.  To ensure that all your shares are voted, sign and return each proxy card.  Alternatively, if you vote by internet, telephone or fax, you will need to vote once for each proxy card you receive.
 
Q:           Who can attend the Annual Meeting?
 
A:           Only shareholders and our invited guests are invited to attend the Annual Meeting.  To gain admittance, you must bring a form of personal identification to the Annual Meeting, where your name will be verified against our shareholder list.  If a broker or nominee holds your shares and you plan to attend the Annual Meeting, you should bring a recent brokerage statement showing your ownership of the shares as of the Record Date or a letter from the broker or nominee confirming such ownership, and a form of personal identification.
 
Q:           If I plan to attend the Annual Meeting, should I still vote by proxy?
 
A:           Yes.  Casting your vote in advance does not affect your right to attend the Annual Meeting.
 
Q:           Where can I find voting results of the Annual Meeting?
 
A:           We will announce the results for the proposals voted upon at the Annual Meeting and publish final detailed voting results in a Form 8-K filed within four business days after the Annual Meeting.
 
Q:           Who should I call with other questions?
 
A:           If you have additional questions about this proxy statement or the Annual Meeting or would like additional copies of this proxy statement or the enclosures herein, please contact:  Dolphin Digital Media, Inc., 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134, Attention:  Mirta A. Negrini, Telephone:  (305) 774-0407.
 
 
9

 
 
SUMMARY
 
This summary highlights selected information from this proxy statement.  It may not contain all of the information that is important to you.  You are urged to read carefully the entire proxy statement and the other documents referred to in this proxy statement in order to fully understand the Merger Agreement and the proposed Merger.  Each item in this summary refers to the page of this proxy statement on which that subject is discussed in more detail, where applicable.
 
Parties to the Merger (Page 32)
 
Dolphin Digital Media, Inc.
 
Dolphin Digital Media, Inc. (the “Company”), first incorporated in 1995, is a Florida corporation dedicated to the production of high-quality digital content.  A division of the Company produces original, high-quality digital programming for online consumption and is committed to delivering premium, best-in-class entertainment and securing premiere distribution partners to maximize audience reach and commercial advertising potential.  The Company has also partnered with nonprofit and philanthropic organizations to develop online kids clubs.  The Company’s principal executive offices are located at 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134 and its telephone number is (305) 774-0407.  For the Company’s website, please visit: www.dolphindigitalmedia.com.
 
DDM Merger Sub, Inc.
 
DDM Merger Sub, Inc. (“Merger Subsidiary”), incorporated in 2015, is a Florida corporation and a wholly-owned subsidiary of the Company.  Merger Subsidiary was formed by the Company in anticipation of the Merger.  Merger Subsidiary has engaged in no business except for activities incidental to its formation and as contemplated by the Merger Agreement.  Merger Subsidiary’s principal executive offices are located at 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134 and its telephone number is (305) 774-0407.
 
Dolphin Entertainment, Inc.
 
Dolphin Entertainment, Inc. (“Dolphin Entertainment”), incorporated in 1996, is a Florida corporation, whose founder and president is Mr. O’Dowd who is also President, Chairman and Chief Executive Officer of the Company.  Dolphin Entertainment is an entertainment company specializing in children’s and young adult’s live-action programming.  Dolphin Entertainment’s principal executive offices are located at 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134 and its telephone number is (305) 774-0407.
 
Dolphin Films, Inc.
 
Dolphin Films, Inc., (“Dolphin Films”), incorporated in 2013, is a Florida corporation and a direct wholly-owned subsidiary of Dolphin Entertainment.  Dolphin Films produces motion pictures for theatrical release, with a focus on family films.  Its motion picture studio focuses on storytelling on a global scale for young audiences.  Dolphin Film’s principal executive offices are located at 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134 and its telephone number is (305) 774-0407.
 
The Merger and the Merger Agreement (Pages 33 and 43)
 
Pursuant to the Merger Agreement, Merger Subsidiary will merge with and into Dolphin Films (the “Merger”) with Dolphin Films surviving the Merger.  As a result of the Merger, the Company will acquire Dolphin Films.  The terms and conditions of the Merger are contained in the Merger Agreement, a copy of which is attached to this proxy statement as Annex A.  We encourage you to read the Merger Agreement carefully and in its entirety, as it is the legal document that governs the Merger.
 
The Merger Consideration (Page 33)
 
The Company does not intend to make any cash payments or enter into any debt financing in connection with the Merger.  At the effective time of the Merger, each outstanding share of common stock, par value $0.01, of Dolphin Films will be converted into the right to receive 2,300,000 shares of Series B Convertible Preferred Stock and 1,000,000 shares of Series C Convertible Preferred Stock (the “Merger Consideration”). The preferred shares constituting the Merger Consideration will be issued in reliance upon the exemption from registration requirements in Section 3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”). For a further description of the preferred shares to be issued as consideration for the Merger, please see the section titled “The Merger Consideration” beginning on page 34 of this proxy statement.
 
 
10

 
 
Role and Recommendation of the Special Committee (Page 38)
 
The Special Committee was appointed to evaluate and negotiate the Merger Agreement and related transactions with the assistance of its independent legal and financial advisors.  After such evaluation and negotiation, as well as consideration of the Financial Analyses provided by its financial advisor, the Special Committee unanimously determined that the Merger Agreement is fair to and in the best interests of the shareholders of the Company, other than Mr. O’Dowd, and that it is advisable for the Company to enter into the Merger Agreement.  The Special Committee recommended to the Board that the Board approve the Merger Agreement.  In making this determination, the Special Committee considered various factors described in the section titled “Role and Recommendation of the Special Committee” beginning on page 39 of this proxy statement.
 
Recommendation of the Board of Directors and its Reasons for the Merger (Page 39)
 
The Board believes that the Merger is in the best interests of our shareholders because of the complementary nature of our business and that of Dolphin Films and because of the synergy that we anticipate will result from the Merger.  The Board also expects that the proposed Merger would simplify the current ownership structure of the affiliated entities, and focus the energies of Mr. O’Dowd on one combined company with a shared strategy.  The Board, other than Mr. O’Dowd, has determined that it is advisable, fair to and in the best interests of the Company and its shareholders, other than Mr. O’Dowd, to consummate the Merger and the other transactions contemplated by the Merger Agreement, and recommends that shareholders vote “FOR” the proposal to adopt and approve the Merger Agreement.  In making this determination, the Board considered various factors described in the section titled “Recommendation of the Board of Directors and its Reasons for the Merger” beginning on page 40 of this proxy statement.
 
Financial Analyses of the Financial Advisor to the Special Committee (Page 37)
 
In connection with considering the Merger, the Special Committee engaged a recognized financial advisor  with experience in forecasting and valuing entertainment and media assets and businesses (the “Financial Advisor”) to develop various analyses associated with financial forecasts prepared by Dolphin Films’ management (the “Financial Analyses”) that were provided to the Special Committee on October 6, 2015.     Such Financial Analyses portrayed various valuation indications based upon forecasts and without making any determination as to the ability of Dolphin Films’ management to achieve such forecasts, and which valuation portrayals did not and do not constitute a formal financial opinion of the Financial Advisor.  The Financial Analyses constituted summary level hypothetical portrayals based upon the hypothetical achievability of Dolphin Films’ management’s financial forecasts.
 
The Financial Analyses were intended solely for the information of the Special Committee and the Board in connection with their consideration of the proposed Merger and may not be relied upon by any other person for any other purpose without the Financial Advisor’s prior written consent.  Further, the Financial Advisor’s Financial Analyses do not constitute a recommendation to any shareholder as to how such shareholder should vote with respect to the Merger or any other matter.  The Financial Advisor’s Financial Analyses will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested equity security holder of the company or representative who has been so designated in writing.  For a summary of the Financial Analyses, please see the section titled “Financial Analyses of the Financial Advisor to the Special Committee” beginning on page 39 of this proxy statement.
 
Interests of Certain Persons in the Merger (Page 40)
 
In considering the recommendation of the Board to approve the Merger Agreement, you should be aware that Mr. O’Dowd has interests in the Merger that are different from, or in addition to, those of the Company’s shareholders generally and that may create potential conflicts of interest.  Mr. O’Dowd is the President, Chairman and Chief Executive Officer of the Company and, as of [], is the beneficial owner of approximately 54% of the outstanding Common Stock of the Company.  In addition, Mr. O’Dowd is the founder, president and sole shareholder of Dolphin Entertainment, which is the parent of Dolphin Films, the target company in the Merger.  As sole shareholder of Dolphin Entertainment, Mr. O’Dowd will indirectly own shares of Series B Convertible Preferred Stock and shares of Series C Convertible Preferred Stock issued as consideration for the Merger.  The Series C Convertible Preferred Stock will have super voting rights in the Company, will be entitled to vote together with the Common Stock holders as a single class on all matters on which they are entitled to vote and will have certain anti-dilution protections for a period of five years.  Upon conversion of all preferred shares constituting the Merger Consideration, Mr. O’Dowd could own approximately 70% of the outstanding shares of the Company’s common stock.
 
 
11

 
 
Shares Held by Directors and Executive Officers (Page 75)
 
As of the close of business on [·], our current directors and executive officers were deemed to beneficially own 44,225,369 shares of Common Stock, which represented 54% of the shares of Common Stock outstanding on that date.  Mr. O’Dowd beneficially owned 53.5% of the shares of outstanding Common Stock.  Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission (the “SEC”) as described under “Security Ownership of Certain Beneficial Owners and Management” on page 76 of this proxy statement.  Although none of them has entered into any agreement obligating them to do so, we currently expect that all of our directors and executive officers will vote their shares “FOR” Proposals 1 through 5 and “EVERY 1 YEAR” for Proposal 6 below.
 
The Annual Meeting
 
The Annual Meeting will be held on [·] at [·] a.m., local time, at the offices of Greenberg Traurig, located at Greenberg Traurig, P.A., 333 S.E. 2nd Avenue, Suite 4400, Miami, FL 33131.  The purposes of the Annual Meeting are as follows:
 
 
1.
to approve the Agreement and Plan of Merger, including the issuance of 2,300,000 shares of Series B Convertible Preferred Stock and 1,000,000 shares of Series C Convertible Preferred Stock as consideration for the Merger;
 
 
2.
to approve an amendment to our Articles of Incorporation to create the Series C Convertible Preferred Stock and to increase the number of authorized shares of Common Stock from 200,000,000 to 400,000,000;
 
 
3.
to elect five directors to hold office until the 2016 Annual Meeting of the Shareholders or until their successors are elected and qualified;
 
 
4.
to ratify the appointment of our auditors for the 2015 fiscal year;
 
 
5.
to approve, on a non-binding advisory basis, the say-on-pay proposal; and
 
 
6.
to approve, on a non-binding advisory basis, the say-on-frequency proposal.
 
Completion of the Merger is conditioned on approval of the Merger Agreement and the creation of the Series C Convertible Preferred Stock by our shareholders.  Approval of the remaining proposals are not conditions to the obligation of either the Company or Dolphin Entertainment to complete the Merger.
 
Only holders of record of issued and outstanding shares of Company Common Stock as of the close of business on the Record Date for the Annual Meeting, are entitled to notice of, and to vote at, the Annual Meeting or any adjournment or postponement of the Annual Meeting.  You may cast one vote for each share of Common Stock that you owned as of the Record Date.
 
Vote Required to Approve the Merger Agreement (Page 7)
 
To approve the Merger Agreement, we require the affirmative vote of the holders of at least a majority of all outstanding shares of Common Stock.  Shares not present, and shares present and not voted, whether by broker non-vote, abstention or otherwise, will have the same effect as votes cast “AGAINST” the proposal to approve the Merger Agreement.
 
Ownership of the Company After the Merger (Page 41)
 
It is expected that after the completion of the Merger, and assuming exercise of the Series B Convertible Preferred Stock and Series C Convertible Preferred Stock into shares of Common Stock, approximately 126,592,352 shares of Common Stock will be outstanding (not including the effects of any anti-dilution protections).  Of these Mr. O’Dowd, will beneficially own 88,543,434 or approximately 70% of the outstanding shares of Common Stock of the combined company.
 
 
12

 
 
Conditions to the Merger (Page 49)
 
Each party’s obligation to complete the Merger is subject to the satisfaction or waiver of various conditions, including the following:
 
·
approval of the Merger Agreement by the Company’s shareholders;
 
·
filing with the Secretary of State of the State of Florida the Certificates of Designation for each of the Series B Convertible Preferred Stock Certificate of Designation and Series C Convertible Preferred Stock;
 
·
exchange of all of the outstanding shares of Series A Convertible Preferred Stock for shares of Series B Convertible Preferred Stock;
 
·
the absence of any law, order, injunction, or other similar action that is in effect and makes illegal or otherwise prohibits the consummation of the Merger or other transactions contemplated thereby; and
 
·
the absence of any legal proceedings prohibiting, preventing, delaying or making illegal the consummation of the Merger or other transactions contemplated thereby.
 
The obligation of the Company and Merger Subsidiary to complete the Merger is subject to the satisfaction or waiver of certain additional conditions, including the following:
 
·
the accuracy of Dolphin Films’ and Dolphin Entertainment’s representations and warranties in the Merger Agreement to varying standards depending on the representation and warranty;
 
·
Dolphin Films’ and Dolphin Entertainment’s compliance with their covenants, agreements and obligations contained in the Merger Agreement in all material respects;
 
·
the Company’s satisfaction with the terms and conditions of the Merger Agreement and related documents;
 
·
the Company’s satisfaction with the results of its due diligence investigation of the acquired companies;
 
·
the non-occurrence of  any material adverse effects of Dolphin Films since the date of the Merger Agreement; and
 
·
the delivery to the Company of  an officer’s certificate from Dolphin Entertainment confirming that specified conditions have been satisfied.
 
The obligation of Dolphin Films and Dolphin Entertainment to complete the Merger is subject to the satisfaction or their waiver of certain additional conditions, including the following:
 
·
the accuracy of the representations and warranties of the Company to the extent required under the Merger Agreement;
 
·
the Company’s and Merger Subsidiary’s compliance with their covenants, agreements and obligations contained in the Merger Agreement in all material respects; and
 
·
the delivery to Dolphin Entertainment of an officer’s certificate from the Company and Merger Subsidiary confirming that specified conditions have been satisfied.
 
Go-Shop; Acquisition Proposals; Change in Recommendation (Page 47)
 
The Merger Agreement contains a “go-shop” provision, pursuant to which, during the period beginning on the date of the Merger Agreement and continuing until 11:59 p.m. (Eastern time) on the 30th calendar day thereafter (the “No-Shop Period Start Date”), the Company (acting through the Special Committee) and its representatives may initiate, solicit and encourage any acquisition proposals (defined on page 49) from third parties, provide nonpublic information to such third parties and participate in discussions and negotiations with such third parties regarding acquisition proposals.  No such proposals were received by the Company.
 
Beginning on the No-Shop Period Start Date, the Company is precluded from soliciting or facilitating, directly or indirectly, any proposals or engaging in any discussions regarding, a transaction proposal, except in the event that, prior to the shareholder vote on the Merger, the Board (acting through the Special Committee) determines in good faith with its independent financial and legal advisors that such transaction proposal constitutes, or would reasonably be expected to result in, a superior proposal.
 
 
13

 
 
The Board may change its recommendation or terminate the Merger Agreement to enter into an agreement with respect to a superior proposal (defined on page 49) prior to the shareholder vote if the Board (acting through the Special Committee) determines in good faith, after consultation with its outside legal advisors, that failure to change its recommendation would be inconsistent with its fiduciary duties to shareholders under applicable law.
 
Termination of the Merger Agreement (Page 51)
 
·
The Merger Agreement can be terminated under certain circumstances, including:
 
·
by mutual written consent of the Company and Dolphin Films;
 
·
by either the Company or Dolphin Films, if:
 
 
o
the Merger has not been consummated on or before June 30, 2016;
 
 
o
a court of competent jurisdiction or governmental authority issues an order, decree or ruling permanently enjoining, restraining or otherwise prohibiting the Merger; or
 
·
by the Company, if:
 
 
o
Dolphin Films or Dolphin Entertainment breaches or fails to perform any of their representations, warranties, covenants or agreements in the Merger Agreement, and generally if such breach is not cured by Dolphin Films and/or Dolphin Entertainment after 30 days following receipt of notice thereof or cannot be cured;
 
·
by Dolphin Films or Dolphin Entertainment, if:
 
 
o
the Company or Merger Subsidiary breaches or fails to perform any of their representations, warranties, covenants or agreements in the Merger Agreement, and generally such breach is not cured by the Company and/or Merger Subsidiary after 30 days following receipt of notice thereof or cannot be cured; or
 
 
o
the Merger is not consummated within five business days after the conditions to the obligations of the Company and Merger Subsidiary to effect the Merger have been satisfied.
 
No termination fees are required by any party to the Merger Agreement in the event of termination of the Merger Agreement.
 
Regulatory Approvals (Page 41)
 
We have determined that the Merger does not require the filing of notification and report forms with the Antitrust Division of the U.S. Department of Justice, or the Federal Trade Commission under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
 
Appraisal Rights
 
Under Florida law, our shareholders are not entitled to appraisal rights in connection with the Merger.
 
Accounting Treatment of the Merger (Page 42)
 
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America, which is referred to as GAAP.  The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America, which is referred to as GAAP.  The Merger will be accounted for as an acquisition of entities under common control.
 
Risk Factors (Page 22)
 
In evaluating the Merger Agreement and the Merger, you should carefully read this proxy statement and give special consideration to the factors discussed in the section entitled “Risk Factors” beginning on page 42 of this proxy statement.
 
 
14

 
 
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
 
Basis of Presentation
 
The unaudited pro forma combined financial statements reflect the combined financial statements after giving effect to the Merger.  The unaudited pro forma combined financial statements should be read in conjunction with Dolphin Digital Media Inc.’s historical audited financial statements and accompanying notes as of and for the year ended December 31, 2014 and 2013 and the interim unaudited condensed financial statements and accompanying notes as of and for the period ended September 30, 2015 and Dolphin Films, Inc.’s historical audited financial statements and accompanying notes as of and for the year ended December 31, 2014 and 2013 and the interim unaudited condensed financial statements and accompanying notes as of and for the period September 30, 2015.
 
The unaudited pro forma statements of operations give effect to the Merger as if it had been consummated on January 1, 2013, the beginning of the earliest period presented.  The unaudited pro forma combined balance sheet assumes the merger had been consummated on September 30, 2015.  The Merger will be accounted for as a transaction between entities of common control and as such the receiving entity will reflect the transferred assets and liabilities at the historical cost of the parent of the entities under common control.  The following unaudited pro forma combined financial statements include adjustments to eliminate any transactions between the parties to the merger.  These pro forma adjustments are preliminary and may be revised.  There can be no assurance that such revisions will not result in material changes.
 
The unaudited pro forma combined financial statements are provided for informational purposes only.  The pro forma information provided is not necessarily indicative of what the combined company’s financial position and results of operations would have actually been had the Merger been completed on the dates used to prepare these pro forma financial statements.  In addition, these unaudited pro forma combined financial statements do not purport to project the future financial position or results of operations of the merged companies.
 
 
15

 
 
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
 
 
 
   
As of September 30, 2015
 
   
Dolphin Digital Media, Inc.
   
Dolphin Films, Inc.
   
Pro Forma Adjustments
   
Pro Forma
 
ASSETS
                       
Current
                       
Cash and cash equivalents
  $ 633,108     $ 173,289           $ 806,397  
Related party receivable
    -       453,529             453,529  
Prepaid Expenses
    -       -             -  
Receivables and other current assets
    1,380,352       1,854,066             3,234,418  
Total Current Assets
    2,013,460       2,480,884             4,494,344  
                               
Capitalized production costs
    958,773       15,171,389             16,130,162  
Property and equipment
    61,275       -             61,275  
Deposits
    41,291       355,778             397,069  
Total Assets
  $ 3,074,799     $ 18,008,051           $ 21,082,850  
                               
LIABILITIES
                             
Current
                             
Accounts payable
  $ 257,124     $ 1,185,280           $ 1,442,404  
Other current liabilities
    2,726,411       314,965             3,041,376  
Accrued compensation
    1,937,500       -             1,937,500  
Debt
    5,145,000       -             5,145,000  
Loan from related party, net
    3,979,267       1,609,290             5,588,557  
Deferred Revenue     -       1,418,368             1,418,368  
Notes payable
    300,000       -             300,000  
Total Current Liabilities
    14,345,302       4,527,903             18,873,205  
                               
Non Current
                             
Debt
    -       32,091,227             32,091,227  
Total Non Current Liabilities
    -       32,091,227             32,091,227  
                               
Total Liabilities
    14,345,302       36,619,130             50,964,432  
                               
STOCKHOLDERS' DEFICIT
                             
Common stock, $0.015 par value, 200,000,000 shares authorized, 81,892,352 issued and outstanding at September 30, 2015.
    1,228,385       -             1,228,385  
Common stock, $1.00 par value, 100 shares authorized, 100 issued and outstanding at September 30, 2015.
            100       (100 )     -  
Preferred stock $0.001 par value, 10,000,000 shares authorized 1,042,753 shares issued and outstanding, liquidation preference of $1,042,753 at September 30, 2015.
    1,043       -       (1,043 )     -  
Preferred stock, Series B.  $0.10 par value, 4,000,000 shares authorized, 3,300,000 shares issued and outstanding at September 30, 2015.
    -       -       330,000       330,000  
Preferred stock, Series C.  $0.001 par value, 1,000,000 shares authorized, 1,000,000 shares issued and outstanding at September 30, 2015.
    -       -       1,000       1,000  
Additional paid in capital
    25,544,174       -       (329,857 )     25,214,317  
Accumulated deficit
    (41,024,102 )     (18,611,179 )             (59,635,281 )
Total Deficit
  $ (14,250,500 )   $ (18,611,079 )           $ (32,861,579 )
Non-controlling interest
    2,979,997       -               2,979,997  
Total Stockholders' Deficit
  $ (11,270,503 )   $ (18,611,079 )           $ (29,881,582 )
Total Liabilities and Stockholders' Deficit
  $ 3,074,799     $ 18,008,051             $ 21,082,850  
 
 
16

 
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 
   
For the year ended December 31, 2013
 
   
Dolphin Digital Media, Inc.
   
Dolphin Films, Inc.
   
Pro Forma Adjustments
   
Pro Forma
 
Revenues:
                       
Production
  $ 793,880     $ 914,473           $ 1,708,353  
Service
    1,500,000             1,500,000        
Total Revenue:
    2,293,880       914,473             $ 1,708,353  
Expenses:
                               
Direct costs
    683,032       3,273,680               3,956,712  
Impairment of capitalized production costs
          2,638,363               2,638,363  
General and administrative
    2,393,940       78,148               2,472,088  
Legal and professional
          960,230               960,230  
Management fee
          1,500,000       (1,500,000 )      
Payroll
    1,163,831                     1,163,831  
Loss before other income (expense)
    (1,946,923 )     (7,535,948 )             (9,482,871 )
Other Income (Expense):
                               
Other Income
    47,943                     47,943  
Interest expense
    (562,670 )     (558,952 )             (1,121,622 )
Net Loss
    (2,461,650 )     (8,094,900 )             (10,556,550 )
Net income attributable to noncontrolling interest
  $     $             $  
Net loss attributable to Dolphin Films, Inc.
          (8,094,900 )             (8,094,900 )
Net loss attributable to Dolphin Digital Media, Inc.
    (2,461,650 )                   (2,461,650 )
Net loss
  $ (2,461,650 )   $ (8,094,900 )           $ (10,556,550 )
Basic and Diluted Loss per Share
  $ (0.03 )                   $ (0.13 )
Weighted average number of shares used in share calculation
    81,892,352                       81,892,352  
 
 
17

 
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
 
   
For the year ended December 31, 2014
 
   
Dolphin Digital Media, Inc.
   
Dolphin Films, Inc.
   
Pro Forma Adjustments
   
Pro Forma
 
Revenues
                       
Production
  $ 51,192     $ 1,514,659           $ 1,565,851  
Service
    2,000,000             2,000,000        
Membership
    19,002                     19,002  
Total Revenue:
    2,070,194       1,514,659             $ 1,584,853  
Expenses
                               
Direct costs
    159,539       1,820,482               1,980,021  
General and administrative
    1,533,211       809,526               2,342,737  
Legal and professional
          2,555,974               2,555,974  
Management fee
          1,976,667       (1,976,667 )      
Payroll
    1,630,369             (23,333 )     1,607,036  
Loss before other income (expense)
    (1,252,925 )     (5,647,990 )             (6,900,915 )
Other Income (Expense):
                               
Other Income
    40,000                     40,000  
Interest expense
    (660,580 )     (1,458,042 )             (2,118,622 )
Net Loss
    (1,873,505 )     (7,106,032 )             (8,979,537 )
Net income attributable to noncontrolling interest
  $ 4,750     $             $ 4,750  
Net loss attributable to Dolphin Films, Inc.
          (7,106,032 )             (7,106,032 )
Net loss attributable to Dolphin Digital Media, Inc.
    (1,878,255 )                   (1,878,255 )
Net loss
  $ (1,873,505 )   $ (7,106,032 )           $ (8,979,537 )
Basic and Diluted Loss per Share
  $ (0.02 )                   $ (0.11 )
Weighted average number of shares used in share calculation
    81,892,352                       81,892,352  
 
 
18

 
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 
 
 
   
For the nine months ended September 30, 2015
 
   
Dolphin Digital Media, Inc.
   
Dolphin Films, Inc.
 
Pro Forma Adjustments
   
Pro Forma
 
                       
Revenues:
                     
Production
  $ 2,380,412     $ 33,584           $ 2,413,996  
Service
    -       -             -  
Membership
    61,011       -             61,011  
Total Revenue:
    2,441,423       33,584             2,475,007  
                               
Expenses:
                             
Direct costs
    1,334,311       500,946             1,835,257  
General and administrative
    1,869,195       215,941             2,085,136  
Legal and professional
    -       1,087,984             1,087,984  
 Payroll
    1,028,836       -             1,028,836  
Loss before other expenses
    (1,790,919 )     (1,771,287 )           (3,562,206 )
                               
Other Expenses
                             
Interest expense
    (657,237 )     (1,638,960 )           (2,296,197 )
Net loss
    (2,448,156 )     (3,410,247 )           (5,858,403 )
                               
Net income attributable to noncontrolling interest
  $ 15,253     $ -           $ 15,253  
Net loss attributable to Dolphin Films, Inc.
    -       (3,410,247 )           (3,410,247 )
Net loss attributable to Dolphin Digital Media, Inc.
    (2,463,409 )     -             (2,463,409 )
Net loss
  $ (2,448,156 )   $ (3,410,247 )         $ (5,858,403 )
                               
                               
Basic and Diluted Loss per Share
  $ (0.03 )                 $ (0.07 )
                               
Weighted average number of shares used in share calculation
    81,892,352                     81,892,352  
 
 
19

 
 
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
 
The effective date of the merger is assumed to be January 1, 2013 for purposes of preparing the unaudited pro forma combined statements of operations and September 30, 2015 for purposes of preparing the unaudited pro forma balance sheet.
 
Pro Forma Adjustment
 
(a)
Service Revenue - Dolphin Digital Media, Inc. (“DDM”) entered into an agreement to provide certain services for Dolphin Films, Inc. (“DF”) effective April 1, 2013.  DDM provided DF with a development team to source new projects, production executives to develop scripts, approve budgets and hire and liaise with the production team on individual projects during the production and post-production phases, an accounting and finance team to provide accounting services and tax compliance, legal support and domestic and international sales and sales support.  DDM also provided office space in Los Angeles and Miami.  The initial term of the agreement was for a period from April 1, 2013 through December 31, 2014 for an annual fee of $2,000,000.  The agreement was not renewed as the projects contemplated by the agreement were completed.  The unaudited combined pro forma statement of operations for the years ended December 31, 2014 and 2013 reflect adjustments of $2,000,000 and $1,500,000, respectively, to reduce the service revenue related to this agreement.
 
(b)
Management Fee - Per the agreement discussed in (a) above, DF recorded an expense of $2,000,000.  During the year ended December 31, 2014, DF completed a feature film and $23,333 of payroll was capitalized.  As such, DF recorded $1,976,666 of management fee expense related to this agreement.  The unaudited combined pro forma statement of operations and comprehensive loss for the year ended December 31, 2014 reflects an adjustment of $1,976,666 to reduce management fee.  $1,500,000 of expense was recorded for a management fees for the period between April 1, 2013 and December 31, 2013.  This amount was adjusted in the unaudited pro forma statement of operations for the year ended December 31, 2013.
 
(c)
Payroll -  Per the discussion in (b) above, the payroll costs of $23,333 that were capitalized during the production of the feature film were presented as a reduction of the payroll costs of the combined companies.  The unaudited combined pro forma statement of operations and comprehensive loss for the year ended December 31, 2014 reflects an adjustment of $23,333 to reduce payroll expense.
 
(d)
Stockholders’ Deficit – The Company has entered into an agreement with its preferred shareholder, TSqured Partners, LLC to issue 1,000,000 Series B preferred shares, with a par value of $0.10, convertible 19:1 in exchange for the 1,042,753, $0.001 par value, convertible 4:1, currently held.  As part of the acquisition costs of the merger, Mr. O’Dowd will receive 2,300,000 Series B preferred shares and 1,000,000 Series C preferred shares.  As a result, the Company has recorded $330,000 for its Series B preferred shares, $1,000 for Series C preferred shares and debited $1,043 to eliminate the current preferred shares.  These entries were recorded against Additional paid in capital.
 
DDM and DF did not have any transactions that would have been eliminated had the merger been effective for the nine months ended September 30, 2015.  Furthermore, there were no duplicate transactional expenses identified that would be adjusted in these unaudited pro forma financial statements.
 
 
20

 
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This proxy statement contains and incorporates by reference certain statements relating to future events and our intentions, beliefs, estimates, expectations and predictions for the future.  Any such statements may be considered “forward-looking statements” that do not directly or exclusively relate to historical facts.  These statements include:  (i) the expected synergy and benefits arising from the Merger, including the anticipated result of simplifying the current ownership structure of the affiliated entities, and focusing the energies of Mr. O’Dowd on one combined company with a shared strategy, (ii) the timing of completion of the Merger, (iii) the expectation that Mr. O’Dowd will vote his controlling shares in favor of the Merger and (iv) our ability to consummate the Merger.  You can typically identify other forward-looking statements by the use of forward-looking words, such as “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” and other words of similar import.  You are cautioned that any forward-looking statements are not guarantees of future performance.  These statements are based on current expectations and assumptions that are subject to risks and uncertainties.  Actual results could differ materially from those anticipated as a result of various factors.
 
These risks and uncertainties include, but are not limited to factors and matters described or incorporated by reference in this proxy statement and the following factors:
 
 
1.
we may be unable to obtain shareholder approval as required for the Merger;
 
 
2.
other conditions to the closing of the Merger may not be satisfied;
 
 
3.
the Merger may involve unexpected costs, liabilities or delays;
 
 
4.
our business may suffer as a result of uncertainty surrounding the Merger;
 
 
5.
the outcome of any legal proceedings that may arise related to the Merger;
 
 
6.
we may be adversely affected by other economic, business, and/or competitive factors;
 
 
7.
the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;
 
 
8.
the effect of the announcement of the Merger on our business relationships, employees and operating results generally;
 
 
9.
the amount of any costs, fees, expenses, impairments and charges related to the Merger;
 
 
10.
the potential dilution of our shareholders’ ownership percentage as a result of the Merger;
 
 
11.
the potential dilution of earnings per share as a result of the Merger;
 
 
12.
risks that the Merger diverts management’s or employees’ attention from ongoing business operations; and
 
 
13.
other risks to consummation of the Merger, including the risk that the Merger will not be consummated within the expected time period or at all.
 
Additional factors that may affect our future results are set forth in filings we make with the SEC from time to time, including our annual report on Form 10-K for the year ended December 31, 2014 and quarterly reports on Form 10-Q for the quarters ended March 31, 2015, June 30, 2015, and September 30, 2015 which are available on the SEC’s website at www.sec.gov.
 
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof.  Except as required by applicable law, we undertake no obligation to update forward-looking statements to reflect events or circumstances after the date thereof.
 
 
21

 

RISK FACTORS
 
In deciding whether to vote for the approval of the Merger Agreement, we urge you to carefully consider all of the information included or incorporated by reference in this proxy statement, which are listed in the section entitled Available Information beginning on page 79 of this proxy statement.  You should also read and consider the risks associated with each of the businesses of the Company and Dolphin Films because these risks will also affect the combined company.  The risks associated with the Company’s business can be found in our annual report on Form 10-K for the fiscal year ended December 31, 2014 (as amended by annual report on Form 10-K/A filed on May 26, 2015), which is incorporated by reference in this proxy statement.  In addition, we urge you to carefully consider the following material risks relating to the business of the Company, the business of Dolphin Films and the business of the combined company.
 
Risks Relating to the Merger
 
We may fail to realize all of the anticipated benefits of the Merger.
 
The success of the Merger will depend on, among other things, our ability to realize anticipated benefits and to combine the businesses of the Company and Dolphin Films in a manner that achieves synergy and a shared strategy but that does not materially disrupt the existing activities of the companies.  If we are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully, if at all, or may take longer to realize than expected.
 
Our CEO has interests in the Merger that may be different from your interests.
 
When considering the Board’s recommendation that you vote in favor of the Merger Proposal, you should be aware that our CEO, Mr. O’Dowd, has interests in the Merger that may be different from, or in addition to, your interests.  In particular, Mr. O’Dowd is the founder, president and sole shareholder of Dolphin Entertainment, which is the parent of Dolphin Films, the target company in this Merger, if the Merger is consummated.  As sole shareholder of Dolphin Entertainment, Mr. O’Dowd will beneficially own shares of Series B Convertible Preferred Stock and shares of Series C Convertible Preferred Stock issued as consideration for the Merger.  In addition, Mr. O’Dowd owns approximately 54% of the Company’s outstanding shares of Common Stock and, therefore, owns the controlling vote.  Given Mr. O’Dowd’s indirect ownership of the target company, a vote by Mr. O’Dowd in favor of the Merger may be in his own interests, which may be different from your interests.
 
Our shareholders’ ownership percentage after the Merger will be diluted.
 
In connection with the Merger, we will issue to Dolphin Entertainment 2,300,000 shares of Series B Convertible Preferred Stock and 1,000,000 shares of Series C Convertible Preferred Stock, each convertible into shares of Common Stock upon exercise of their respective conversion rights.  As a result of the stock issuances, your ownership interest in the Company will be diluted, meaning you would own a smaller percentage of the combined company.  If the combined company is unable to realize the strategic benefits currently anticipated to result from the Merger, then you will experience dilution of your economic interest without receiving a commensurate benefit.
 
The Series C Convertible Preferred Stock will have anti-dilution protections and super voting rights that may adversely affect our shareholders.
 
For a period of five years from the date of issuance, the Series C Convertible Preferred Stock will be subject to certain anti-dilution protections.  Upon specified triggers, the number of shares of Common Stock into which Series C Convertible Preferred Stock held by Mr. O'Dowd (or any entity directly or inderectly controlled by Mr. O'Dowd) (including 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 currently held by such persons, which currently is approximately 53% of the shares of Common Stock outstanding.  As a result, your ownership interests may be further diluted.
 
Holders of Series C Convertible Preferred Stock will also have super voting rights of three votes per preferred share and 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, 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 certain eligible persons can be converted, which could further dilute your percentage of voting rights.
 
 
22

 
 
The Merger is subject to closing conditions that, if not satisfied or waived, will result in the Merger not being completed, which may adversely affect our business and results of operations.
 
The Merger is subject to closing conditions, including the approval of the Merger Agreement and the approval of the creation of the Series C Convertible Preferred Stock by our shareholders at the Annual Meeting, that, if not satisfied, will prevent the Merger from being completed.  To our knowledge, all of our directors and executive officers who are entitled to vote at the Annual Meeting intend to vote their shares of Common Stock in favor of the proposals, although such persons have not entered into agreements obligating them to do so.  If the Merger is not completed, our business and results of operations could be adversely affected by the costs incurred in pursuing the merger, and potential reputational harm.  In addition to the required approval of our shareholders, the Merger is subject to other conditions beyond our control that may prevent, delay or otherwise materially adversely affect its completion.  We cannot predict whether and when these other conditions will be satisfied.
 
If the Merger is not completed, we will have incurred substantial expenses without realizing the expected benefits of the Merger.
 
We have incurred and will incur substantial expenses in connection with the due diligence, negotiation and completion of the transactions contemplated by the Merger Agreement, including the costs incurred by the Special Committee for retaining legal and financial advisors, as well as the costs and expenses of preparing, filing, printing and mailing this proxy statement and all filing fees paid to the SEC in connection with the Merger.  If the Merger is not completed, we would have to recognize these expenses without realizing the expected benefits of the Merger.
 
The Financial Analyses obtained by us from the Financial Advisor will not reflect changes in circumstances subsequent to the date of the Financial Analyses.
 
The Financial Advisor, in connection with the Merger, delivered to the Special Committee a Financial Analyses dated as of October 6, 2015.  The Financial Analyses do not reflect changes that may occur or may have occurred after the date of the Financial Analyses, including changes to the operations and prospects of the Company, changes in general market and economic conditions or regulatory or other factors.  The Financial Analyses will not be updated as of the date of the mailing of the proxy statement.  Our results of operations may vary substantially from the forecast in the Financial Analyses.
 
The Financial Analyses are based on Dolphin Films’ management forecasts, are not an appraisal and may not be relied upon by our shareholders as an accurate reflection of the value of Dolphin Films.

The Financial Analyses delivered by the Financial Advisor to the Special Committee in connection with the Merger identifies a range of values for Dolphin Films based on forecasts of Dolphin Films’ future operating results prepared by Mr. O’Dowd and Dolphin Films’ management. As such, the Financial Analyses are not an appraisal of the fair market value of Dolphin Films such as would be negotiated at arms’ length between Dolphin Entertainment and an independent, knowledgeable buyer. In addition, the Financial Advisor was instructed to accept, and did accept, Dolphin Films’ forecasts of future operating results at face value, without any inquiry into the reasonableness of those forecasts and without making any determination as to the ability of Dolphin Films’ management to achieve such forecasts. The application of alternative information may materially and adversely alter the results of the Financial Analyses. Further, the Financial Analyses is for the exclusive use of the Special Committee and the Board and may not be relied upon by our shareholders or any other person for any purpose.

 
23

 
 
Risks Relating to the Company
 
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 the years ended December 31, 2014 and 2013, 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 loss and negative cash flows from operations for the years ended December 31, 2014 and 2013 and our levels of working capital as of December 31, 2014 and 2013.  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 its common stock; 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.
 
We have a history of operating losses and may continue to incur operating losses.
 
We have a history of operating losses and may be unable to generate sufficient revenue to achieve profitability in the future.  For the nine months ended September 30, 2015 and the fiscal year ended December 31, 2014, our operating losses were $2,448,156 and $1,873,505, respectively.  Our accumulated deficit as of September 30, 2015 was $41,024,102.  Furthermore, we do not anticipate having an operating profit in 2015.  Our ability to generate operating profit in the future will depend on our ability to successfully produce and commercialize multiple web series, as no single project is likely to generate sufficient revenue to cover our operating expenses.  If we are unable to generate an operating 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 have substantial indebtedness which may adversely affect our cash flow and business operations.

We currently have a substantial amount of debt that we may be unable to extend, refinance or repay.  If we are unable to refinance or extend our debt, our assets may not be sufficient to repay such debt in full, and our available cash flow may not be adequate to maintain our current operations.  The following table sets forth our total principal amount of debt and stockholders’ equity as of December 31, 2014 and 2013. 
 
 
As of December 31,
 
2014
 
2013
Total Current Liabilities
  $ 10,285,083     $ 8,528,704  
Total Stockholders' deficit
  $ (8,791,843 )   $ (6,908,837 )
                 

As of September 30, 2015, we had total current liabilities of $14.3 million relative to total stockholders’ deficit of $11.3 million.  In addition, on December 7, 2015, we issued a convertible note to an investor in the amount of $3.2 million.  The convertible note accrues interest at a rate of 10% per annum with a maturity date of December 7, 2016, which we can extend, at our option, by up to six months.  Our indebtedness could have important negative consequences to us, including:

 
 
our ability to obtain additional financing, if necessary, for working capital, capital expenditures, future digital 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, which will be affected by prevailing economic conditions, the success of our digital productions and other factors contained in these Risk Factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying digital movie productions, selling assets, restructuring or refinancing our indebtedness or seeking additional debt or equity capital or bankruptcy protection. We may not be able to affect any of these remedies on satisfactory terms or at all.  As a consequence of our substantial indebtedness, we may not be able to continue to operate as a going concern.
 
 
 
24

 
 
The agreement with our CEO from which we derived the majority of our revenues in 2013 and 2014 expired on December 31, 2014 and was not renewed.
 
For the years ended December 31, 2013 and 2014 the majority of our revenues were derived from production management and back office services to Dolphin Films, an entity directly owned by Mr. O’Dowd. This agreement ended on December 31, 2014 and was not renewed for 2015 as the specific projects for which our services were engaged were completed. For the nine months ended September 30, 2015, we generated only $2,441,423 in revenues. If we are unable to generate sufficient revenues from other sources, the loss of this related party transaction will continue to have a material negative impact on our cash flows from operating activities and could result in us significantly reducing our operations, selling additional equity to fund operations or ceasing operations. Our 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 a digital production require a significant amount of capital. A significant amount of time may elapse between our expenditure of funds and the receipt of revenues from our productions. We do 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.
 
We may be unable to recoup our investments in digital projects.
 
Similar to others in the entertainment industry, we purchase scripts and project ideas for which we have no current production plans and for which we have not identified a potential distributor. In 2011 and 2012, we purchased scripts for eleven digital projects related to a particular financing structure. We currently have nine projects that have not been developed with a total cost of $468,000. As of September 30, 2015, we have not identified a distributor or sufficient advertisers who are interested in the development and distribution of those digital projects. If we are unable to generate interest in the nine projects, then the costs incurred to purchase those scripts will be written off, which will adversely affect our results of operations.
 
Delays, cost overruns, cancellation or abandonment of the completion or release of our digital web series may have an adverse effect on our business.
 
There are substantial financial risks relating to production, completion and release of digital films or series.  Actual film costs may exceed their budgets and factors such as labor disputes, unavailability of a star performer, equipment shortages, disputes with production teams or adverse weather conditions 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 received a fixed producer’s fee for our services plus a portion of any project income, however to the extent that delays, failure to complete projects or cost overruns result in us not completing the film or series 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 have identified material weaknesses in our internal controls over financial reporting and our ability to both timely and accurately report our financial results could be adversely affected.
 
In connection with the preparation of our financial statements for the years ended December 31, 2014 and 2013, we identified several material weaknesses in our internal controls over financial reporting.  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.  As of December 31, 2014, we concluded that our internal control over financial reporting was not effective due to the material weaknesses below.  As of September 30, 2015, we had not fully remediated these weaknesses:
 
·
Design deficiencies related to the entity level control environment, including risk assessment, information and communication and monitoring controls:
 
 
The Board of Directors does not maintain minutes of its meetings.
 
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.
 
25

 
 
·
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.
 
While we have taken a number of remedial actions to address these material weaknesses, we cannot predict the outcome of our remediation efforts at this time.  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 SEC.
 
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 productions.  Pursuant to these revenue share provisions, we will earn a portion of advertising revenues once our digital 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.
 
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 productions to attract our target viewer audiences, lack of future demand for our digital 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 kids clubs depend on sponsorship donations to generate revenue.
 
We generate revenues from our online kids clubs through a portion of the sale of memberships to various donors.  Donors typically sponsor a school for $10,000 which entitles each child in the school to receive an annual online kids club membership and entitles the school to receive a Reading Oasis.  Receipt of sponsorship donations are unpredictable and depend on a number of factors such as our ability to successfully brand, market and implement the online kids clubs as well as local and international business and economic conditions.
 
Our CEO owns approximately 54% of our outstanding share capital, and his interests may be different from yours.
 
As of [·], our CEO, Mr. O’Dowd beneficially owned approximately 54% of our outstanding share capital.  Consequently, Mr. O’Dowd has substantial influence over our business, including election of directors, declaration of dividends and decisions regarding whether or not to issue stock and for what consideration, whether or not to sell all or substantially all of our assets and for what consideration and other significant corporate actions.  It is possible that Mr. O’Dowd may act in a manner that advances his best interests but may not be aligned with your interests or the best interests of the Company.
 
 
26

 
 
Risks Related to the Industry
 
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 (“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.
 
The popularity and commercial success of our digital productions are subject to numerous factors, over which we may have limited or no control.
 
The popularity and commercial success of our digital productions depends on many factors including, but not limited to, the key talent involved, the timing of release, the promotion and marketing of the digital production, the quality and acceptance of other competing programs 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 production, its critical acclaim and the breadth, timing and format of its initial release.  We cannot predict the impact of such factors on any digital production, and many are factors that are beyond our control.  As a result of these factors and many others, our digital productions may not be as successful as we anticipate, and as a result, our results of operations may suffer.
 
We may be unable to consistently create and distribute filmed entertainment that meets the changing preferences of our consumers.
 
Changing consumer tastes affect our ability to predict which digital 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 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.
 
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 content.  In addition, 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.  Such competition for the industry’s talent and resources may have an effect on our ability to acquire and produce product.
 
Others may assert intellectual property infringement claims or liability claims for media 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 digital web series, stories, characters, other entertainment or intellectual property.  In addition, as a distributor of media content, we may face potential liability for such claims as defamation, invasion of privacy, negligence 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.
 
 
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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.
 
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 projects 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 (“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.  There are also a variety of laws and regulations governing individual privacy and the protection and use of information collected from such individuals, particularly in relation to an individual’s personally identifiable information (e.g., credit card numbers).  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 Relating to our Common Stock
 
Equity issuances in connection with the Merger, and any future equity issuances, could result in dilution of your investment and a decline in our stock price.
 
We intend to issue 2,300,000 shares of Series B Convertible Preferred Stock and 1,000,000 Series C Convertible Preferred Stock as consideration in the proposed Merger, in addition to granting to Eligible Series C Preferred Stock Holders certain anti-dilution protections.  Such issuance of preferred shares in the Merger and anti-dilution protections for the Series C Convertible Preferred Stock will dilute the equity interests of our existing shareholders, perhaps substantially, and may cause our stock price to decline.  In the future, we may need to raise additional capital, and may seek to do so by conducting one or more private placements of equity securities, selling additional securities in a registered public offering, or through a combination of one or more of such financing alternatives.  Any future issuances of additional securities would further dilute the equity interests of our shareholders and may negatively impact our stock price.
 
As an issuer of “penny stock,” the protection provided by the federal securities laws relating to forward-looking statements does not apply to us and as a result we could be subject to legal action which may be costly.
 
Although federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks.  As a result, for as long as we are a penny stock, we will not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading.
 
 
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Our common stock is quoted only on the OTC Market, which may have an unfavorable impact on our stock price and liquidity.
 
Our common stock is quoted on the OTC Market.  The OTC Market is a significantly more limited market than the New York Stock Exchange or NASDAQ system.  The quotation of our shares on the OTC Market may result in an illiquid market available for existing and potential stockholders 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.
 
Risks Relating to Dolphin Films
 
There is substantial doubt about Dolphin Films’ ability to continue as a going concern.
 
The accountants of Dolphin Films have expressed substantial doubt about its ability to continue as a going concern.  The ability to continue as a going concern is an issue raised as a result of its material operating losses, and its accumulated stockholders’ deficit of $18,611,179 as of September 30, 2015 and of $7,106,032 and $8,094,900 for the years ended December 31, 2014 and 2013, respectively.  Further, Dolphin Films had negative working capital of $2,047,019 for the nine months ended September 30, 2015 and of $19,535,020 and $10,150,845 for the years ended December 31, 2014 and 2013, respectively.  As a result, Dolphin Films does not have adequate capital to fund its obligations as they come due or to maintain or develop its operations.  Dolphin Films is dependent upon funding from private investors and the support of its sole shareholder, Dolphin Entertainment and Mr. O’Dowd.  Dolphin Films’ ability to continue as a going concern is subject to its ability to obtain necessary funding from outside sources, including obtaining additional funding from the sale of securities or obtaining loans from various financial institutions where possible.  If Dolphin Films does not obtain the necessary financing or participate in a successful business combination, it may not be able to continue as a going concern.
 
Dolphin Films has a history of operating losses and may continue to incur operating losses.
 
Dolphin Films has a history of operating losses and may be unable to generate sufficient revenue to achieve profitability in the future.  For the nine months ended September 30, 2015, its net loss was $3,410,247 and for the fiscal years ended December 31, 2014 and 2013, its net losses were $7,106,032 and $8,094,900, respectively.  Dolphin Films’ accumulated deficit at September 30, 2015 was $18,611,179.  Furthermore, Dolphin Films does not anticipate having an operating profit in 2015.  For the years ended December 31, 2014 and 2013, all of Dolphin Films production revenue was derived from a single movie production which Dolphin Films produced in 2013.  Dolphin Films’ ability to generate operating profit in the future will depend on its ability to successfully produce, release and distribute its motion pictures.  If Dolphin Films is unable to generate an operating profit at some point, it will not be able to meet its debt service requirements or working capital requirements.  As a result, Dolphin Films may need to sell a portion or all of its assets, including rights to scripts for projects, which might have otherwise generated revenue, or cease operations.
 
Dolphin Films has a substantial amount of indebtedness which may adversely affect its cash flow and business operations.
 
Dolphin Films currently has a substantial amount of debt that it may be unable to extend, refinance or repay.  If Dolphin Films is unable to refinance or extend its debt, its assets may not be sufficient to repay such debt in full, and its available cash flow may not be adequate to maintain its current operations.  As of September 30, 2015 and December 31, 2014, Dolphin Films had total liabilities of $36.6 million and $32.7 million, respectively.  Dolphin Films’ indebtedness could have important negative consequences, including:
 
 
 
Dolphin Films’ ability to obtain additional financing, if necessary, for working capital, capital expenditures, future movie productions or other purposes may be impaired or such financing may not be available on favorable terms or at all;
 
 
Dolphin Films may have to pay higher interest rates upon obtaining future financing, thereby reducing our cash flows; and
 
 
Dolphin Films may need a substantial portion of cash flow from operations to make principal and interest payments on its indebtedness, reducing the funds that would otherwise be available for operations and future business opportunities.
 
Dolphin Films’ ability to service its indebtedness will depend upon, among other things, its future financial and operating performance, which will be affected by prevailing economic conditions,  the success of its movie productions and other factors contained in these Risk Factors, some of which are beyond its control. If Dolphin Films’ operating results are not sufficient to service its current or future indebtedness, it will be forced to take actions such as reducing or delaying movie productions, selling assets, restructuring or refinancing its indebtedness or seeking additional debt or equity capital or bankruptcy protection. Dolphin Films may not be able to affect any of these remedies on satisfactory terms or at all.  As a consequence of its substantial indebtedness, Dolphin Films may not be able to continue to operate as a going concern.
 
The production and distribution of films requires significant amounts of capital, and Dolphin Films may not be able to obtain financing on favorable terms to meet such capital requirements.
 
The costs to develop, produce and distribute a film are substantial.  In 2014, for example, Dolphin Films capitalized production costs were $14,274,866.  Capitalized production costs include the unamortized costs of completed motion pictures produced by Dolphin Films and the costs of scripts for projects not yet developed or produced.  Dolphin Films funds its movie-related activities primarily through debt financing obtained from investors.  As of the date of this proxy statement, Dolphin Films is attempting to obtain financing for the prints and advertising costs to release one of its movies in 2016, from which it hopes to derive revenues.  It also has the rights to several scripts for which it hopes to obtain financing to produce and release.  Financing may not be available in sufficient amounts for Dolphin Films to continue to make substantial investments in the release of  its movies or the production of new motion pictures, or may be available only on terms that are disadvantageous to Dolphin Films, either of which could have a material adverse effect on its ability to generate revenues and on its business.
 
 
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Dolphin Films relies on third party distributors to distribute its films and their failure to perform will negatively impact Dolphin Films’ ability to generate revenues.
 
Dolphin Films motion pictures are primarily distributed and marketed by third party distributors.  If any of these third party distributors fails to perform under their respective arrangements with Dolphin Films, such failure could negatively impact the success of the motion pictures that Dolphin Films produces and have a material adverse effect on Dolphin Films’ business reputation and ability to generate revenues.
 
The popularity and commercial success of Dolphin Films’ motion pictures are dependent on numerous factors, over which Dolphin Films may have limited or no control.
 
Revenues derived from the production and distribution of film and television programming depend primarily upon acceptance by the public, which is difficult to predict.  Each motion picture is an individual artistic work, and unpredictable audience reactions primarily determine commercial success.  Generally, the popularity of Dolphin Films’ motion pictures depends on many factors, including the critical acclaim they receive, the actors and other key talent, their genre and their specific subject matter.  The commercial success of Dolphin Films’ productions also depends upon the quality and acceptance of productions that its competitors release into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure activities, general economic conditions and other tangible and intangible factors, many of which Dolphin Films does not control and any of which may change.  Dolphin Films cannot predict the impact of such factors on any motion picture, and many are beyond its control.  As a result of these factors, some or all of Dolphin Films’ motion pictures may not gain popularity or be commercially successful, resulting in failure to recoup investments or realize profits.
 
Dolphin Films may not be able to compete with larger movie production companies, the majority of which have greater resources and experience than it does.
 
Dolphin Films is a very small and unproven entity as compared to its competitors.  As an independent producer, Dolphin Films competes 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 motion picture 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 Dolphin Films’ ability to acquire and produce product.
 
Dolphin Films may be subject to intellectual property infringement claims, which may force it to incur substantial legal expenses.
 
There is a possibility that others may claim that Dolphin Films’ productions and production techniques misappropriate or infringe the intellectual property rights of third parties with respect to their previously developed motion pictures, stories, characters, other entertainment or intellectual property.  In addition, as a distributor of media content, Dolphin Films may face potential liability for such claims as defamation, invasion of privacy, negligence or other claims based on the nature and content of the materials distributed.  Irrespective of the validity or the successful assertion of such claims, Dolphin Films could incur significant costs and diversion of resources in defending against them, which could have a material adverse effect on its operating results.
 
Dolphin Films may fail to protect its intellectual property and proprietary rights adequately, as a result of which its business could be adversely affected.
 
Dolphin Films’ ability to compete depends, in part, upon successful protection of its intellectual property.  Dolphin Films attempts to protect proprietary and intellectual property rights to its productions through available copyright and trademark laws and distribution arrangements with companies for limited durations. Unauthorized parties may attempt to copy aspects of Dolphin Films’ intellectual property or to obtain and use property that Dolphin Films regards as proprietary.  Dolphin Films cannot assure you that its means of protecting its proprietary rights will be adequate.  In addition, the laws of some foreign countries do not protect its 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 Dolphin Films’ intellectual property. Dolphin Films’ failure to protect adequately our intellectual property and proprietary rights could adversely affect its business and results of operations.
 
 
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Risks Relating to the Combined Company
 
There is substantial doubt as to the ability of the combined company to continue as a going concern.
 
For the years ended December 31, 2014 and 2013, the Company’s auditors have expressed substantial doubt about its ability to continue as a going concern based upon its net loss, negative cash flows and levels of working capital as of December 31, 2014 and 2013.  For the years ended December 31, 2014 and December 31, 2013, Dolphin Films’ accountants have also expressed substantial doubt about its ability to continue as a going concern due to factors including its net losses, accumulated deficit and negative working capital.  In both cases, these circumstances continue into 2015 as we continue to have a working capital deficit at September 30, 2015 and losses from operations during the nine months then ended. There is no assurance that the combined company will be able to achieve financial synergy and operate profitably or to raise sufficient capital for its operations and, as a result, the combined company may not be able to continue as a going concern.
 
The combined company will have substantial indebtedness which may adversely affect its cash flow and business operations.

We and Dolphin Films each currently have a substantial amount of debt, each as described in this Risk Factor section.  The combined company may be unable to extend, refinance or repay such combined debt.  If the combined company is unable to refinance or extend its debt, its assets may not be sufficient to repay such debt in full, and its available cash flow may not be adequate to maintain its current operations.  The indebtedness of the combined company could have important negative consequences, including:

 
 
Its ability to obtain additional financing, if necessary, for working capital, capital expenditures, future digital or movie productions or other purposes may be impaired or such financing may not be available on favorable terms or at all;

 
 
It may be required to pay higher interest rates upon obtaining future financing, thereby reducing its cash flows; and

 
 
Its use of a substantial portion of its cash flow from operations to make principal and interest payments on indebtedness, may reduce the funds that would otherwise be available for operations and future business opportunities.

The combined company’s ability to service its indebtedness will depend upon, among other things, its future financial and operating performance, which will be affected by prevailing economic conditions, the success of digital and movie productions and other factors contained in these Risk Factors, some of which will be beyond its control. If the combined company’s operating results are not sufficient to service its indebtedness, it will be forced to take actions such as reducing or delaying digital or movie productions, selling assets, restructuring or refinancing our indebtedness or seeking additional debt or equity capital or bankruptcy protection. The combined company may not be able to affect any of these remedies on satisfactory terms or at all.  As a consequence of such substantial indebtedness, the combined company may not be able to continue to operate as a going concern.
 
The combined company may be exposed to litigation, which could have an adverse effect on the combined company’s business and operations.
 
The combined company may be exposed to increased litigation from stockholders and other third parties due to the combination of the Company and Dolphin Films businesses following the Merger.  Such litigation may have an adverse impact on the combined company’s business and results of operation or may cause disruptions to the combined company’s operations.
 
The unaudited pro forma combined condensed consolidated financial statements, which we refer to as the pro forma financial statements, are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the Merger.
 
The pro forma financial statements contained in this proxy statement are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the Merger for several reasons.  For example, the pro forma financial statements have been derived from the historical financial statements of the Company and Dolphin Films, and certain adjustments and assumptions have been made regarding the combined company after giving effect to the Merger.  The information upon which these adjustments and assumptions have been made is preliminary, and such adjustments and assumptions are difficult to make with complete accuracy.
 
Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the Merger.  For example, the impact of any incremental costs incurred in integrating the companies is not reflected in the pro forma financial statements.  As a result, the actual financial condition and results of operations of the combined company following the Merger may differ significantly from these pro forma financial statements.  In addition, the assumptions used in preparing the pro forma financial statements may not prove to be accurate, and other factors may affect the combined company’s financial condition or results of operations following the Merger.  Any potential decline in the combined company’s financial condition or results of operations may cause significant variations in the stock price of the combined company.
 
 
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PROPOSAL 1 – APPROVAL OF THE MERGER PROPOSAL
 

 
Parties to the Merger
 
Dolphin Digital Media, Inc.
 
Dolphin Digital Media, Inc. (the “Company”), first incorporated in 1995, is a Florida corporation dedicated to the production of high-quality digital content.  A division of the Company produces original, high-quality digital programming for online consumption and is committed to delivering premium, best-in-class entertainment and securing premiere distribution partners to maximize audience reach and commercial advertising potential.  The Company has also partnered with nonprofit and philanthropic organizations to develop online kids clubs. The Company’s principal executive offices are located at 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134 and our telephone number is (305) 774-0407.  For the Company’s website, please visit: www.dolphindigitalmedia.com.
 
DDM Merger Sub, Inc.
 
DDM Merger Sub, Inc. (“Merger Subsidiary”), incorporated in 2015, is a Florida corporation and a wholly-owned subsidiary of the Company.  Merger Subsidiary was formed by the Company in anticipation of the Merger.  Merger Subsidiary has engaged in no business except for activities incidental to its formation and as contemplated by the Merger Agreement.  Merger Subsidiary’s principal executive offices are located at 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134 and its telephone number is (305) 774-0407.
 
Dolphin Entertainment, Inc.
 
Dolphin Entertainment, Inc. (“Dolphin Entertainment”), incorporated in 1996, is a Florida corporation, whose founder and president is Mr. O’Dowd who is also President, Chairman and Chief Executive Officer of the Company.  Dolphin Entertainment is an entertainment company specializing in children’s and young adult’s live-action programming.  Dolphin Entertainment’s principal executive offices are located at 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134 and its telephone number is (305) 774-0407.
 
Dolphin Films, Inc.
 
Dolphin Films, Inc. (“Dolphin Films”), incorporated in 2013, is a Florida corporation and a direct wholly-owned subsidiary of Dolphin Entertainment.  Dolphin Films produces motion pictures for theatrical release, with a focus on family films.  Its motion picture studio focuses on storytelling on a global scale for young, always-connected audiences.  Dolphin Film’s principal executive offices are located at 2151 Le Jeune Road, Suite 150-Mezzanine, Coral Gables, FL 33134 and its telephone number is (305) 774-0407.
 
 
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THE MERGER
 
The following is a description of the material aspects of the Merger.  While we believe that the following description covers the material terms of the Merger, the description may not contain all of the information that is important to you.  We encourage you to read carefully this entire proxy statement, including the text of the Merger Agreement attached to this proxy statement as Annex A, for a more complete understanding of the Merger.
 
General
 
The Company entered into a Merger Agreement which provides for the Merger of Merger Subsidiary, a Florida corporation and a wholly owned subsidiary of the Company, with and into Dolphin Films, with Dolphin Films, a wholly owned subsidiary of Dolphin Entertainment, as the surviving corporation.  Our Chairman, President and Chief Executive Officer, Mr. O’Dowd is the sole shareholder of Dolphin Entertainment.  As a result of the Merger, the Company will acquire Dolphin Films.
 
The Merger Consideration
 
Pursuant to the terms of the Merger Agreement, the aggregate outstanding shares of Dolphin Films’ common stock issued and outstanding immediately prior to the effective time will automatically be converted into the right to receive from the Company 2,300,000 shares of Series B Convertible Preferred Stock 1,000,000 shares of Series C Convertible Preferred Stock with such rights and obligations as set forth in their respective Certificates of Designation. These rights and obligations are summarized below:
 
Series B Convertible Preferred Stock
 
Each share of Series B Convertible Preferred Stock is exercisable into nineteen (19) shares of Common Stock.  The Series B Convertible Preferred Stock Certificate of Designation provides for a liquidation value of $0.10 per share.  The Certificate of Designation also provides for dividend rights of the Series B Convertible Preferred Stock on parity with the Company’s Common Stock.  The Series B Convertible Preferred Stock generally has no voting rights except as required by law or as provided in the Certificate of Designation. Shares of Series B Convertible Preferred Stock that are converted into Common Stock may be subject to restrictions on transfer.
 
Series C Convertible Preferred Stock
 
Each share of Series C Convertible Preferred Stock will be exercisable into one (1) share of Common Stock.  Until the fifth anniversary of the date of the issuance, the Series C Convertible Preferred Stock will have certain anti-dilution protections.  Specifically, the number of Common Stock into which the Series C Convertible Preferred Stock will be converted (the “Conversion Number”) will be adjusted for each future issuance of Common Stock (but not upon issuance of Common Stock equivalents) (i) upon the conversion or exercise of any instrument currently or hereafter issued (but not upon the conversion of the Series C Convertible Preferred Stock), (ii) upon the exchange of debt for shares of Common Stock, or (iii) in a private placement, such that the total number of shares of Common Stock held by an “Eligible Class C Preferred Stock Holder” (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 currently held by such Eligible Class C Preferred Stock Holder.  An Eligible Class C Preferred Stock Holder means any of (i) Dolphin Entertainment, Inc., for so long as Mr. O’Dowd continues to beneficially own at least 90% and serves on the board of directors or other governing entity, (ii) any other entity in which Mr. O’Dowd beneficially owns more than 90%, or a trust for the benefit of others, for which Mr. O’Dowd serves as trustee and (iii) Mr. O’Dowd individually.
 
The shares of Series C Convertible Preferred Stock will automatically convert into the number of shares of Common Stock equal to the Conversion Number in effect at that time (“Conversion Shares”) upon occurrence of any of the following events:  (i) upon transfer of the Series C Convertible Preferred Stock to any holder other than an Eligible Class C Preferred Stock Holder,  (ii) if the aggregate number of shares of Common Stock plus Conversion Shares (issuable upon conversion of each share of Series B Convertible Preferred Stock and the Series C Convertible Preferred Stock) held by the Eligible Class C Preferred Stock Holders in the aggregate constitute 10% or less of the sum of (x) the outstanding shares of Common Stock plus (y) all Conversion Shares held by the Eligible Class C Preferred Stock Holders and (iii) at such time as the holder of Series C Convertible Preferred Stock ceases to be an Eligible Class C Preferred Stock Holder.  Series C Convertible Preferred Stock will only be convertible by the holder upon the Company satisfying one of the “optional conversion thresholds”.  Specifically, a majority of the independent directors of the Board, in its sole discretion, must have determined that the Company accomplished any of the following (i) EBITDA of more than $3.0 million in any calendar year, (ii) production of two feature films, (iii) production and distribution of at least three web series, (iv) theatrical distribution in the United States of one feature film, or (v) any combination thereof that is subsequently approved by a majority of the independent directors of the Board based on the strategic plan approved by the Board.
 
 
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The Series C Convertible Preferred Stock will be entitled to super voting rights of three votes for each share of Common Stock into which such holders’ shares of Series C Convertible Preferred Stock could then be converted.  The holders of Series C Convertible Preferred Stock and of Common Stock will vote together as a single class on all matters upon which the Common Stock is entitled to vote, except as otherwise required by law.  The Series C Convertible Preferred Stock Certificate of Designation will provide for a liquidation value of $0.001 per share and for dividend rights of the Series C Convertible Preferred Stock on parity with the Company’s Common Stock.  Shares of Series C Convertible Preferred Stock that are converted into Common Stock may be subject to restrictions on transfer as required by applicable federal and state securities laws.  The Series C Convertible Preferred Stock Certificate of Designation is set forth as Annex B to this proxy statement.
 
Background of the Merger
 
The Board of the Company from time to time reviews its business strategy and strategic alternatives with the goal of enhancing shareholder value.  In connection with these reviews, the Board assesses whether shareholder value can be enhanced through potential business combinations of the Company with other companies.  Among the companies that the Board considered was Dolphin Films, a producer of motion pictures for theatrical release for young audiences.
 
Dolphin Films is a wholly-owned subsidiary of Dolphin Entertainment, an entertainment company specializing in children’s and young adult’s live-action programming, of which Mr. O’Dowd is the sole shareholder.
 
In the past, the Company engaged in certain business transactions with Dolphin Films.  For example, during 2013 the Company entered into an agreement with Dolphin Films, pursuant to which the Company provided Dolphin Films with management team and back office services.  The agreement was for the term April 1, 2013 through December 31, 2014 at an annual fee of $2 million.  Pursuant to the agreement, the Company provided to Dolphin Films a development team to source new projects, production executives to develop scripts, approve budgets and hire and liaise with the production team on individual projects during the production and post-production phases, an accounting and finance team to provide accounting services and tax compliance, legal support and domestic and international sales and sales support.  The Company also provided Dolphin Films with office space in Los Angeles and Miami.
 
The Board from time to time considered a strategic transaction to consolidate the Company and Dolphin Films to achieve efficiency and to focus the energies of Mr. O’Dowd on the consolidated company, thereby enhancing shareholder value.  Because both companies engage in the similar business of content production, the Board considered the potential synergies that could result from such a strategic transaction.
 
In March 2015, the Board discussed the possibility of pursuing a strategic transaction whereby the Company would acquire Dolphin Films.  After a discussion of certain of the potential reasons for and the benefits of a transaction between the Company and Dolphin Entertainment, the Board determined that it would be open to pursuing such a transaction.  Mr. O’Dowd subsequently presented a proposal to consolidate the Company with Dolphin Films in exchange for equity in the Company.
 
Because of the interests of Mr. O’Dowd in the potential strategic transaction, the Board determined that it would not move forward with any such transaction without the approval of a special committee of independent directors appointed by the Board to review and consider Mr. O’Dowd’s proposal and make a recommendation to the Board.
 
On April 16, 2015, the Board established the Special Committee comprised of independent and disinterested directors to explore the possible combination of the Company and Dolphin Films in addition to the Company’s possible strategic alternatives to the Mr. O’Dowd’s proposal. The Board appointed Messrs. Nelson Famadas and Nicholas Stanham to serve as members of the Special Committee. The Board then authorized the Special Committee to exercise the power of the Board with respect to the consideration and negotiation of Mr. O’Dowd’s proposal and the Company’s possible strategic alternatives to the proposal, including the exclusive power and authority to:
 
 
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·
formulate, establish, oversee and direct a process to identify, evaluate and negotiate a potential acquisition by the Company, by merger or otherwise;
 
·
evaluate and negotiate the terms of any proposed definitive acquisition agreement, or any other agreements in respect of a potential acquisition by the company, by merger or otherwise;
 
·
determine whether the proposal was fair to, and in the best interests of, the Company and its shareholders, other than Mr. O’Dowd, and to recommend to the Board what action, if any, should be taken with respect to the proposal; and
 
·
to take any and all actions with respect to the proposal with the same effect as if the Board had taken such action or done or caused such things to be done.
 
On June 2, 2015, Mr. O’Dowd delivered a letter of intent to the Special Committee, formally indicating his interest in a proposed transaction.
 
The Special Committee held its initial meeting on June 4, 2015.  The meeting was held for the purpose of approving the engagement of legal counsel for the Special Committee.  After discussion, the Special Committee unanimously approved the engagement of Mr. Andrew Kingston as independent legal counsel with respect to the proposed transaction.  On July 10, 2015, the Special Committee met to consider retention of an independent financial advisor and approved a proposal to engage the Financial Advisor. Mr. Kingston’s law firm formally engaged the Financial Advisor to serve as financial advisor to the Special Committee with respect to the transaction pursuant to a letter agreement dated July 10, 2015.  The Special Committee selected the Financial Advisor based on, among other things, the Financial Advisor’s experience in providing valuation services in connection with mergers, acquisitions and similar transactions.  Pursuant to the terms of the engagement letter, the Financial Advisor was to prepare Financial Analyses of Dolphin Films.
 
On July 24, 2015, a meeting of the Special Committee was held which was attended by Mr. Stanham, Mr. Kingston and Ms. Negrini, director and Chief Financial and Operating Officer of the Company.  At the meeting, Mr. Stanham and Mr. Kingston reviewed a preliminary draft value-in-place analysis of Dolphin Films prepared by the Financial Advisor.  Following its review, Mr. Stanham instructed Mr. Kingston to ask the Financial Advisor to provide additional analyses to reflect expected revenue from production of two films rather than three in the years 2017 and 2018.  In addition, meeting participants discussed the status of a draft definitive agreement for the proposed acquisition of Dolphin Films.
 
Over the next several days, Mr. Kingston, Ms. Negrini and legal counsel to Dolphin Films engaged in discussions regarding the structure and terms of a potential merger between the Company and Dolphin Films.
 
On July 31, 2015, Mr. Kingston received from legal counsel to Dolphin Films, a draft Agreement and Plan of Merger, or draft Merger Agreement, for the proposed acquisition of Dolphin Films.
 
On August 5, 2015, a Special Committee meeting was held to discuss the draft Merger Agreement.  Mr. Kingston reviewed and discussed with the Special Committee the material terms, conditions and provisions of the draft Merger Agreement and the structure of the proposed transaction.  At this point, the Special Committee had not yet received audited financial statements from Dolphin Films.  The Special Committee noted that the draft Merger Agreement contemplated that the Special Committee would approve and authorize its execution prior to the Special Committee’s receipt of audited financial statements for Dolphin Films.  The draft Merger Agreement further provided that the Special Committee’s receipt of, and satisfaction with, such audited financial statements would be a condition to closing the transactions.  Following a discussion, the Special Committee determined to consider approval of the draft Merger Agreement and proposed acquisition only after receipt of audited financial statements from Dolphin Films and instructed Mr. Kingston to so advise counsel to Dolphin Films.
 
At the meeting, the Special Committee also reviewed updated versions of the draft value-in-place analysis of Dolphin Films prepared by the Financial Advisor.  The Special Committee noted that Dolphin Films’ management forecast production of two films in 2016, a significant year for purposes of the analysis due to the effect of discounting. Dolphin Films had not previously produced two films in one year. As such, the Special Committee instructed Mr. Kingston to invite Mr. O’Dowd to discuss Dolphin Films’ strategy to achieve its 2016 production forecast.
 
 
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On August 11, 2015, the Special Committee held a meeting by telephone conference call in which Mr. O’Dowd, Ms. Negrini, Mr. Kingston, the Company’s outside counsel and counsel for Dolphin Films participated.  Mr. O’Dowd led a discussion regarding Dolphin Films’ plans and ability to achieve production of two films forecast for 2016.  Mr. O’Dowd provided a detailed discussion of the status of two projects to which Dolphin Films had acquired rights and that it expected to produce as films in 2016.  He then described a third project that could serve as a fallback if one of the other two films did not proceed to production.  Mr. O’Dowd also described and the Special Committee discussed the anticipated financing sources for the two films forecast for production in 2016.  At the meeting, Mr. Kingston described the procedure by which the Special Committee intended to review and reach a decision regarding the proposed acquisition of Dolphin Films.  The Special Committee also discussed the timing of such review and approval of the proposed acquisition in light of an anticipated delay receiving audited financial statements for Dolphin Films.
 
Over the next several weeks, the Company’s counsel, Dolphin Films’ counsel and Mr. Kingston (at the direction of the Special Committee) negotiated the terms of the draft Merger Agreement, including the merger consideration.  Among other things, the negotiations resulted in the inclusion in the draft Merger Agreement of a “go-shop” provision that would allow the Board, acting through the Special Committee, to solicit alternative acquisition proposals within 30 days of executing the Merger Agreement and to pursue a superior proposal if the Board in good faith determined that it would result in a more favorable transaction from a financial point of view than Mr. O’Dowd’s proposal. No such proposals were received by the Company.
 
On October 13, 2015, a meeting of the Special Committee was held by telephone conference call.  Mr. Kingston summarized discussions held just before the meeting with the Company’s outside counsel regarding the proposed consideration for the Merger.  The Company proposed that the Merger consideration comprise shares of newly issued Series B Convertible Preferred Stock and Series C Convertible Preferred Stock.  The Special Committee noted that the newly issued Series C Convertible Preferred Stock contained provisions intended to reduce the dilutive impact of the proposed merger on currently outstanding shares of common stock unless and until Dolphin Films achieves certain post-merger performance targets.
 
At the meeting, Mr. Kingston reviewed with the Special Committee consolidated audited financial statements for Dolphin Films for the years ended December 31, 2013 and 2014 and unaudited financial statements for the six months ended June 30, 2015.  In addition, the Special Committee reviewed the final value-in-place analysis received from the Financial Advisor.
 
Following the meeting, Mr. Kingston received from counsel for Dolphin Films and provided to the Special Committee further drafts of the Merger Agreement and proposed certificates of designation for the new Series B and Series C Convertible Preferred Stock.
 
On October 14, 2015, the Special Committee met and reviewed a copy of the proposed final draft of the Merger Agreement which had previously been delivered to the members of the Special Committee.  The proposed final draft of the Merger Agreement was discussed and considered by the Special Committee, with Mr. Kingston reviewing and discussing with the Special Committee the material terms, conditions and provisions of the Merger Agreement.  The Special Committee also considered the value-in-place analysis dated October 6, 2015 received from the Financial Advisor with respect to the proposed Merger.  After discussions and deliberations, the Special Committee unanimously determined that the Merger was advisable, fair to and in the best interests of the Company’s shareholders and adopted resolutions approving the Merger Agreement and the Merger, and recommended that the Board also approve the Merger Agreement and the Merger.
 
The Board, with the exception of Mr. O’Dowd who abstained from deliberations because of his interests in the Merger, held a meeting on October 14, 2015 to consider and discuss the draft Merger Agreement and the Merger.  A copy of the proposed final draft of the Merger Agreement had previously been delivered to each member of the Board.  At the meeting, the Special Committee informed the Board of its approval of the Merger Agreement and the Merger and its recommendation that the Board also approve the Merger Agreement and the Merger.  After further discussion and consideration, the Board unanimously determined that the Merger was advisable, fair to and in the best interests of the Company and its shareholders and adopted resolutions approving the Merger Agreement and the Merger.
 
 
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The Merger Agreement was entered into on October 14, 2015.
 
Financial Analyses of the Financial Advisor to the Special Committee
 
General
 
By letter agreement dated July 10, 2015, Mr. Kingston’s law firm retained the Financial Advisor at the request of the Special Committee to act as financial advisor to the Special Committee in connection with the proposed transaction between the Company and Dolphin Films.  In selecting the Financial Advisor, the Special Committee considered that the Financial Advisor is an internationally recognized financial advisory firm which specializes in, among other fields, corporate finance and restructuring and whose professionals have substantial experience in the valuation and assessment of businesses in connection with mergers, acquisitions and similar business transactions.  The Special Committee unanimously decided to retain the Financial Advisor, which it determined possessed the essential qualifications sought by the Special Committee, namely experience with transactions similar to the Merger, the ability to work within the Special Committee’s expected timeframe, and a proposed fee that the Special Committee considered affordable.  The Financial Advisor has not previously provided valuation services to the Company, and none of the Financial Advisor’s employees who worked on the engagement has any known financial interest in the assets or equity of the Company or the outcome of the engagement.  The Financial Advisor received $33,057.18 from the Company as compensation for the Financial Analyses; however, no compensation received by the Financial Advisor was based on or was contingent on the results of the Financial Advisor’s engagement.
 
The Financial Advisor was engaged to prepare value in place portrayals of Dolphin Films that were not and are not formal opinions of value that were based upon financial forecasts prepared by Dolphin Films’ management, which forecasts were not independently assessed for reasonableness or achievability by the Financial Advisor.  On July 20, 2015, the Financial Advisor delivered the Financial Analyses in draft form to the Special Committee.  Following review, the Special Committee asked Financial Advisor to revise the draft Financial Analyses to reduce the number of films portrayed or assumed to be produced by Dolphin Films during the period of time reflected in the hypothetical forecasts covered by the Financial Analyses.  On October 6, 2015, the Financial Advisor delivered the final Financial Analyses, which incorporated a reduction in the number of films portrayed to be produced by Dolphin Films in the hypothetical forecasts. The Special Committee unanimously adopted the Financial Analyses of the Financial Advisor and utilized it as a factor in the determination of the Merger Consideration to be paid to Dolphin Entertainment in connection with the Merger.
 
The Financial Analyses are intended solely for the information of the Special Committee and the Board in connection with the Merger, may not be relied upon by any other person or for any other purpose without the Financial Advisor’s prior written consent and does not constitute investment advice or a recommendation to any shareholder as to how such shareholder should vote with respect to the Merger or any other matter.  The Financial Analyses will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested equity security holder of the Company or representative who has been so designated in writing.
 
Summary of Financial Analyses Performed by the Financial Advisor
 
The Financial Analyses portray a value-in-place indication of Dolphin films, on an enterprise level, as of December 31, 2015.  Value-in-place means the enterprise value of Dolphin Films ascribed under certain specific conditions associated with its business plan.  Specifically, the Financial Advisor developed the valuation basis based on forecasts provided by Dolphin Films’ management. The Financial Advisor was instructed to accept, and did accept, Dolphin Films’ forecasts of future operating results at face value, without any inquiry into the reasonableness of those forecasts and without making any determination as to the ability of Dolphin Films’ management to achieve such forecasts. There may be no or limited market precedent for a traditional form of transaction between a willing buyer and a willing seller at the resulting valuation indication under this basis.  A value-in-place indication can vary materially from a fair market value indication.
 
Based on its discussions with Dolphin Films’ management and upon review of Dolphin Films’ management forecasts, the Financial Advisor noted that:
 
 
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·
Dolphin Films estimates that two films per year are expected to be produced from 2016 through 2018, three films per year from 2019 through 2020 and four films per year thereafter.  Dolphin Films’ management has represented that Dolphin Films will be able to acquire and develop sufficient rights to fulfill the projected film volume.
·
Producer fees on average of $1.5 million are expected to be achieved for each prospective film referenced above.  Management noted that this is lower than fees generated in other films.
·
Since inception in 2013, Dolphin Films has produced two films – “Believe” and “Max Steel”.
·
The Financial Advisor did not review any historical financial statements of Dolphin Films.
·
Limited working capital is required for purposes of executing the business plan reflected in the management forecasts.
 
Limiting Factors and Assumptions
 
With respect to the Financial Analyses provided to the Special Committee:
 
·
The financial analyses performed by the Financial Advisor were based on business, general economic, market and other conditions that reasonably could be evaluated by the Financial Advisor as of the date of its report.  Subsequent events that could affect the conclusions set forth in the financial analyses include adverse changes in industry performance or market conditions and changes to the financial condition and results of operations of Dolphin Films.  The Financial Advisor is under no obligation to update, revise, or reaffirm the financial analyses it provided.
·
The Financial Advisor’s conclusions set forth in the financial analyses were based on methods and techniques that the Financial Advisor considers appropriate under the circumstances, and represent the opinion of the Financial Advisor based upon information furnished by Dolphin Films and its advisors and other publicly available sources.
·
The Financial Advisor reviewed publicly available information including industry and statistical information obtained from sources it believes are reliable.  The Financial Advisor makes no representations as to the accuracy or completeness of such information and relied upon such public information without further verification.
·
The Financial Advisor relied upon Dolphin Films’ representations that the information provided by it, or on its behalf, was accurate and complete in all material respects.
·
The Financial Advisor assumed that Dolphin Films complied with all applicable federal, state, and local regulations and laws, unless the lack of compliance is specifically noted in the financial analyses.
·
The Financial Advisor’s financial analyses also assume that Dolphin Films has no material contingent assets or liabilities, no unusual obligations or substantial commitments other than those incurred in the ordinary course of business, and no pending or threatened litigation that would have a material effect on the value of the assets or Dolphin Films.
·
In its Financial Analyses, the Financial Advisor did not intend to render any opinion regarding investment advice, or any opinion, counsel or interpretation in matters that require legal, accounting, tax or other appropriate professional advice.
 
The Financial Advisor’s Findings
 
After performing Financial Analyses based on an enterprise value indication, the Financial Advisor arrived at a low and high range of enterprise value indications of $13,900,000 and $18,800,000, respectively.  The Financial Advisor’s concluded valuation of Dolphin Films of $16,350,000 was based on the average of the low and high indications.
 
Role and Recommendation of the Special Committee
 
The Board designated the Special Committee comprised solely of disinterested and independent members of the Board to, among other things, negotiate, review and evaluate the terms and conditions of the Merger Agreement and determine the advisability of the Merger.  Messrs. Famadas and Stanham were appointed to the Special Committee.  The Special Committee, with the assistance of Mr. Kingtston, outside legal counsel to the Special Committee and based on the Financial Analyses of the Financial Advisor, financial advisor to the Special Committee, negotiated the terms and conditions of the Merger Agreement on behalf of the Company. After review and consideration, the Special Committee determined that the Merger is advisable, fair to and in the best interests of the Company’s shareholders and approved the Merger Agreement and the Merger. The Special Committee, therefore, recommended that the Board approve the Merger Agreement and the Merger and recommends to the Company’s shareholders that they approve the Merger Agreement.
 
 
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The Special Committee was aware of the interests of Mr. O’Dowd in the Merger, as described below under “Interests of Certain Persons in the Merger.”  In arriving at its determination, the Special Committee consulted with Mr. Kingston with respect to legal matters and considered (i) the Financial Analyses provided by the Financial Advisor, (ii) the audited combined financial statements of Dolphin Films and its subsidiaries for the years ended December 31, 2014 and 2013, and (iii) unaudited combined financial statements of Dolphin Films and its subsidiaries as of June 30, 2015.  In arriving at its determination, the Special Committee also independently considered the factors described below under “Recommendation of the Board of Directors and its Reasons for the Merger.”  In light of the number and wide variety of factors considered in connection with its evaluation of the Merger, the Special Committee did not consider it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weights to the specific factors considered in reaching its determination.  The Special Committee viewed its determination and recommendation as being based on the information available and factors presented to and considered by it.  In addition, individual directors serving on the Special Committee may have given different weight to different factors.
 
Recommendation of the Board of Directors and its Reasons for the Merger
 
After considering the recommendation of the Special Committee and the other factors discussed below, the Board determined that the Merger is advisable, fair to and in the best interests of the Company’s shareholders, approved the Merger Agreement and recommends that the our shareholders vote “FOR” the Merger Agreement at the Annual Meeting.
 
In reaching this determination, the Board considered the following material factors weighing positively in favor of the Merger:
 
·
the fact that the proposed Merger would simplify the current ownership structure of the affiliated entities, and focus the energies of Mr. O’Dowd on one combined company with a shared strategy;
·
the Financial Analyses of the Financial Advisor provided to the Special Committee as of December 31, 2015 (see “Financial Analyses of the Financial Advisor to the Special Committee” above for additional information regarding the Financial Advisor’s Financial Analyses performed in connection with the Merger);
·
the fact that the exercise of the Series C Convertible Preferred Stock issued as part of the Merger Consideration is subject to an Optional Conversion Threshold such that the Company must have accomplished, as determined by the vote of the majority of the independent directors of the Board in its sole discretion, any of the following (i) EBITDA of more than $3.0 million in any calendar year, (ii) production of two films, (iii) production and distribution of at least three web series, (iv) distribution of one film, or (v) any combination thereof that is subsequently approved by the majority of the independent directors of the Board based on the strategic plan approved by the Board.  This provision is intended to reduce the dilutive impact of the proposed merger on currently outstanding shares of common stock unless and until Dolphin Films achieves certain post-merger performance targets;
·
the fact that, while the Merger Agreement generally prohibits the Company from soliciting certain alternative transactions to the Merger, the Company does have the right to furnish information about its business to any person making an unsolicited “superior proposal” and to participate in negotiations regarding, and, in specific circumstances, to accept, such “superior proposal” in lieu of the Merger;
·
the absence of any termination or similar fee to be paid if the Merger Agreement is terminated, including in the event the Company accepts a “superior proposal” in lieu of the Merger, as described above;
·
the fact that both companies already have overlapping management, and that the Company’s President, Chairman and Chief Executive Officer is also the president of Dolphin Entertainment and indirect owner of Dolphin Films;
·
other factors related to Dolphin Film’s existing relationship with the Company, including the limited business integration risks in connection with the Merger;
 
 
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·
the efficiencies that could be realized as a result of the Merger in legal, accounting and audit fees; and
·
the fact that the financial and other terms and conditions of the Merger Agreement were the product of extensive negotiations between the Special Committee, Dolphin Films and Dolphin Entertainment.
 
The Board, in reaching its decision to approve the Merger, also considered the following potential risks and uncertainties related to the Merger:
 
·
the risk that the Merger may not otherwise be consummated on the contemplated terms, or at all, and the substantial costs to be incurred in connection with the Merger, including transaction expenses arising from the Merger, whether or not the Merger is consummated;
·
the interests that Mr. O’Dowd has with respect to the Merger in addition to his interest as a controlling shareholder of the Company;
·
the dilutive impact of the Merger on the existing shareholders of the Company;
·
the possibility that the Company’s shareholders could be adversely affected by a decrease in the trading price of the Company’s Common Stock between the date of the Merger Agreement and the Effective Time of the Merger or following the Merger;
·
possible disruptions to the Company’s operations, and management distractions that could arise from the Merger;
·
the possibility that the expected benefits from the Merger described above may not be realized to the extent anticipated or at all;
·
the limitations generally imposed by the Merger Agreement on the solicitation or consideration by the Company of alternative business combinations prior to the consummation of the Merger, subject to the exception described above; and
·
the possibility of shareholder litigation relating to the proposed Merger and the associated costs, burden and inconvenience involved in defending those proceedings;
·
other risks associated with the Merger and the businesses and operations of the Company and its subsidiaries, including the risks and uncertainties described in the “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” sections of this proxy statement.
 
The Board reviewed and considered the recommendation of the Special Committee as well as the potential benefits, advantages and opportunities of the Merger against the uncertainties and risks described above, both generally and particularly in light of the fact that there can be no assurance about future results. The Board also considered the interests of Mr. O’Dowd in the Merger, as described below under “Interests of Certain Persons in the Merger.”  After such review and consideration, the Board concluded that the potential benefits of the Merger outweighed the potential uncertainties and risks relating to the Merger.  In reaching its determination to approve and recommend the Merger Agreement, the Board did not quantify or assign any relative or specific weights to the various factors that it considered.  Rather, the Board viewed its determination and recommendation as being based on an overall analysis and on the totality of the information presented to and factors considered by it.  In addition, in considering the factors described above, individual members of the Board may have given different weight to different factors.
 
Interests of Certain Persons in the Merger
 
In considering the recommendation of the Board to approve the Merger Agreement, you should be aware that Mr. O’Dowd has interests in the Merger that are different from, or in addition to, those of the Company’s shareholders generally and that may create potential conflicts of interest.  Mr. O’Dowd is the President, Chairman and Chief Executive Officer of the Company and, as of [], is the beneficial owner of approximately 54% of the outstanding Common Stock of the Company.  In addition, Mr. O’Dowd is the founder, president and sole shareholder of Dolphin Entertainment, which is the parent of Dolphin Films.  As sole shareholder of Dolphin Entertainment, Mr. O’Dowd will indirectly own shares of Series B Convertible Preferred Stock and shares of Series C Convertible Preferred Stock issued as consideration for the Merger, if the Merger is consummated.  The Series C Convertible Preferred Stock will have super voting rights in the Company, will be entitled to vote together with the Common Stock holders as a single class on all matters on which they are entitled to vote.  In addition, the Series C Convertible Preferred Stock will have anti-dilution protections for a period of five years.  Upon specified triggers, the number of shares of Common Stock into which the 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 directory 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 currently held by such persons, which currently is approximately 53.5% of the shares of Common Stock outstanding. An Eligible Class C Preferred Stock Holder means any of (i) Dolphin Entertainment, Inc., for so long as Mr. O’Dowd continues to beneficially own at least 90% and serves on the board of directors or other governing entity, (ii) any other entity in which Mr. O’Dowd beneficially owns more than 90%, or a trust for the benefit of others, for which Mr. O’Dowd serves as trustee and (iii) Mr. O’Dowd individually. For a further discussion of the Series C Convertible Preferred Stock, please see the section titled “The Merger Consideration – Series C Convertible Preferred Stock” beginning on page 34 of this proxy statement.
 
 
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No “Golden Parachute” Compensation
 
The Company has no arrangement or understanding with its Named Executive Officers or Dolphin Films’ or Dolphin Entertainment’s management concerning any type of compensation that is based on or otherwise relates to the Merger.  Neither the Merger nor any of the other transactions contemplated by the Merger Agreement would be deemed to constitute a “Change in Control” under Mr. O’Dowd’s employment agreement with the Company.  As a result, the advisory shareholder vote relating to “golden parachute compensation” otherwise required by Item 402(t) of Regulation S-K is not applicable to the Merger.
 
Transaction in Connection with the Merger
 
In connection with the Merger, on October 16, 2015, the Company and T Squared Partners LP (“T Squared”) entered into a Preferred Stock Exchange Agreement pursuant to which the Company agreed to issue 1,000,000  shares of Series B Convertible Preferred Stock to T Squared in exchange for 1,042,753 shares  of Series A Convertible Preferred Stock, par value $0.001 per share, previously issued to T Squared. The shares of Series A Convertible Preferred Stock are currently exercisable into four (4) shares of the Company’s Common Stock with a liquidation value of $1.00 per share as compared to the Series B Convertible Preferred Stock that has a liquidation value of $0.10 per share.  The exchange of shares of Series B Convertible Preferred Stock for shares of Series A Convertible Preferred Stock will take place at the Effective Time of the Merger (as described below).
 
Closing and Effective Time of the Merger
 
Unless otherwise agreed by the parties, the closing will occur on the third business day following the date on which all of the conditions to the parties’ obligations (excluding conditions that, by their terms, cannot be satisfied until the closing, but the closing shall be subject to the satisfaction or, if permissible, waiver of those conditions) have been satisfied or waived.  Subject to the satisfaction or waiver of the conditions to the closing described in the section entitled “The Merger Agreement—Conditions to the Merger” beginning on page 50 of this proxy statement, it is anticipated that the Merger will close in the first quarter of 2016.  It is possible that factors outside the control of the parties could result in the Merger being completed at a different time, or not at all.
 
At the closing, the parties will cause the Merger to be consummated by filing articles of Merger with the Secretary of State of the State of Florida (the “Articles of Merger”), and the Merger will become effective at the time of filing or at such later time as specified in the Articles of Merger (the “Effective Time”).
 
Regulatory Approvals
 
We have determined that the Merger does not require the filing of notification and report forms with the Antitrust Division of the U.S. Department of Justice, or the Federal Trade Commission under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
 
Ownership of the Company After the Merger
 
It is expected that after the completion of the Merger, and assuming exercise of the Series B Convertible Preferred Stock and Series C Convertible Preferred Stock into shares of Common Stock, approximately 126,592,352 shares of Common Stock will be outstanding (not including the effects of any anti-dilution protections).  Of these Mr. O’Dowd, will beneficially own 88,543,434 or approximately 70% of the outstanding shares of Common Stock of the combined company.
 
 
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Appraisal Rights
 
Under Florida law, our shareholders are not entitled to appraisal rights in connection with the Merger.
 
Accounting Treatment of the Merger
 
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America, which is referred to as GAAP.  The Merger will be accounted for as an acquisition of entities under common control.
 
 
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THE MERGER AGREEMENT
 
The following is a summary of the material terms and conditions of the Merger Agreement.  The description in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement.  This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you.  We encourage you to read the Merger Agreement carefully and in its entirety because it is the legal document that governs the Merger.
 
Explanatory Note Regarding the Merger Agreement
 
The Merger Agreement and this summary of its terms have been included to provide you with information regarding the terms of the Merger Agreement.  Factual disclosures about the Company contained in this proxy statement or in the Company’s public reports filed with the SEC may supplement, update or modify the factual disclosures about the Company contained in the Merger Agreement and described in this summary.  The representations, warranties and covenants made in the Merger Agreement by the Company, Merger Subsidiary, Dolphin Entertainment and Dolphin Films were qualified and subject to important limitations agreed to by the Company, Merger Subsidiary, Dolphin Entertainment and Dolphin Films in connection with negotiating the terms of the Merger Agreement.  In particular, in your review of the representations and warranties contained in the Merger Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the Merger Agreement may have the right not to close the Merger if the representations and warranties of the other party prove to be untrue, due to a change in circumstance or otherwise, and allocating risk between the parties to the Merger Agreement, rather than establishing matters as facts.  The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to shareholders and reports and documents filed with the SEC, and in some cases were qualified by disclosures that were made by each party to the other, which disclosures are not reflected in the Merger Agreement.  Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the Merger Agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement.  Shareholders are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of the Company, Merger Subsidiary, Dolphin Entertainment or Dolphin Films.  In addition, you should not rely on the covenants in the Merger Agreement as actual limitations on the respective businesses of the Company, Merger Subsidiary, Dolphin Entertainment or Dolphin Films, because the parties may take certain actions that are consented to by the appropriate party, which consent may be given without prior notice to the public.
 
Structure and Effective Time
 
The Merger Agreement provides that, subject to the terms and conditions of the Merger Agreement, Merger Subsidiary, a Florida corporation and wholly-owned subsidiary of the Company, will merge with and into Dolphin Films which is a wholly-owned subsidiary of Dolphin Entertainment.  As a result, the separate corporate existence of Merger Subsidiary will cease and Dolphin Films will survive the Merger.  As a result of the Merger, the Company will acquire Dolphin Films.
 
Unless otherwise agreed by the parties, the closing of the Merger will occur on the third business day following the date on which all of the conditions to the parties’ obligations (excluding conditions that, by their terms, cannot be satisfied until the closing, but the closing shall be subject to the satisfaction or, if permissible, waiver of those conditions) have been satisfied or waived.  Subject to the satisfaction or waiver of the conditions to the closing described in the section entitled “The Merger Agreement—Conditions to the Merger” beginning on page 49 of this proxy statement, it is anticipated that the Merger will close in the first quarter of 2016.  It is possible that factors outside the control of the parties could result in the Merger being completed at a different time, or not at all.
 
At the closing, the parties will cause the Merger to be consummated by filing Articles of Merger with the Secretary of State of the State of Florida, and the Merger will become effective at the time of filing or at such later time as specified in the Articles of Merger, or the Effective Time.
 
 
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Merger Consideration
 
Pursuant to the terms of the Merger Agreement, the aggregate outstanding shares of Dolphin Films’ common stock issued and outstanding immediately prior to the effective time will automatically be converted into the right to receive from the Company 2,300,000 shares of Series B Convertible Preferred Stock and 1,000,000 shares of Series C Convertible Preferred Stock.
 
Directors and Officers
 
The Merger Agreement provides that the directors and officers of Merger Subsidiary immediately prior to the Effective Time of the Merger will be the directors and officers of Dolphin Films, the surviving corporation, until their respective successors are duly appointed or elected and qualified, or until their earlier death, resignation or removal in accordance with Dolphin Films’ certificate of incorporation and by-laws.
 
Representations and Warranties
 
The Merger Agreement contains representations and warranties that the Company and Merger Subsidiary, on the one hand, and Dolphin Films and Dolphin Entertainment, on the other hand, have made to one another as of specific dates.  These representations and warranties have been made for the benefit of the other parties to the Merger Agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be incorrect.  Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about the Company, Merger Subsidiary, Dolphin Entertainment or Dolphin Films since they were made as of specific dates, may be intended merely as a risk allocation mechanism between us, Dolphin Entertainment and Dolphin Films and are modified in important part by the confidential disclosure letters.
 
The Company and Merger Subsidiary have made a number of representations and warranties to the Dolphin Entertainment and Dolphin Films regarding various matters pertinent to the Merger.  The topics covered by these representations and warranties include the following:
 
·
organization, valid existence, good standing, qualification to do business and similar corporate matters;
·
corporate power and authority to execute and deliver the Merger Agreement the Merger Agreement and complete the Merger, the enforceability of the Merger Agreement against them, and the due execution and delivery of the Merger Agreement;
·
the absence of violations and breaches of, or conflicts with, their respective governing documents, certain contracts, any order of any governmental authority or any law resulting from the entry into the Merger Agreement or the completion of the Merger;
·
consents, approvals, authorizations, permits and filings required from governmental entities in connection with the execution and delivery of the Merger Agreement or the completion of the Merger;
·
the absence of any suits, claims, arbitral actions  or other proceedings pending or, to the Company’s knowledge, threatened against them before or by any governmental entity and the absence of certain orders against them that, that questions the validity of the Merger Agreement or seeks to prohibit, enjoin or otherwise challenge or that would reasonably be expected to delay the consummation of the Merger;
·
the shareholder approval required to complete the Merger Agreement;
·
accredited investor status of the Company and Merger subsidiary and their intent to not publicly distribute shares acquired in the Merger;
·
the absence of undisclosed brokers’ fees or finders’ fees relating to the transaction; and
·
the accuracy of the information supplied by Parent and Merger Subsidiary to be included in this proxy statement.
 
Dolphin Entertainment has made a number of representations and warranties to the Company in the Merger Agreement regarding aspects of its business and other matters pertinent to the Merger.  The topics covered by these representations and warranties include the following:
 
·
organization, valid existence, good standing, qualification to do business and similar corporate matters;
 
 
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·
corporate power and authority to execute and deliver the Merger Agreement and complete the Merger, the enforceability of the Merger Agreement, and the due execution and delivery of the Merger Agreement;
·
ownership of all the equity interests of Dolphin Films free and clear of all liens;
·
consents, approvals, authorizations, permits and filings required from governmental entities in connection with the execution and delivery of the Merger Agreement or the completion of the Merger;
·
the approval of the Merger Agreement and the Merger by Dolphin Entertainment as sole shareholder of Dolphin Films;
·
the absence of violations and breaches of, or conflicts with, governing documents, certain contracts, any order of any governmental authority or any law resulting from the entry into the Merger Agreement or the completion of the Merger;
·
the absence of undisclosed brokers’ fees or finders’ fees relating to the transaction;
·
the absence of any suits, claims, arbitral actions  or other proceedings pending or, to Dolphin Entertainment’s knowledge, threatened against them before or by any governmental entity and the absence of certain orders against them that, that questions the validity of the Merger Agreement or seeks to prohibit, enjoin or otherwise challenge or that would reasonably be expected to delay the consummation of the Merger;
 
Dolphin Films and its subsidiaries have made a number of representations and warranties to the Company in the Merger Agreement regarding aspects of its business and other matters pertinent to the Merger.  The topics covered by these representations and warranties include the following:
 
·
organization, valid existence, good standing, qualification to do business and similar corporate matters;
·
capital structure and the absence of encumbrances on equity interests;
·
corporate power and authority to execute and deliver the Merger Agreement and complete the Merger, the enforceability of the Merger Agreement, and the due execution and delivery of the Merger Agreement;
·
consents, approvals, authorizations, permits and filings required from governmental entities in connection with the execution and delivery of the Merger Agreement or the completion of the Merger;
·
the absence of violations and breaches of, or conflicts with, their respective governing documents, certain contracts, any order of any governmental authority or any law resulting from the entry into the Merger Agreement or the completion of the Merger;
·
delivery of minute books and certain records to the Company ;
·
leases of personal property;
·
financial reports and the preparation of financial reports in compliance with U.S. generally accepted accounting principles, or GAAP;
·
the absence of specified undisclosed liabilities;
·
the absence of undisclosed brokers’ fees or finders’ fees relating to the transaction;
·
the validity of, compliance with, and certain other matters with respect to material contracts;
·
material compliance with tax laws and other tax matters;
·
the absence of any undisclosed suits, claims, actions, hearings, arbitral actions or other proceedings pending or, to their knowledge, threatened against Dolphin Films or its subsidiaries, within two years of the date of the Merger Agreement;
·
environmental matters;
·
compliance with laws;
·
insurance coverage;
·
intellectual property;
·
employees;
·
the absence of owned and leased real estate;
·
the absence of certain transactions between the Company and its related parties; and
·
the absence of certain developments since the date of the balance sheet.
 
Some of the Dolphin Films’ representations and warranties are qualified by a material adverse effect standard.  Subject to certain exclusions, a “material adverse effect” means any change, development, event, effect, circumstance or occurrence that, individually or in the aggregate, is or would reasonably be expected to be material and adverse to the business, condition (financial or otherwise), assets, liabilities or results of operations of the Dolphin Films and its subsidiaries, taken as a whole, or prevents or materially delays, or would reasonably be expected to prevent or materially delay, the Dolphin Films’ ability to perform its obligations with respect to the consummation of the Merger. None of the following constitutes a “material adverse effect:
 
 
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·
changes in general economic conditions in the United States or any other country or region in the world, or changes in conditions in the global economy generally to the extent such changes do not adversely affect Dolphin Films or its subsidiaries in a materially disproportionately adverse manner relative to other participants in the same industry;
·
changes in conditions in the financial markets, credit markets or capital markets in the United States or any other country or region in the world, including changes in interest rates in the United States or any other country and changes in exchange rates for the currencies of any countries;
·
changes in political conditions in the United States or any other country or region in the world, to the extent such changes do not adversely affect the Dolphin Films or its subsidiaries in a materially disproportionately adverse manner relative to other participants in the same industry;
·
changes in conditions in the industry in which Dolphin Films and its subsidiaries conduct business, to the extent such acts do not adversely affect Dolphin Films and its subsidiaries in a materially disproportionately adverse manner relative to other participants in the same industry;
·
acts of war, sabotage or terrorism (including any escalation or general worsening of any such acts of war, sabotage or terrorism) in the United States or any other country or region in the world;
·
earthquakes, hurricanes, tsunamis, tornadoes, floods, mudslides, wild fires or other natural disasters, weather conditions and other force majeure events in the United States or any other country or region in the world;
·
the announcement of the Merger Agreement or the pendency or consummation of the Merger;
·
the taking of any action required by this Merger Agreement or any transaction document, or the failure to take any action prohibited by this Merger Agreement or any transaction document;
·
any actions taken, or failure to take action, in each case, to which Dolphin Films has in writing expressly approved, consented to or requested;
·
changes in law or GAAP, to the extent such changes do not adversely affect Dolphin Films or  in a materially disproportionately adverse manner relative to other participants in the industry in which the Dolphin Films and its subsidiaries engage;
·
any failure by the Dolphin Films to meet any internal projections or forecasts or estimates of revenues or earnings for any period (the facts and circumstances giving rise to such failure may be taken into account in determining whether there has been a material adverse effect).
·
any change generally affecting the economy, financial markets or political, economic or regulatory conditions in the United States or any other geographic region where Dolphin Films conducts business, to the extent Dolphin Films and its subsidiaries are not disproportionately affected thereby;
 
The representations and warranties of each of the parties to the Merger Agreement will expire at the effective time of the Merger or the termination of the Merger Agreement.
 
Conduct of Business Pending the Closing
 
Under the Merger Agreement, Dolphin Films has agreed that, subject to certain exceptions in the Merger Agreement, between the date of the Merger Agreement and the effective time of the Merger, unless the Company gives its prior written consent, Dolphin Films and its subsidiaries will conduct their operations in the ordinary course of business and consistent with past practice.
 
Subject to certain exceptions set forth in the Merger Agreement, unless the Company consents in writing (which consent cannot be unreasonably withheld, conditioned or delayed), Dolphin Films will not and will not permit any of its subsidiaries to:
 
·
declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock (other than dividends and distributions that may be payable to Dolphin Entertainment in accordance with applicable law);
·
split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock;
 
 
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·
purchase, redeem or otherwise acquire any shares of its capital stock or of any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities;
·
authorize for issuance, issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock or the capital stock of any of its subsidiaries, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities or any other securities or equity equivalents (including stock appreciation rights) other than the issuance of shares upon the exercise or settlement of options, warrants or equity awards;
·
amend its certificate or articles of incorporation, by-laws or other comparable charter or organizational documents;
·
acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the stock or assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization which would be material to Dolphin Films and its subsidiaries, taken as a whole;
·
incur any indebtedness for borrowed money or guarantee any such indebtedness of another person, issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any debt securities of another person, enter into any “keep well” or other agreement to maintain any financial statement condition of another person or enter into any similar  arrangement;
·
make any loans, advances or capital contributions to, or investments in, any other person;
·
adopt resolutions providing for or authorizing a liquidation or a dissolution; or
·
authorize any of, or commit or agree to take any of, the foregoing actions.
 
Shareholder Meeting; Preparation of Proxy Statement
 
The Company will take all action necessary action to call and hold a meeting of its shareholders as soon as reasonably practicable for the purpose of voting on the Merger Proposal.  The Company will mail a proxy statement to its shareholders in advance of the meeting which will include the Company’s recommendation for the Merger Proposal.  The Company will use reasonable best efforts to (i) solicit from its shareholders proxies in favor of approval of the Merger Proposal and (ii) take all other actions necessary or advisable to secure the vote or consent of its shareholders required by applicable law to obtain such approval.  Once the shareholder meeting has been duly called and noticed, the Company will not, without the consent of Dolphin Entertainment, adjourn or postpone the shareholder meeting; provided, that the Company may, without the consent of Dolphin Entertainment, adjourn or postpone the shareholder meeting (i) in order to obtain a quorum of its shareholders or (ii) as reasonably determined by the Company to comply with applicable Law.
 
In connection with the shareholder meeting, as soon as reasonably practicable following the date of the Merger Agreement the Company, in consultation with Dolphin Entertainment will prepare and file the Parent Proxy Statement with the SEC.  The Company will not file the proxy statement, or any amendment or supplement thereto, without providing Dolphin Entertainment a reasonable opportunity to review and comment thereon and the Company will reasonably considered such comments.  The Company shall use its reasonable best efforts to resolve, and each party agrees to consult and cooperate with the other party in resolving, all comments received from the SEC with respect to the proxy statement as promptly as practicable after receiving such comments and to cause the definitive proxy statement to be cleared by the SEC and mailed to the shareholders as promptly as reasonably practicable.  The Company agrees to consult with Dolphin Entertainment prior to responding to SEC comments with respect to the preliminary proxy statement.  Each party agrees to correct any information provided by it for use in the proxy statement which shall have become false or misleading and the Company shall promptly prepare and mail to its shareholders an amendment or supplement setting forth such correction.  The Company shall as soon as reasonably practicable (i) notify Dolphin Entertainment of the receipt of any SEC comments with respect to the proxy statement and any request by the SEC for any amendment to the proxy statement or for additional information and (ii) provide Dolphin Entertainment with copies of all written correspondence between the Company and its representatives, on the one hand, and the SEC, on the other hand, with respect to the proxy statement.
 
Go-Shop; Acquisition Proposals; Change in Recommendation
 
From the date of the Merger Agreement and continuing until 11:59 p.m. on November 12, 2015 (the “No-Shop Period Start Date”), the Company (acting through the Special Committee) and its representatives were permitted to (i) initiate, solicit and encourage acquisition proposals and (ii) enter into and maintain discussions or negotiations regarding acquisition proposals or cooperate with or participate in, or facilitate any inquiries, proposals, discussions or negotiations or the making of any acquisition proposal. If the Company provides non-public information in connection with any acquisition proposal, the Company must promptly provide such non-public information to Dolphin Entertainment subject to certain exceptions in the Merger Agreement. No such proposals were received by the Company.
 
 
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From the No-Shop Period Start Date until the Effective Time or, if earlier, the termination of the Merger Agreement, the Company (acting through the Special Committee) and its representatives are required to immediately cease any initiation, solicitation, encouragement, discussions or negotiations with any persons or entities with respect to any acquisition proposal.  The Company must keep Dolphin Entertainment apprised the status of any material developments, any inquiries, requests for information, discussion or negotiation that is likely to lead to or contemplates an acquisition proposal and provide Dolphin Entertainment with the identity of the person making the proposal and the material terms and conditions of such proposal.  From and after the No-Shop Period Start Date, the Company must promptly notify Dolphin Entertainment orally and in writing if (acting through the Special Committee) it determines to begin providing information or to engage in negotiations concerning an acquisition proposal received on or after the No-Shop Period Start Date.
 
The Company can terminate the Merger Agreement prior to the Company’s shareholder approval of the Merger Agreement to enter into a superior proposal if it and the Special Committee determine in good faith after consultation with the Special Committee’s independent financial advisors and outside counsel that the failure to do so would reasonably be expected to be inconsistent with its fiduciary duties under applicable law.
 
An “acquisition proposal” is any inquiry, proposal or offer from any person or group of persons other than Dolphin Entertainment or its affiliates relating to any:  (x) direct or indirect acquisition or purchase of a business or businesses that constitutes 30% or more of the net revenues, net income or assets of the Company and its subsidiaries, taken as a whole, or 30% or more of any class or series of the capital stock of the Company or its subsidiaries, (y) tender offer or exchange offer that if consummated would result in any person or group of persons beneficially owning 30% or more of any class or series of the capital stock of the Company or its subsidiaries, or (z) Merger, reorganization, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company (or any subsidiary or subsidiaries of the Company whose business or businesses constitute(s) 30% or more of the net revenues, net income or assets of the Company and its subsidiaries, taken as a whole);
 
A “superior proposal” is a bona fide acquisition proposal, which the Board (acting through the Special Committee) in good faith determines, would, if consummated, result in a transaction that is more favorable from a financial point of view to the shareholders of the Company, other than Mr. William O’Dowd, than the Merger (x) after receiving the advice of its financial advisor, (y) after taking into account the likelihood of consummation of such transaction on the terms set forth therein (as compared to the terms of the Merger Agreement) and (z) after taking into account all appropriate legal (with the advice of outside counsel), financial (including the financing terms of any such proposal), regulatory or other aspects of such proposal; provided that for purposes of the definition of “superior proposal”, the references to “30% or more” in the definition of acquisition proposal shall be deemed to be references to “a majority” and the definition of acquisition proposal shall only refer to a transaction or series of transactions (i) directly involving the Company (and not exclusively its subsidiaries) or (ii) involving a sale or transfer of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole.
 
Survival and Indemnification
 
Dolphin Entertainment shall indemnify, defend and hold harmless the Company, and Dolphin Films and its subsidiaries and their respective directors, managers, officers, employees, shareholders and affiliates from and against any and all claims, demands, suits, legal proceedings, liabilities, losses, damages, payments, deficiencies, awards, settlements, assessments, judgments, out-of-pocket costs and expenses, including the reasonable fees and disbursements of outside counsel, interest and penalties (collectively, the “Losses”), which any of these parties shall incur, sustain or suffer as a result of:
 
·
any breach by Dolphin Entertainment of any of the representations or warranties in the Merger Agreement; or
 
 
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·
any breach of or default in the performance by Dolphin Entertainment, Dolphin Films or its subsidiaries (with respect to Dolphin Films or any of its subsidiaries, for pre-closing breaches or defaults in performance only) of any covenant, agreement or obligation to be performed by Dolphin Entertainment,  Dolphin Films or its subsidiaries pursuant to the Merger Agreement.
 
The Company and Dolphin Films and its subsidiaries (following closing) shall jointly and severally indemnify, defend and hold harmless Dolphin Entertainment and, prior to the Closing, Dolphin Films and its subsidiaries and their respective directors, managers, officers, employees and affiliates from and against all Losses, which any of these parties shall incur, sustain or suffer as a result of:
 
·
any breach by the Company or Merger Subsidiary of any of the representations or warranties made by them in the Merger Agreement; or
·
any breach of or default in the performance by the Company or Merger Subsidiary (or Dolphin Films and its subsidiaries following closing) of any covenant, agreement or obligation to be performed by the Company or Merger Subsidiary pursuant to the Merger Agreement.
 
The cumulative indemnification obligations of each of Dolphin Entertainment or the Company shall not, in each case, exceed $3,000,000.  However, any indemnifying party shall not be liable for any Losses (or series of related Losses) of less than $25,000 or until the aggregate amount of all Losses exceeds $50,000.  Any claim (if ultimately payable by Dolphin Entertainment) may, at its option, be payable in shares of Common Stock at the value assigned to such Common Stock in the Closing Date Merger Consideration.
 
Access to Information
 
Upon reasonable notice and subject to applicable laws, Dolphin Films and its subsidiaries will (i) afford to Company and its representatives reasonable access during normal business hours during the period from the date of the Merger Agreement to the earlier of the Effective Time or the termination of the Merger Agreement to their existing books and records.  Such access must be conducted at the Company’s expense, at reasonable times, under the supervision of appropriate personnel of Dolphin Films and in such a manner as to maintain the confidentiality of the Merger Agreement and the Merger and not to interfere with the normal operation of the business of the Dolphin Films and its subsidiaries.
 
Conditions to the Merger
 
The respective obligations of each party to consummate the Merger will be subject to the satisfaction or written waiver at or prior to the Effective Time of the Merger of each of the following conditions:
 
·
approval of the Merger Agreement and the Merger by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote thereon at the Annual Meeting;
·
filing with the Secretary of State of the State of Florida each of the Series B Preferred Stock Certificate of Designation and the Series C Convertible Preferred Stock Certificate of Designation, pursuant to the Merger Agreement;
·
exchange of all of the outstanding shares of Series A Convertible Preferred Stock of the Company for shares of Series B Convertible Preferred Stock of the Company;
·
no governmental authority shall have enacted, issued or otherwise entered into any law, executive order, decree, injunction or other order and no other order legal or regulatory restraint or prohibition shall be in effect in either case, which makes illegal or otherwise prohibits the consummation of the Merger or other transactions contemplated thereby; and
·
the absence of any pending, commenced or threatened legal proceedings preventing, delaying, making illegal or otherwise prohibiting the consummation of the Merger or other transactions contemplated thereby.
 
The obligations of the Company and Merger Subsidiary to complete the Merger are subject to the satisfaction or their waiver at or prior to the Effective Time of the Merger of certain additional conditions, including the following:
 
 
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·
Dolphin Films’ and Dolphin Entertainment’s compliance with their covenants, agreements and obligations contained in the Merger Agreement in all material respects;
·
the Company’s satisfaction with the terms and conditions of the Merger Agreement and related documents;
·
the Company’s satisfaction with the results of its due diligence investigation of Dolphin Films and its subsidiaries;
·
the non-occurrence of  any material adverse effects of Dolphin Films since the date of the Merger Agreement;
·
the delivery to the Company of  an officer’s certificate from Dolphin Entertainment confirming that specified conditions have been satisfied; and
·
the accuracy of Dolphin Films’ and Dolphin Entertainment’s representations and warranties in the Merger Agreement to varying standards depending on the representation and warranty as described below:
 
o
Each representation or warranty of Dolphin Films and Dolphin Entertainment (other than the Fundamental Representations (as defined in the Merger Agreement)) shall have been true and correct in all respects (ignoring any qualifications by “material adverse effect” of Dolphin Films or “materiality” contained in such representations or warranties) as of the date of the Merger Agreement and as of the closing date, except (i) to the extent that the failure of such representations and warranties to be true and correct does not constitute a material adverse effect by Dolphin Films, and (ii) for those representations and warranties which expressly relate to an earlier date (in which case such representations and warranties shall have been true and correct in all respects as of such earlier date except to the extent that the failure of such representations and warranties to have been true and correct as of such earlier date did not constitute a material adverse effect by Dolphin Films).
 
o
In addition, the Fundamental Representations (other than the representations and warranties regarding consents, waivers, approvals or authorizations of, or filings required from governmental entities in connection with the execution and delivery of the Merger Agreement or the completion of the Merger) shall have been true and correct in all respects as of the date of this Agreement and as of the Closing Date, except for those representations and warranties which expressly relate to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects as of such earlier date); and (ii) the representations and warranties regarding consents, waivers, approvals or authorizations, or filings required from governmental entities in connection with the execution and delivery of the Merger Agreement or the completion of the Merger, solely to the extent that they relate to any consent, waiver, approval or authorization of, or filing with, or notification to, any person required by any contract to be made by Dolphin Films or its subsidiaries in connection with the execution and delivery of the Merger Agreement or company documents shall have been true and correct in all respects as of the date of the Merger Agreement and as of the closing date, except for such consents, waivers, approvals, authorizations, filings or notifications which the failure to obtain or make would not reasonably be expected to be material to Dolphin Films and its subsidiaries, taken as a whole.
 
The obligation of Dolphin Films and Dolphin Entertainment to complete the Merger is subject to the satisfaction or their waiver at or prior to the Effective Time of the Merger of certain additional conditions, including the following:
 
·
the Company’s and Merger Sub’s compliance with their covenants, agreements and obligations contained in the Merger Agreement in all material respects; and
·
the delivery to Dolphin Entertainment of an officer’s certificate from the Company and Merger Subsidiary confirming that specified conditions have been satisfied.
·
the representations and warranties of the Company, as set forth in the Merger Agreement shall have been true and correct in all material respects (other than representations and warranties that are qualified by a reference to materiality or any similar qualifier, which shall be true and correct in all respects) as of the date of the Merger Agreement and as of the closing date.
 
 
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Termination of the Merger Agreement
 
The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding approval of the Merger and the transactions contemplated thereby by Dolphin Entertainment:
 
·
by mutual written consent of the Company and Dolphin Films;
·
by either the Company or Dolphin Films, if:
 
o
the Merger has not been consummated on or before June 30, 2016 (the “Outside Date”), unless the failure to consummate the Merger is the result of a breach of the Merger Agreement by the party seeking to terminate the Merger Agreement;
 
o
a court of competent jurisdiction or governmental authority issues an order, decree or ruling permanently enjoining, restraining or otherwise prohibiting the Merger; or
 
·
by the Company, if:
 
o
Dolphin Films or Dolphin Entertainment breaches any covenant or agreement, or if any representation or warranty by Dolphin Films or Dolphin Entertainment becomes untrue, in either case such that specified conditions to closing would not be satisfied; provided, however, that if such breach is curable by Dolphin Films or Dolphin Entertainment through their reasonable best efforts, then, for a period of up to thirty (30) days after receipt of notice of such breach, but only as long as Dolphin Films or Dolphin Entertainment (as applicable) continues to use its reasonable best efforts to cure such breach (provided, however, that the cure period will terminate on the close of business on the business day prior to the Outside Date), such termination shall not be effective, and such termination shall become effective only if the breach is not cured within the cure period;
 
·
by Dolphin Films or Dolphin Entertainment, if:
 
o
the Company or Merger Subsidiary breaches any covenant or agreement, or if any representation or warranty by the Company or Merger Subsidiary becomes untrue, in either case such that specified conditions to closing would not be satisfied; provided, however, that if such breach is curable by the Company or Merger Subsidiary through their reasonable best efforts, then, for a period of up to thirty (30) days after receipt of notice of such breach, but only as long as Company or Merger Subsidiary (as applicable) continues to use its reasonable best efforts to cure such breach (provided, however, that the cure period will terminate on the close of business on the business day prior to the Outside Date), such termination shall not be effective, and such termination shall become effective only if the breach is not cured within the cure period; or
 
o
if Dolphin Films or Dolphin Entertainment have satisfied (or the Company has waived) each of the conditions to the Company’s obligations to consummate the Merger, with certain exceptions, and Dolphin Films and Dolphin Entertainment have indicated in writing to the Company that they are ready, willing and able to consummate the Merger on the date contemplated and are prepared to satisfy specified conditions and the Company and Merger Subsidiary fail to consummate the Merger within five business days following the date on which the closing should have occurred.
 
Transaction Expenses; No Termination Fees
 
Except as otherwise provided in the Merger Agreement, each of the parties will bear its own expenses in connection with the negotiation and execution of the Merger Agreement, including, all fees and expenses of its legal counsel, financial advisors and accountants.  No termination fees are required by any party to the Merger Agreement in the event of termination of the Merger Agreement.
 
Amendment; Extension; Waiver
 
This Merger Agreement may be amended at any time before the Effective Time by action taken by the board of directors of each party; however, no amendment shall be made that under applicable law requires the approval of Dolphin Entertainment without obtaining such approval.  The Merger Agreement may not be amended except by in a writing signed on behalf of all of the parties.  At any time prior to the Effective Time, any party may, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other, (b) waive any inaccuracies in the representations and warranties contained herein or in any document, certificate or writing delivered pursuant hereto by the other or (c) waive compliance with any of the agreements or conditions contained herein by the other.
 
 
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Any agreement on the part of any party to any such extension or waiver shall be valid only if set forth in writing and signed on behalf of such party.  Except if any provision in the Merger Agreement provides for a specific time period to exercise a right, the delay or failure of any party to assert any of its rights under the Merger Agreement will not constitute a waiver of such rights.
 
Assignment
 
The Merger Agreement may not be assigned by any party, by operation of law or otherwise, without the prior written consent of the other parties.  However, the Company may or the Company may cause Merger Subsidiary to, without the prior written consent of any party, assign any or all of its rights to (i) one or more of its affiliates, (ii) any lender of the Company or any of its subsidiaries, including Dolphin Films and its subsidiaries, for collateral security purposes or (iii) any future purchaser of all or substantially all of the assets of Dolphin Films and/or any Subsidiary.  No such assignment will relieve the Company or Merger Subsidiary of any of its obligations under the Merger Agreement.
 
Governing Law
 
The interpretation and construction of the Merger Agreement or any related transaction document, and all matters relating to the Merger (including the validity or enforcement of the Merger Agreement), will be governed by the laws of the State of Florida without regard to any conflicts or choice of laws provisions of the State of Florida that would result in the application of the law of any other jurisdiction.  Each party to the Merger Agreement waives, to the fullest extent permitted by law, all rights to jury trial in any claim arising out of or relating to the Merger Agreement, or any other documents executed or delivered in connection with the Merger, or any of the transactions contemplated by the Merger.
 
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DOLPHIN FILMS, INC.
 
Management’s discussion and analysis, or MD&A, of the results of operations and financial condition of Dolphin Films, is provided as a supplement to the audited and unaudited financial statements and notes thereto included elsewhere in this proxy statement to help provide an understanding of Dolphin Films’ financial condition, changes in financial condition and results of operations.  The information included in this MD&A should be read in conjunction with the financial statements included in this proxy statement.  This discussion and analysis contains forward-looking statements that involve risks and uncertainties.
 
Overview
 
Dolphin Films, Inc. (“Dolphin Films”) is a content producer in the motion picture industry.
 
Revenues
 
During the nine months ended September 30, 2015 and during 2013 and 2014, Dolphin Films derived revenues primarily through the international distribution of a motion picture titled “Believe that premiered domestically on December 25, 2013.
 
During 2014, Dolphin Films entered into the production of a motion picture titled “Max Steel.  The motion picture was completed during the nine months ended September 30, 2015 with an expected release date of Summer 2016.  Dolphin Films expects to derive revenues from the following sources during 2016 from this production:
 
Theatrical – Theatrical revenues are expected to be derived from the domestic theatrical release of motion pictures licensed to a U.S. theatrical distributor that has existing agreements with theatrical exhibitors.  The financial terms negotiated with its U.S. theatrical distributor provide that Dolphin Films will receive a percentage of the box office results, after related distribution fees.
 
International – International revenues are expected to be derived through license agreements with international distributors to distribute Dolphin Films’ motion pictures in an agreed upon territory for an agreed upon time.
 
Other – Dolphin Films’ U.S. theatrical distributor has existing output arrangements for the distribution of productions to home entertainment, video on demand (“VOD”), pay-per-view (“PPV”), electronic sell-through (“EST”), subscription based video on demand (“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.
 
Project Development
 
During the nine months ended September 30, 2015 and during 2013 and 2014, Dolphin Films dedicated a portion of its time and resources to sourcing scripts for future development.  During the nine months ended September 30, 2015, Dolphin Films acquired the rights to a script that it intends to develop during 2016.  Dolphin Films had previously acquired the rights to several other scripts that it intends to produce during 2016 and 2017.
 
Expenses
 
Dolphin Films’ expenses consist primarily of (1) direct costs (2) impairment of capitalized production costs (3) legal and professional fees (4) management fee and (5) general and administrative expenses.
 
 
(1)
Direct costs include amortization of deferred production costs, prints and advertising costs,  residuals and other costs associated with productions.  Residuals represent amounts payable to various unions or “guilds” such as the Screen Actors Guild, Directors Guild of America and the Writers Guild of America, based on the performance of the digital production in certain ancillary markets.
 
 
(2)
Capitalized production costs are recorded at the lower of their cost, less accumulated amortization and tax incentives, or fair value.  If estimated remaining revenue is not sufficient to recover the unamortized capitalized production costs for that title, the unamortized capitalized production costs will be written down to fair value.
 
 
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(3)
Legal and professional fees include fees paid to Dolphin Films’ attorneys, fees for public relations consultants, fees for general business consultants and fees paid to its sales agent for back office services.
 
 
(4)
During 2013, Dolphin Films entered into an agreement with the Company, to provide Dolphin Films with management team and back office services.  The agreement was for the term April 1, 2013 through December 31, 2014 at an annual fee of $2 million.  Pursuant to the agreement,  the Company provided a development team to source new projects, production executives to develop scripts, approve budgets and hire and liaise with the production team on individual projects during the production and post-production phases, an accounting and finance team to provide accounting services and tax compliance, legal support and domestic and international sales and sales support.  Dolphin Films was also provided with office space in Los Angeles and Miami.  The fees related to this agreement were recorded as management fees.
 
 
(5)
General and administrative expenses include overhead costs except for those included in the management fee above.
 
Other Expenses
 
Other expenses consist primarily of interest payments to the debtholders of the Loan and Security agreements entered into to finance the production of certain motion pictures and interest to a related party, Dolphin Entertainment, Inc.
 
RESULTS OF OPERATIONS
 
Year ended December 31, 2014 as compared to year ended December 31, 2013
 
Revenues
 
Revenues from production and distribution increased $0.6 million for the year ended December 31, 2014 as compared to the prior year primarily due to the recognition of revenue from international distribution agreements for the motion picture “Believe”.  The motion picture was released in the U.S. on December 25, 2013 and Dolphin Films accounted for the U.S. distribution revenues on a net basis.  The movie did not produce sufficient gross revenues in domestic box office to absorb the costs of prints and advertising (“P&A”).  Per the terms of the agreement with its domestic distributor for this motion picture, Dolphin Films provided a P&A Shortfall of $2 million based on the calculation of ultimate revenues for this film.  The revenues recorded were primarily derived from the sale of licensing rights to international territories.  Subsequent to the motion picture’s domestic release and per the terms of the international distribution contracts, Dolphin Films recorded revenues of $1.5 million and $0.9 million, respectively, for the years ended December 31, 2014 and 2013.
 
Expenses
 
For the years ended December 31, 2014 and 2013, Dolphin Films’ primary operating expenses were direct costs, impairment of capitalized production costs, legal and professional fees, general and administrative expenses and management fees.
 
   
For the year ended
December 31,
 
   
2014
   
2013
 
Direct costs
  $ 1,820,482     $ 3,273,680  
Impairment of capitalized production costs
    -       2,638,363  
Legal and professional
    2,555,974       960,230  
General and administrative
    809,526       78,148  
Management fee
    1,976,667       1,500,000  
    $ 7,162,649     $ 8,450,421  
 
 
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Direct costs decreased by $1.5 million for the year ended December 31, 2014 as compared to the prior year, primarily due to $2 million of P&A Shortfall paid to Dolphin Films’ distributor in 2013.  Dolphin Films amortizes capitalized production cost using the individual film forecast method that uses a ratio of actual revenues over ultimate revenues expected for the production.
 
There were no impairments for the year ended December 31, 2014.  For the year ended December 31, 2013, Dolphin Films impaired $2.6 million of capitalized production costs of “Believe” to adjust the capitalized production costs to fair value based on the calculation of estimated ultimate revenues for the motion picture, that were less than anticipated as a result of the box office sales.
 
Legal and professional fees increased by $1.6 million for the year ended December 31, 2014 as compared to the prior year.  This was mainly due to $0.5 million in legal fees related to the exploration of certain and financing slate deals that were not consummated.  Dolphin Films also used the services of several consultants to assist in obtaining financing for its projects, general administrative consulting and paid a fee to an agency for assistance in finding the project “Max Steel”.  These costs were approximately $0.6 million.  In addition, Dolphin Films paid a related party a producer fee of $0.1 million.  During 2013, Dolphin Films hired an international sales agent to provide all the back office services, related to international distribution at an annual fee of $0.4 million.
 
General and administrative expenses increased by $0.7 million for the year ended December 31, 2014 as compared to the prior year.  This was primarily due to payments for a marketing consultant, marketing materials and public relations costs for its projects.
 
During the year ended December 31, 2014, management fee expense increased by $0.5 million as compared to the prior year due to a full year expense in 2014, as opposed to nine months of expense the prior year.  The contract was for an annual fee of $2 million beginning on April 1, 2013.
 
Other Expenses
 
   
For the year ended
December 31,
 
   
2014
   
2013
 
Interest expense
  $ 1,458,042     $ 558,952  

Other expenses increased by $0.9 million for the year ended December 31, 2014 as compared to the prior year primarily due to interest incurred, net of approximately $0.4 million capitalized, on Loan and Security agreements that were entered into to purchase rights or scripts and to produce two motion pictures.
 
Net Loss
 
Net loss was approximately $7.1 million for the year ended December 31, 2014 and approximately $8.1 million for the year ended December 31, 2013.  The decrease in net loss between the years ended December 31, 2014 and 2013 was related to the factors discussed above.
 
RESULTS OF OPERATIONS
 
Nine months ended September 30, 2015 as compared to nine months ended September 30, 2014

Revenues

Revenues from production and distribution decreased by $1.46 million for the nine months ended September 30, 2015 as compared to the prior period.  The higher revenues during the nine months ended September 30, 2014, was due to the fact that the motion picture “Believe”, as discussed earlier, was newly released on December 25, 2013.  The decrease in revenue during the nine months ended September 30, 2015 was a result of the normal life cycle of motion pictures.
 
 
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Expenses

For the nine months ended September 30, 2015 and 2014, our primary operating expenses were direct costs, legal and professional fees, general and administrative expenses and management fees.
 
   
For the nine months
ended September 30,
 
   
2015
   
2014
 
Direct costs
  $ 560,946     $ 2,039,731  
Legal and professional
    1,027,984       1,933,758  
General and administrative
    215,941       644,386  
Management fee
    -       1,476,667  
    $ 1,804,871     $ 6,094,542  
 
Direct costs decreased by $1.5 million for the nine months ended September 30, 2015 as compared to prior year.  Dolphin Films amortizes capitalized production cost using the individual film forecast method that uses a ratio of actual revenues over ultimate revenues expected for the production.  During the nine months ended September 30, 2014, Dolphin Films recorded a large part of our international distribution revenues from the motion picture “Believe”.  As a direct correlation based on the individual film forecast method of amortizing deferred production costs, the direct costs are higher.

Legal and professional fees decreased by $0.9 million for the nine months ended September 30, 2015 as compared to the prior year.  This was mainly due to $0.5 million in legal fees paid during the nine months ended September 30, 2014, related to the purchase of scripts and production and financing of certain projects.  Dolphin Films also paid a fee of approximately $0.3 million to an agency for assisting in finding the project “Max Steel”.

General and administrative expenses decreased by $0.4 million for the nine months ended September 30, 2015 as compared to the prior year.  This was primarily due payments for a marketing consulting, marketing materials and public relations costs for our projects.

During the nine months ended September 30, 2015, management fee expense decreased by $1.5 million as compared to the prior year due to a contract with a related party to provide service at an annual fee of $2.0 million. The contract was not renewed for 2015.
 
Other Expenses
 
   
For the nine months
ended September 30,
 
   
2015
   
2014
 
Interest expense
  $ 1,638,960     $ 1,051,534  

Other expenses increased by approximately $0.6 million for the nine months ended September 30, 2015 as compared to the prior year primarily due to Loan and Security agreements that were entered into to purchase the rights or scripts and produce two motion pictures.

Net Loss

 Net loss was approximately $3.4 million for the nine months ended September 30, 2015 and approximately $5.6 million for the nine months ended September 30, 2014.  The decrease in net loss between the nine months ended September 30, 2015 as compared to September 30, 2014 was related to the factors discussed above.
 
 
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LIQUIDITY AND CAPITAL RESOURCES
 
Cash Flows
 
Year ended December 31, 2014 as compared to year ended December 31, 2013
 
Cash flows used in operating activities increased by approximately $9.4 million from approximately $10.2 million for the year ended December 31, 2013 to $19.6 million for the year ended December 31, 2014.  This increase was mainly due to the use of funds related to capitalized production costs increasing by approximately $7 million from $6 million for the year ended December 31, 2013 to $13 million for the year ended December 31, 2014.  This increase is primarily due to the deferred production costs of its motion picture “Max Steel”.  In addition, cash flows from other current assets increased by $1.9 million for the year ended December 31, 2014 as compared with prior year, primarily due to tax incentives earned for filming “Max Steel” in North Carolina.  Accounts payable increased by approximately $0.4 million for the year ended December 31, 2014 as compared to the prior year mainly due to production costs of its motion picture.  Dolphin Films increased its cash by approximately $1.4 million with deposits received for licensing rights sold in international territories for “Max Steel”.
 
Cash flows from financing activities increased by approximately $4.7 million from $12.6 million for the year ended December 31, 2013 to $17.3 million for the year ended December 31, 2014.  During the year ended December 31, 2014, Dolphin Films received additional financing from a related party, Dolphin Entertainment, in the amount of $1.6 million.  In addition, Dolphin Films entered into Loan and Security agreements in the amount of $3.1 million with certain investors for the production of two motion pictures.
 
As of December 31, 2014 and 2013, Dolphin Films had cash of approximately $0.2 million and $2.4 million, respectively and a working capital deficit of $6.5 million and $5.1 million, respectively.
 
As discussed earlier, during 2013, Dolphin Films entered into an agreement with the Company, to provide Dolphin Films with management team and back office services.  The agreement was for the term April 1, 2013 through December 31, 2014 at an annual fee of $2 million.  The contract was not renewed for 2015.
 
Cash Flows
 
Nine months ended September 30, 2015 as compared to nine months ended September 30, 2014
 
Cash flows used in operating activities decreased by approximately $13.5 million from approximately $17.4 million for the nine months ended September 30, 2014 to $3.9 million for nine months ended September 30, 2015.  This decrease was mainly due to the use of funds related to capitalized production costs decreasing by approximately $11.1 million from $12.2 million for the nine months ended September 30, 2015 to $1.1 million for the nine months ended September 30, 2015. This decrease is primarily due to the capitalized production costs of its motion picture “Max Steel”.  In addition, cash flows from other assets decreased by $2.0 million for the nine months ended September 30, 2015 as compared with prior year, primarily due to tax incentives earned for filming “Max Steel” in North Carolina.  Cash flows used for accounts payable decreased by approximately $0.7 million for the nine months ended September 30, 2015 as compared to the prior year mainly due to production costs of our motion picture.   This was offset by a decrease in cash generated by Deferred revenues of $1.4 million for the nine months ended September 30, 2014 from deposits on international distribution agreements.

Cash flows from financing activities decreased by approximately $11.6 million from $15.4 million for the nine months ended September 30, 2014 to $3.8 million for the nine months ended September 30, 2015, mainly due to $5.4 million of proceeds from loan and security agreements and $9.1 million from proceeds of a production loan received during the nine months ended September 30, 2014.  By contrast, $1.0 million was received from loan and security agreements and $.4 million was received from production loans for the nine months ended September 30, 2015.  This was offset by an increase in cash flows from advances from related party of $1.5 million for the nine months ended September 30, 2015 as compared to prior year.

As of September 30, 2015 and 2014, we had cash of approximately $0.2 million and $0.4 million, respectively and a working capital deficit of $2.0 million and $4.8 million, respectively.

As discussed earlier, Dolphin Films intends to release “Max Steel” during the Summer of 2016.  In addition, we are working on obtaining financing to produce another movie from the scripts we already own and intend to earn producer and overhead fees from this production
 
 
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Financing Arrangements
 
During 2013 and 2014, Dolphin Films entered into various Loan and Security agreements with individual investors totaling approximately $12 million of a total $12.5 million Dolphin Films intends to borrow to produce certain projects.  During the nine months ended September 30, 2015, we amended one of our loan and security agreements to reflect additional borrowings of $0.5 million.  Pursuant to the terms of the agreements, the investors receive all of Dolphin Films’ share of the proceeds from these projects until the principal is repaid.  The loans earn interest up to 12% per annum which is paid monthly through June 30, 2015.  In connection with the execution of each of the Loan and Security agreements, Dolphin Films granted the group of debtholders the right to participate in fifteen percent of its future profits from these projects (defined as its gross revenues of such projects less the aggregate amount of principal and interest paid for the financing of such projects) on a pro rata basis based on their loan commitment as a percentage of the total loan commitments received to fund these specific motion picture productions.  Pursuant to the terms of the agreement, Dolphin Films exercised its option to extend the maturity date to December 31, 2016 and is accruing interest of up to 13.25% (1.25% over the loan stated rate) through the maturity date or date of principal repayment.
 
During the year ended December 31, 2014, Dolphin Films entered into a financing deal in the amount of $10.4 million to produce “Max Steel”.  The loan is partially secured by international distribution agreements made prior to the commencement of principal photography and tax incentives.  The agreement contains repayment milestones to be made during the year ended December 31, 2015, that if not met, accrue interest at a default rate of 8.5% per annum above the published base rate of HSBC.  Pursuant to the terms of the agreement and due to delays in the release of the film, Dolphin Films has begun accruing interest.
 
During the nine months ended September 30, 2015, we entered into a Loan and Security agreement for $0.5 million of a total $12.5 million we intend to borrow to produce certain projects.  This is in addition to the $12.5 million discussed above and the proceeds will be used for separate projects.  As part of this $12.5 million, we agreed to enter into Loan and Security agreements with certain debtholders in the amount of approximately $8.8 million in satisfaction of a related party debt in the same amount.  Pursuant to the terms of the agreements, the investors receive all of Dolphin Films share of the proceeds from these projects until the principal is repaid. The loans earn interest up to 11.25% per annum which is paid monthly through December 31, 2016.  Dolphin Films has the option of extending the maturity date until July 31, 2018 and interest will accrue at a rate of 1.25% over the loan stated rate. Similar to the agreements above, we granted the debtholders the right to participate in fifteen percent of our future profits from these projects on a pro rata basis based on their loan commitment as a percentage of the total loan commitment received to fund the specific motion picture projects as per the agreements.  The Company intends to borrow the remaining $3.2 million to complete the $12.5 million necessary for these projects.
 
Based upon the exercise of the options to extend the maturities after year end, all of Dolphin Films’ debt is due during the year ended December 31, 2016.
 
Going Concern
 
Dolphin Films’ independent auditors issued an explanatory paragraph expressing substantial doubt about or ability of Dolphin Films to continue as a going concern based upon its net loss for the years ended December 31, 2014 and 2013, its accumulated deficit as of December 31, 2014 and 2013 and its 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 project-specific financing; however, there can be no assurance that Dolphin Films will be successful in raising any necessary additional loans or capital.
 
Critical Accounting Policies, Judgments and Estimates
 
Dolphin Films’ discussion and analysis of its financial condition and result of operations is based upon its consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
 
 
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The preparation of these consolidated financial statements requires Dolphin Films to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities.  Dolphin Films bases its estimates on historical experience and on various other assumptions that Dolphin Films believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates.
 
An accounting policy is considered to be critical if it requires an accounting estimate to be make based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements.  Dolphin Films believes that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.  These policies have been followed for the nine months ended September 30, 2015.
 
Capitalized Production Costs
 
Capitalized production costs represent the costs incurred to develop and produce a motion picture.  These costs primarily consists of salaries, equipment and overhead costs, as well as the cost to acquire rights to scripts.  Motion picture costs are stated at the lower of cost, less accumulated amortization and tax credits, if applicable or fair value.  These costs are capitalized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 926-20-50-2 “Other Assets – Film Costs”.  Unamortized capitalized production costs are evaluated for impairment each reporting period in a title by title basis.  If estimated remaining revenue is not sufficient to recover the unamortized capitalized production costs for that title, the unamortized capitalized production costs will be written down to fair value.
 
Dolphin Films is responsible for certain contingent compensation, known as participations, paid to certain creative participants such as writers, directors and actors.  Generally, these payments are dependent on the performance of the motion picture and are based on factors such as total revenue as defined per each of the participation agreements.  Dolphin Films is also responsible for residuals, which are payments based on revenue generated from secondary markets and are generally paid to third parties pursuant to a collective bargaining, union or guild agreement.  These costs are accrued to direct operating expenses as the revenues, as defined in the participation agreements, are achieved and as sales to the secondary markets are made triggering the residual payment.
 
Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates are likely to differ to some extent in the future from actual results.  Dolphin Films’ management regularly reviews and revises when necessary its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or write-down of all or a portion of the unamortized deferred production costs to its estimated fair value.  Dolphin Films’ management estimates the ultimate revenue based on existing contract negotiations with domestic distributors and international buyers as well as management’s experience with similar productions in the past.
 
An increase in the estimate of ultimate revenue will generally result in a lower amortization rate and, therefore, less amortization expense of deferred productions costs, while a decrease in the estimate of ultimate revenue will generally result in a higher amortization rate and, therefore, higher amortization expense of capitalized production costs, and also periodically results in an impairment requiring a write-down of the capitalized production costs to fair value.  These write-downs are included in production expense within its consolidated statements of operations.  There were no impairments for the year ended December 31, 2014 and Dolphin Films impaired $2.6 million of capitalized production costs during the year ended December 31, 2013.
 
Revenue Recognition
 
Revenue from feature films is recognized in accordance with guidance of FASB ASC 926-60 “Revenue Recognition – Entertainment-Films”.  Revenue from the theatrical release of feature films is recognized at the time of exhibition based on its participation in box office receipts.  Revenue from the sale of DVDs and Blu-ray discs in the retail market, net of an allowance for estimated returns and other allowances, is recognized on the later of receipt by the customer or “street date” (when it is available for sale by the customer).  Under revenue sharing arrangements, including digital and EST arrangements, such as download-to-own, download-to-rent, video-on-demand, and subscription video-on-demand, revenue is recognized when Dolphin Films is entitled to receipts and such receipts are determinable. Revenue from sales to international territories are recognized when access to the feature film has been granted or delivery has occurred, as required under the contract, and the right to exploit the feature film has commenced. Cash received and amounts billed in advance of meeting the criteria for revenue recognition is classified as deferred revenue.
 
 
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Income Taxes
 
Deferred taxes are recognized for the future tax effects of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using tax rates in effect for the years in which the differences are expected to reverse.  The effects of changes in tax laws on deferred tax balances are recognized in the period the new legislation in enacted.  Valuation allowances are recognized to reduce deferred tax assets to the amount that is more likely than not to be realized.  In assessing the likelihood of realization, management considers estimates of future taxable income.  Dolphin Films calculates its current and deferred tax position based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years.  Adjustments based on filed returns are recorded when identified.
 
Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.  Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense.
 
Recent Accounting Pronouncements
 
Recent accounting pronouncements that we have adopted or will be required to adopt in the future are summarized below.
 
In May 2014, the FASB issued an accounting standard update relating to the recognition of revenue from contracts with customers, which will supersede most current U.S. GAAP revenue recognition guidance, including industry-specific guidance.  The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services.  The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized.  The guidance will be effective for our fiscal year beginning January 1, 2018, and can be applied either retrospectively or under a cumulative-effect transition method.  We are currently evaluating the impact that the adoption of this new guidance will have on our consolidated financial statements.
 
Other recent Accounting Standards Updates not effective until after September 30, 2015 are not expected to have a significant effect on our consolidated financial position or results of operations.
 
Off-Balance Sheet Arrangements
 
As of September 30, 2015 and for the years ended December 31, 2014 and 2013, Dolphin Films did not have any off-balance sheet arrangements.
 
 
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PROPOSAL 2 – APPROVAL OF THE CREATION OF SERIES C CONVERTIBLE PREFERRED STOCK AND AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMPANY COMMON STOCK FROM 200,000,000 TO 400,000,000
 
The Board has approved amendments to the Articles of Incorporation to create the Series C Convertible Preferred Stock and to increase the number of authorized shares of Common Stock from 200,000,000 to 400,000,000, effective as of the Effective Time of the Merger.  The amendments will be effected, if at all, by the filing of amendments to the Articles of Incorporation with the Secretary of State of the State of Florida.
 
Creation of Series C Convertible Preferred Stock
 
The Board has approved the creation of the new Series C Convertible Preferred Shares to be issued as part of the consideration for the Merger. The Series C Convertible Preferred Stock will have certain rights and obligations as will be set forth in its Certificate of Designation in the form set forth as Annex B to this proxy statement, including automatic conversion upon the occurrence of certain events and the right to conversion upon the Company satisfying an optional conversion threshold (defined on page 34). This is intended to reduce the dilutive impact of the proposed merger on currently outstanding shares of Common Stock unless and until the Company achieves certain post-merger performance targets. The Series C Convertible Preferred Stock will also have anti-dilution protections, super voting rights and the ability to vote as a class with the Common Stock on any matters on which the Common Stock is entitled to vote. For a further description of the Series C Convertible Preferred Stock, please see the section titled “The Merger Consideration – Series C Convertible Preferred Stock” beginning on page 34 of this proxy statement.
 
Increase of Authorized Shares
 
We are currently authorized to issue an aggregate of 200,000,000 shares of Common Stock.  As of [·] there were outstanding 81,892,352 shares of Common Stock, 21,000,000 unissued shares of Common Stock reserved for issuance upon the exercise of outstanding warrants, 12,656,000 reserved upon conversion of a convertible note in the amount of $3,164,000, and 4,171,012 reserved upon exercise of Series A Convertible Preferred Stock currently outstanding, leaving approximately 80,280,636 shares of Common Stock unissued and unreserved.  As consideration for the Merger, we plan to issue 2,300,000 shares of Series B Convertible Stock exercisable into an aggregate of 43,700,000 shares of Common Stock and 1,000,000 shares of Series C Convertible Stock exercisable into an aggregate of 1,000,000 shares of Common Stock.  In addition, in connection with the Merger, we entered into a Preferred Stock Exchange Agreement with T Squared pursuant to which we agreed to issue, at the Effective Time of the Merger, 1,000,000 shares of Series B Convertible Preferred Stock to T Squared in exchange for 1,042,753 shares of Series A Convertible Preferred Stock previously issued to T Squared.  Upon consummation of the Merger, T Squared’s 1,000,000 shares of Series B Convertible Preferred Stock will be exercisable into 19,000,000 shares of Common Stock.
 
To ensure that a sufficient number of shares of Common Stock will be available for issuance by us in connection with the Merger, including for any issuances as a result of anti-dilution protections, and for our future business needs, the Board has approved, subject to shareholder approval, an amendment to the Articles of Incorporation, in the form set forth as Annex C, to increase the number of shares of Common Stock authorized for issuance from 200,000,000 to 400,000,000.  The additional shares of authorized Common Stock would be identical to the shares of Common Stock now authorized and outstanding.
 
Risks Associated with the Proposed Amendments to the Articles of Incorporation
 
Increase of Authorized Shares
 
If this amendment is approved, and the number of authorized shares of the Company is increased, any subsequent issuance of additional shares, including such as is contemplated by the Merger Agreement, would increase the number of outstanding shares of Common Stock and would dilute the percentage ownership, voting power and earnings per share with respect to such shares, of existing shareholders.
 
Creation of Series C Convertible Preferred Stock
 
For a period of five years from the date of issuance, the Series C Convertible Preferred Stock will have certain anti-dilution protections.  Upon specified triggers, 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 such persons (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 currently held by such persons, which currently is approximately 53% of the shares of Common Stock outstanding. Your ownership interest may be further diluted if there are any additional issuances of Common Stock as a result of these anti-dilution protections. In addition, holders of Series C Convertible Preferred Stock will have super voting rights of three votes per preferred share, and will be entitled to vote together with the Common Stock holders on any matter on which Common Stock holders are entitled to vote. As a result, the voting power of our shareholders will be diluted. For a further discussion of the risks associated with the issuance of the Series C Convertible Preferred Stock, please see the section titled “Risk Factors –”Our shareholders’ ownership percentage after the Merger will be diluted” and “The Series C Convertible Preferred Stock will have anti-dilution protections and voting rights that may adversely affect our shareholders,” beginning on page 22 of this proxy statement.
 
 
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Recommendation of the Board of Directors
 
The Board of Directors recommends a vote “FOR” the proposal to amend the Articles of Incorporation to create the Series C Convertible Preferred Stock and to increase the number of authorized shares of Common Stock of the Company from 200,000,000 to 400,000,000, effective as of the effective time of the Merger.
 
 
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PROPOSAL 3 – ELECTION OF DIRECTORS
 
Under our Bylaws, directors are elected at Annual Meetings or until their successors are elected and qualified.  Our current directors are Messrs.  William O’Dowd, IV, Michael Espensen, Nelson Famadas, Nicholas Stanham and Ms. Mirta A. Negrini.  The Board of Directors recommends that each of our current directors be nominated for re-election, each to serve until the next Annual Meeting of Shareholders or until their successors are elected and qualified, and each has consented to serve.
 
We believe that each of these individuals possesses the experience, skills and qualities to fully perform his or her duties as a director and contribute to our success.  As more specifically described in the biographies set forth below, our directors and director nominees possess relevant knowledge and experience, industry-specific and otherwise, in the family entertainment, Internet networking, legal, and business fields, which we believe enhances the Board’s ability to oversee, evaluate and direct our overall corporate strategy.  In addition, our directors were nominated because each is of high ethical character, accomplished in his or her field with solid credentials and recognition, has the ability to exercise sound business judgment, and is able to dedicate sufficient time to fulfilling his or her obligations as a director.  Each director’s and director nominee’s principal occupation and other pertinent information about particular experience, qualifications, attributes and skills that led the Board to conclude that such person should serve as a director, is described below.
 
William O’Dowd, IV, 46, has served as our Chief Executive Officer and Chairman of the Board of Directors since June 2008.  Mr. O’Dowd founded Dolphin Entertainment, Inc. in 1996 and has served as its President since that date.  Dolphin Entertainment is an entertainment company specializing in children’s and young adult’s live-action programming.  In July 2011 the Company purchased from Dolphin Entertainment, Inc. an exclusive option to acquire certain rights in and to the script for a motion picture.
 
Qualifications.  The Board nominated Mr. O’Dowd based on his significant industry experience including having founded Dolphin Entertainment, a leading entertainment company specializing in children’s and young adult’s live-action programming.
 
Michael Espensen, 64, has served as a Director of the Company since June 2008.  From 2009 to present, Mr. Espensen has served as Chairman of the Board of Keraplast Technologies, LLC (“Keraplast”), a private multi-million dollar commercial-stage biotechnology company.  From 2009 to 2014, Mr. Espensen served as Chief Executive Officer of Keraplast.  While serving as Chief Executive Officer, Mr. Espensen was responsible for overseeing and approving Keraplast’s annual budgets and financial statements.  Mr. Espensen is also a producer and investor in family entertainment for television and feature films.  Between 2006 and 2009, Mr. Espensen was Executive or Co-Executive Producer of twelve made-for-television movies targeting children and family audiences.  As Executive Producer, he approved production budgets and then closely monitored actual spending to ensure that productions were not over budget.  Mr. Espensen has also been a real estate developer and investor for over thirty years.
 
Qualifications.  The Board nominated Mr. Espensen to serve as a director of the Board because of his business management and financial oversight experience both as the current Chairman and former Chief Executive Officer of a multi-million dollar company and as a former Executive Producer in the made-for-television movie industry, as well as his valuable knowledge of our industry.
 
Nelson Famadas, 43, has served as the Senior Vice President of National Latino Broadcasting (“NLB”) since July 2011.  NLB is an independent Hispanic media company that owns and operates two satellite radio channels on SiriusXM.  Mr. Famadas is responsible for all sales, operations, programming, and marketing efforts at NLB.  From July 2010 to March 2012, Mr. Famadas served as our Chief Operating Officer, where he was responsible for daily operations including public filings and investor relations.  Mr. Famadas began his career at MTV Networks, specifically MTV Latin America, ultimately serving as New Business Development Manager.  From 1995 through 2001, he co-founded and managed Astracanada Productions, a television production company that catered mostly to the Hispanic audience, creating over 1,300 hours of programming.  As Executive Producer, he received a Suncoast EMMY in 1997 for Entertainment Series for A Oscuras Pero Encendidos.  From 2002 through 2009, Mr. Famadas served as President of Gables Holding, a fully-diversified real estate development company.
 
 
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Qualifications.  The Board nominated Mr. Famadas to serve as a director of the Board because of his significant prior management experience as a co-founder and former manager of a television production company, as well as his current management experience with a broadcasting company.
 
Mirta A. Negrini, 51, has served as our Chief Financial and Operating Officer since October 2013.  Ms. Negrini has over thirty years of experience in both private and public accounting.  Immediately prior to joining the Company, she served since 1996 as a named partner in Gilman & Negrini, P.A., an accounting firm of which Dolphin Digital Media, Inc. was a client.  Ms. Negrini is a Certified Public Accountant licensed in the State of Florida.
 
Qualifications.  The Board nominated Ms. Negrini to serve as a director of the Board because of her significant accounting experience gained as a named partner at an accounting firm of which the Company was a client prior to Ms. Negrini’s employment.
 
Nicholas Stanham, Esq., 47, is a founding partner of R&S International Law Group, LLP in Miami, Florida, which was founded in January 2008.  His practice is focused primarily in real estate and corporate structuring.  Mr. Stanham has approximately 20 years of experience in real estate purchases and sales of residential and commercial properties.  Since 2004, Mr. Stanham has been a member of the Christopher Columbus High School Board of Directors.  In addition, he serves as a director of ReachingU, a foundation that promotes initiatives and supports organizations that offer educational opportunities to Uruguayans living in poverty.
 
Qualifications.  The Board nominated Mr. Stanham to serve as a director of the Board because of his experience as a founding partner at a law firm as well as his business management experience at that firm.
 
Recommendation of the Board of Directors
 
The Board of Directors recommends a vote “FOR” each of the director nominees.
 
 
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CORPORATE GOVERNANCE
 
Controlled Company
 
Our President, Chairman and Chief Executive Officer, Mr. O’Dowd controls a majority of the voting power of our outstanding Common Stock.  As a result, we would be a “controlled company” if our shares were listed under the NASDAQ stock market (“NASDAQ”) corporate governance standards.   As a controlled company, exemptions under the standards would free us from the obligation to comply with certain corporate governance requirements, including the requirements:
 
·
that a majority of our Board consists of “independent directors,” as defined under the rules of the NASDAQ;
 
·
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