Dolphin Entertainment, Inc.: Form 10-Q for the period ended Mar 31, 2025

You should read the following management’s discussion and analysis together with our unaudited condensed consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q, together with the audited consolidated financial statements, the accompanying notes, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the “Risk Factors” section of our Annual Report on Form 10-K and other factors set forth in other parts of this Quarterly Report on Form 10-Q and our filings with the SEC.

Overview

We are a leading independent entertainment marketing and production company. We were first incorporated in the State of Nevada on March 7, 1995 and domesticated in the State of Florida on December 4, 2014. Our common stock trades on The Nasdaq Capital Market under the symbol “DLPN.”

Through our subsidiaries, 42West LLC (“42West”), The Door Marketing Group LLC (“The Door”), Shore Fire Media, Ltd (“Shore Fire”), The Digital Dept, LLC (“The Digital Dept.”) formerly known as Socialyte LLC (“Socialyte”) and Be Social Relations LLC (“Be Social”) that merged effective January 1, 2024, Special Projects Media, LLC (“Special Projects”), Always Alpha Sports Management, LLC (“Always Alpha”) and Elle Communications, LLC (“Elle”) we provide expert strategic marketing and publicity services to many of the top brands, both individual and corporate, in the motion picture, television, music, gaming, culinary, hospitality, lifestyle and charitable industries. 42West (Film and Television, Gaming), Shore Fire (Music), The Door (Culinary, Hospitality, Lifestyle) and Elle (Impact, Philanthropy, Non-Profit) are each recognized global public relations (“PR”) and marketing leaders for the industries they serve. As a group, they were recognized as the #1 PR firm in the country in the prestigious Observer rankings earlier this year. The Digital Dept. provides influencer marketing capabilities through divisions dedicated to influencer talent management, brand campaign strategy and execution, and influencer event ideation and production. Always Alpha is a talent management firm primarily focused on representing female athletes, broadcasters and coaches. Special Projects is the entertainment industry’s leading celebrity booking firm, specializing in uniting brands and events with celebrities and influencers across the entertainment, media, fashion, consumer product and tech industries. Dolphin’s legacy content production business, Dolphin Films, founded by our Emmy-nominated Chief Executive Officer, Bill O’Dowd, has produced multiple feature films and award-winning digital series, primarily aimed at family and young adult markets.

We have established an acquisition strategy based on identifying and acquiring companies that complement our existing entertainment publicity and marketing services and content production businesses. We believe that complementary businesses can create synergistic opportunities and bolster profits and cash flow. While we may acquire additional companies in the future, we are not in active negotiations with any such companies, and there is no assurance that we will be successful in acquiring any additional companies, whether in 2025 or at all.

We have also established an investment strategy, “Ventures” or “Dolphin 2.0,” based upon identifying opportunities to develop internally owned assets, or acquire ownership stakes in others’ assets, in the categories of entertainment content, live events and consumer products. We believe these categories represent the types of assets wherein our expertise and relationships in entertainment marketing most influences the likelihood of success. We are in various stages of internal development and outside conversations on a wide range of opportunities within these Ventures. We intend to enter into Venture investments during 2025, but there is no assurance that we will be successful in doing so, whether in 2025 or at all.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures. The key indicators of the financial condition and operating performance of our business are revenues, direct costs, payroll and benefits, selling, general and administrative expenses, legal and professional expenses, other income/expense and net income. Other income/expense consists mainly of interest expense, interest income and non-cash changes in fair value of liabilities,

We operate in two reportable segments: our entertainment publicity and marketing segment and our content production segment. The entertainment publicity and marketing segment is composed of 42West, The Door, Shore Fire, The Digital Dept., Special Projects, Elle and Always Alpha, and provides clients with diversified services, including public relations, entertainment content marketing, strategic communications, influencer marketing, celebrity booking and live event production. The content production segment is composed of Dolphin Films and Dolphin Digital Studios, which produce and distribute feature films and digital content.

Entertainment Publicity and Marketing (“EPM”)

Our revenue is directly impacted by the retention and spending levels of existing clients and by our ability to win new clients. We believe that we have a stable client base, and we have continued to grow organically through referrals and by actively soliciting new business. We earn revenues primarily from the following sources: (i) celebrity talent services; (ii) content marketing services under multiyear master service agreements in exchange for fixed project-based fees; (iii) individual engagements for entertainment content marketing services for durations of generally between three and six months; (iv) strategic communications services; (v) engagements for marketing of special events such as food and wine festivals; (vi) engagement for marketing of brands; (vii) arranging strategic marketing agreements between brands and social media influencers or celebrities and (viii) curating and booking celebrities for live events. For these revenue streams, we collect fees through either fixed fee monthly retainer agreements, fees based on a percentage of contracts or project-based fees.

We earn entertainment publicity and marketing revenues primarily through the following:

• Talent – We earn fees from creating and implementing strategic communication campaigns for performers and entertainers, including Oscar, Tony and Emmy winning film, theater and television stars, directors, producers, celebrity chefs and Grammy winning recording artists. Our services in this area include ongoing strategic counsel, media relations, studio and/or network liaison work, and event and tour support. We believe that the proliferation of content, both traditional and on social media, will lead to an increasing number of individuals seeking such services, which will drive growth and revenue in our Talent departments for several years to come.
• Entertainment Marketing and Brand Strategy – We earn fees from providing marketing direction, public relations counsel and media strategy for entertainment content (including theatrical films, television programs, DVD and VOD releases, and online series) from virtually all the major studios and streaming services, as well as content producers ranging from individual filmmakers and creative artists to production companies, film financiers, DVD distributors, and other entities. In addition, we provide entertainment marketing services in connection with film festivals, food and wine festivals, awards campaigns, event publicity and red-carpet management. As part of our services, we offer marketing and publicity services tailored to reach diverse audiences. We also provide marketing direction targeted to the ideal consumer through a creative public relations and creative brand strategy for hotel and restaurant groups.
• Strategic Communications – We earn fees by advising companies looking to create, raise or reposition their public profiles, primarily in the entertainment industry. We also help studios and filmmakers deal with controversial movies, as well as high-profile individuals address sensitive situations. We believe that growth in the Strategic Communications division will be driven by increasing demand for these varied services by traditional and non-traditional media clients who are expanding their activities in the content production, branding, and consumer products PR sectors.
• Digital Media Influencer Marketing Campaigns – We arrange strategic marketing agreements between brands and social media influencers, for both organic and paid campaigns. We also offer services for social media activations at events. Our services extend beyond our own captive influencer network, and we manage custom campaigns targeting specific demographics and locations, from ideation to delivery of results reports. We expect that our relationship with social media influencers will provide us the ability to offer these services to our existing clients in the entertainment and consumer products industries and will be accretive to our revenue.
• Celebrity Booking and Live Event Programming – We arrange for brands and events to book celebrity and influencer talent. Our services include the creation of the strategy to elevate the brand or event through celebrity and/or influencer inclusion, to the booking of celebrities and influencers for commercial endorsements or appearances, to the curation of event lists and securing attendance, to the coordination and production of live events. We believe the expansion of brands seeking celebrity and/or influencer endorsements, as well as celebrity and/or influencers to attend brand-sponsored live events, will drive growth and revenue for the next several years.

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Content Production (“CPD”)

Project Development and Related Services

We have a team that dedicates a portion of its time to identifying scripts, story treatments and novels for acquisition, development and production. The scripts can be for either digital, television or motion picture productions. We have acquired the rights to certain scripts that we intend to produce and release in the future, subject to obtaining financing. We have not yet determined if these projects would be produced for digital, television or theatrical distribution.

We have completed development of several feature films, which means that we have completed the script and can begin pre-production once financing is obtained. We are planning to fund these projects through third-party financing arrangements, domestic distribution advances, pre-sales, and location-based tax credits, and if necessary, sales of our common stock, securities convertible into our common stock, debt securities or a combination of such financing alternatives; however, there is no assurance that we will be able to obtain the financing necessary to produce any of these feature films.

In June 2022, we entered into an agreement with IMAX Corporation (“IMAX”) to co-produce and co-finance a documentary motion picture on the flight demonstration squadron of the United States Navy called the Blue Angels. IMAX and Dolphin each agreed to fund 50% of the production budget and . we paid $2,250,000 related to productions costs of The Blue Angels in connection with this agreement. IMAX entered into an acquisition agreement with Amazon Content Services LLC, (the “Amazon Agreement”) for the distribution rights of The Blue Angels and during the quarter ended March 31, 2024, we recorded $3,421,141 of revenue related to the Amazon Agreement. The Blue Angels documentary motion picture was released in theatres on May 17, 2024 and began streaming on Amazon Prime Video on May 23, 2024.

In February 2025, Dolphin Films partnered with Aircraft Productions of Toronto, Canada to produce a re-boot of the popular 1986 MGM hockey movie “Youngblood.” The film is expected to be completed and ready for delivery in the second half of 2025.

Revenues

For the three months ended March 31, 2025 and 2024, we derived a majority of our revenues from our entertainment publicity and marketing segment. During the three months ended March 31, 2024, we generated income in our content production segment related to the The Blue Angels documentary motion picture.

The table below sets forth the percentage of total revenue derived from our segments for the three months ended March 31, 2025 and 2024:

Expenses

Our expenses consist primarily of:

(1) Direct costs – include certain costs of services, as well as certain production costs, related to our entertainment publicity and marketing business. In the same period of the prior year, direct cost includes the amortization of film production costs related to The Blue Angels, using the individual film-forecast-computation method which amortizes film production costs in the same ratio as the current period actual revenue bears to estimated remaining unrecognized ultimate revenue.

(2) Payroll and benefits expenses – includes wages, stock-based compensation, payroll taxes and employee benefits.

(3) Selling, general and administrative expenses – includes all overhead costs except for payroll, depreciation and amortization and legal and professional fees that are reported as a separate expense item.

(4) Acquisition costs – includes agreed upon payment to the Special Projects Sellers.

(5) Depreciation and amortization – includes the depreciation of our property and equipment and amortization of intangible assets and leasehold improvements.

(6) Legal and professional fees – includes fees paid to our attorneys, fees for investor relations consultants, audit and accounting fees and fees for general business consultants.

Other Income and Expenses

For the three months ended March 31, 2025 and 2024, other income and expenses consisted primarily of: (1) changes in fair value of convertible notes; (2) interest income; and (3) interest expense. For the three months ended March 31, 2024, other income and expenses also included the change in fair value of the outstanding warrants.

RESULTS OF OPERATIONS

Three months ended March 31, 2025 as compared to three months ended March 31, 2024

Revenues

For the three months ended March 31, 2025 and 2024 revenues were as follows:

Revenues from entertainment publicity and marketing increased by approximately $0.3 million for the three months ended March 31, 2025, respectively, as compared to the same period in the prior year. The increase for the three months ended March 31, 2025, is primarily driven by the inclusion of $861 thousand in revenues of Elle that were not present in 2024 offset by a decrease in the revenues of Viewpoint that ceased operations on June 30, 2024.

Revenues from content production decreased by approximately $3.3 million during the three months ended March 31, 2025, compared to the same period in the prior year. The decrease was related to revenue from the Amazon Agreement for The Blue Angels documentary film that was released in 2024.

Expenses

For the three months ended March 31, 2025 and 2024, our expenses were as follows:

Direct costs decreased by approximately $2.0 million for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. The decrease in direct costs for the three months ended March 31, 2025 is directly attributable to $1.8 million of capitalized production costs being amortized for the production of The Blue Angels that was recorded in during the three months ended March 31, 2024. During the three months ended March 31, 2025, the Company did not amortize capitalized production costs related to The Blue Angels film.

Payroll and benefits expenses increased by approximately $0.7 million for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to the inclusion of the Elle payroll expenses in the three months ended March 31, 2025.

Selling, general and administrative expenses decreased by approximately $0.2 million, for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. The decrease is mainly due to a decrease in office rent expense from the expiration of two of our leases in December 2024.

Acquisition costs for the three months ended March 31, 2025 were $0.4 million, related to an agreed upon payment to the Special Projects Sellers related to the working capital adjustment. There was no acquisition costs recorded for the three months ended March 31, 2024.

Depreciation and amortization increased by $38 thousand for the three months ended March 31, 2025, as compared to the three months ended March 31, 2024. The increase in depreciation and amortization expense are related primarily to the amortization of Elle’s intangibles assets, such as the trade name and customers list, during the three months ended March 31, 2025, which were not present in the same period of the prior year.

Legal and professional fees decreased by $133 thousand for the three months ended March 31, 2025, as compared to same period of the prior year. The decrease is primarily due to cost savings of bringing the financial reporting in-house during the three months ended March 31, 2025.

Other Income and Expenses

Change in fair value of convertible notes – We elected the fair value option for one convertible note issued in 2020. The fair value of this convertible note is remeasured at every balance sheet date and any changes are recorded on our condensed consolidated statements of operations. For the three months ended March 31, 2025, we recorded a gain in the change in fair value of the convertible note issued in 2020 in the amount of $20.0 thousand. For the three months ended March 31, 2024, we recorded a gain in fair value of the convertible note issued in 2020 in the amount of $25.0 thousand. None of the decrease in the value of the convertible note was attributable to instrument specific credit risk and as such, all the gain or loss in the change in fair value was recorded within net loss.

Change in fair value of warrant – The warrant issued with the convertible note payable at fair value issued in 2020 was initially measured at fair value at the time of issuance and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date, with changes in estimated fair value of the warrant liability recognized as other income or expense. The change in fair value of the 2020 warrant that was not exercised decreased minimally for the three months ended March 31, 2024. For the three months ended March 31, 2025, there was no change in fair value.

Interest income – Interest income remained consistent for the three months ended March 31, 2025 as compared to same period of the prior year.

Interest expense – Interest expense increased by $56.5 thousand for the three months ended March 31, 2025, respectively, as compared to the same period in the prior year. The increases were primarily due to the new convertible and nonconvertible notes entered into during the first quarter of 2025 and the second term loan outstanding during 2025 as compared to the same period in the prior year.

Income Taxes

We recorded an income tax expense of approximately $21.5 thousand for the three months ended March 31, 2025, respectively, and approximately $31.1 thousand for the three months ended March 31, 2024, respectively, which reflects the accrual of a valuation allowance in connection with the limitations of our indefinite lived tax assets to offset our indefinite lived tax liabilities. To the extent the tax assets are unable to offset the tax liabilities, we have recorded a deferred expense for the tax liability (a “naked credit”).

Net Loss

Net loss was approximately $2.3 million or ($0.21) per share based on 11,162,026 weighted average shares outstanding for both basic loss per share and fully diluted loss per share, for the three months ended March 31, 2024. Net loss was approximately $0.3 million or ($0.04) per share based on 9,238,913 weighted average shares outstanding for basic loss per share and $0.04 per share based on 9,302,851 weighted average shares outstanding for fully diluted loss per share for the three months ended March 31, 2024. The change in net loss for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, is related to the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Operating Activities

Cash used in operating activities was $1.7 million for the three months ended March 31, 2025, a change of $0.5 million from cash used in operating activities of $1.2 million for three months ended March 31, 2024. The increase in cash used in operating activities was primarily a result of a $2.0 million increase in net loss for the period, a decrease of $2.0 million non-cash items such as depreciation and amortization, bad debt expense, share-based compensation, amortization of capitalized production costs, and other non-cash losses, which was offset by the net change in working capital.

Investing Activities

Cash flows used in investing activities for the three months ended March 31, 2025 was inconsequential. There were no cash flows used in investing activities for the three months ended March 31, 2024.

Financing Activities

Cash flows provided by financing activities for the three months ended March 31, 2025 were $586 thousand, which mainly related to:

Inflows:

• $775 thousand of proceeds from convertible notes payable and;
• $250 thousand of proceeds from nonconvertible notes payable.

Outflows:

• $418 thousand of repayment of existing term loan and;
• $21 thousand of repayment of finance leases.

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Cash flows provided by financing activities for the three months ended March 31, 2024 were $1.1 million, which mainly related to:

Inflows:

• $900 thousand of proceeds from related party notes payable.
• $495.2 thousand of proceeds from the Lincoln Park equity line of credit described below; and

Outflows:

• $242.3 thousand of repayment of existing term loan and;
• $17.9 thousand on principal payments on finance leases.

Debt and Financing Arrangements

Total debt amounted to $23.0 million as of March 31, 2025, compared to $22.4 million as of December 31, 2024, an increase of $597.1 thousand, primarily related to an increase in convertible and nonconvertible promissory notes, offset by the repayment of the term loan.

Our debt obligations in the next twelve months from March 31, 2025 are approximately $5.5 million. We expect our current cash position, cash expected to be generated from our operations and other availability of funds, as detailed below, to be sufficient to meet our debt requirements.

2022 Lincoln Park Transaction

On August 10, 2022, we entered into a purchase agreement (the “LP 2022 Purchase Agreement”) and a registration rights agreement (the “LP 2022 Registration Rights Agreement”) with Lincoln Park, pursuant to which we could sell and issue to Lincoln Park, and Lincoln Park was obligated to purchase, up to $25,000,000 in value of shares of our common stock from time to time over a 36-month period.

During the three months ended March 31, 2025, we did not sell shares of common stock under the LP 2022 Purchase Agreement. During the three months ended March 31, 2024, we sold 175,000 shares of its common stock, at prices ranging between $2.54 and $3.06 and received proceeds of $495,200.

Convertible Notes Payable

During the three months ended March 31, 2025, we issued six convertible notes payable and received proceeds of $775,000. As of March 31, 2025, we had sixteen convertible notes payable outstanding. The convertible notes payable bear interest at a rate of 10% per annum, with initial maturity dates ranging between the second anniversary and the sixth anniversary of their respective issuances.

The balance of each convertible notes payable and any accrued interest may be converted at the noteholder’s option at any time at the following conversion prices:

We recorded interest expense related to these convertible notes payable of $136,000 and $127,750 during the three months ended March 31, 2025 and 2024, respectively. In addition, we made cash interest payments amounting to $129,556 and 127,750 during the three months ended March 31, 2025 and 2024, respectively, related to the convertible notes payable.

As of March 31, 2025 and December 31, 2024, the principal balance of the convertible notes payable of $5,875,000 and $5,100,000 was recorded in noncurrent liabilities under the caption “Convertible notes payable” on the our condensed consolidated balance sheets.

Between April 2, 2025 and May 6, 2025, we issued six convertible notes payable and received proceeds of $915,000. The convertible notes payable bear interest at a rate of 10% per annum, are convertible at prices ranging between $1.00 and $1.03 per share and have maturity dates between one and four years from their respective issuance dates.

Convertible Note Payable at Fair Value

We had one convertible promissory note outstanding with aggregate principal amount of $500,000 as of March 31, 2025 for which it elected the fair value option. As such, the estimated fair value of the note was recorded on its issue date. At each balance sheet date, we record the fair value of the convertible promissory note with any changes in the fair value recorded in the condensed consolidated statements of operations.

We had a balance of $300,000 and $320,000 in noncurrent liabilities as of March 31, 2025, and December 31, 2024, respectively, on our condensed consolidated balance sheets related to the convertible promissory note payable measured at fair value.

We recorded a gain in fair value of $20,000 and $25,000 for the three months ended March 31, 2025 and 2024, respectively, on our condensed consolidated statements of operations related to this convertible promissory note at fair value.

We recorded interest expense related to this convertible note payable at fair value of $9,863 for both the three months ended March 31, 2025 and 2024. In addition, we made cash interest payments amounting to $9,863 for both the three months ended March 31, 2025 and 2024, related to the convertible note payable at fair value.

Nonconvertible Promissory Notes

During the three months ended March 31, 2025, we issued a nonconvertible promissory note and received proceeds of $250,000. As of March 31, 2025, we had seven outstanding unsecured nonconvertible promissory notes in the aggregate amount of $4,130,000, which bear interest at a rate of 10% per annum and mature between June 2025 and March 2029.

As of both March 31, 2025 and December 31, 2024, we had a balance of $750,000 recorded as current liabilities and $3,380,000 and $3,130,000, respectively, in noncurrent liabilities on our condensed consolidated balance sheets related to these unsecured nonconvertible promissory notes.

We recorded interest expense related to these nonconvertible promissory notes of $99,083 and $97,000 for the three months ended March 31, 2025 and 2024, respectively. We made interest payments of $97,000 for the both three months ended March 31, 2025 and 2024, related to the nonconvertible promissory notes.

Nonconvertible Unsecured Promissory Note - Socialyte Promissory Note

In connection with the purchase agreement for the acquisition of Socialyte (“Socialyte Purchase Agreement”), we entered into a promissory note with the sellers of Socialyte (“the Socialyte Promissory Note”) amounting to $3,000,000. The Socialyte Promissory Note matured on September 30, 2023 and was payable in two payments: $1,500,000 on June 30, 2023 and $1,500,000 on September 30, 2023. The Socialyte Promissory Note carries an interest of 4% per annum, which accrues monthly, and all accrued interest was to be due and payable on September 30, 2023.

The Socialyte Purchase Agreement allows us to offset a working capital deficit against the Socialyte Promissory Note. As such, we deferred these installment payments until the final post-closing working capital adjustment is agreed upon with the seller of Socialyte. We filed a lawsuit against the seller of Socialyte and certain of its principals related to the Socialyte Purchase Agreement. See Note 17 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We recorded interest expense related to this Socialyte Promissory Note of $30,000 for the three months ended March 31, 2025 and 2024, respectively. No interest payments were made during the three months ended March 31, 2025 and 2024, related to the Socialyte Promissory Note.

Nonconvertible Promissory Note from Related Parties

We issued Dolphin Entertainment, LLC (“DE LLC”), an entity wholly owned by the Company’s Chief Executive Officer, William O’Dowd (the “CEO”), a nonconvertible promissory note with a principal balance of $1,107,873 which matures on December 31, 2026. On April 29, 2024 and June 10, 2024, we issued two nonconvertible promissory notes to DE LLC in the amounts of $1,000,000 and $135,000, respectively, which mature on April 29, 2029 and June 10, 2029, respectively, (collectively, “the DE LLC Notes”). The DE LLC Notes each bear interest at a rate of 10% per annum.

As of March 31, 2025 and December 31, 2024, we had an aggregate principal balance of $2,242,873, and accrued interest amounted to $434,066 and $263,767, respectively, related to the DE LLC Notes. For both the three months ended March 31, 2025 and 2024, we did not repay any principal balance on the DE LLC Notes. During the three months ended March 31, 2024, we made cash interest payments in the amount of $200,000 related to the DE LLC Notes.

During 2024, we issued three nonconvertible promissory notes to Mr. Donald Scott Mock, the brother of Mr. O’Dowd, in the amount of $900,000, $75,000 and $8,112, respectively, and received proceeds of $983,112 (the “Mock Notes”). The Mock Notes bear interest at a rate of 10% per annum and mature on January 16, 2029, May 28, 2029 and December 30, 2029, respectively. As of both March 31, 2025 and December 31, 2024, we had a principal balance of $983,112, and accrued interest of $114,995 and $90,417, respectively. We did not make cash payments during the three months ended March 31, 2025 and 2024 related to these loans from related party.

We recorded interest expense of $79,882 and $46,121 for the three months ended March 31, 2025 and 2024, respectively, related to the DE LLC Notes and Mock Notes.

BankUnited Loan Agreement

On September 29, 2023, we entered into a loan agreement with BankUnited (“BankUnited Loan Agreement”) in which an existing term loan with BankProv was repaid (the “Refinancing Transaction”). The BankUnited Loan Agreement includes: (i) $5,800,000 secured term loan (“First BKU Term Loan”), (ii) and $750,000 of a secured revolving line of credit (“BKU Line of Credit”) and (iii) $400,000 Commercial Card (“BKU Commercial Card”). The First BKU Term Loan carries a 1.0% origination fee and matures in September 2028, the BKU Line of Credit carries an initial origination fee of 0.5% and an 0.25% fee on each annual anniversary and matures in September 2026; the BKU Commercial Card does not have any initial or annual fee and matures in September 2026. The BKU Term Loan has a declining prepayment penalty equal to 5% in year one, 4% in year two, 3% in year three, 2% in year four and 1% in year five of the outstanding balance. The BKU Line of Credit and BKU Commercial Card can be repaid without any prepayment penalty.

On December 6, 2024, we entered into a second Bank United Loan Agreement (“Second BKU Loan Agreement”) for $2.0 million to finance the acquisition of Elle Communications, LLC. The Second BKU Loan Agreement carries a 1.0% origination fee and matures in December 2027. Similar to the First BKU Term Loan, the Second BKU Loan Agreement has a declining prepayment penalty equal to 3% in year one, 2% in year two and 1% in year three of the outstanding balance. (The First BKU Term Loan, Second BKU Term Loan, BKU Line of Credit and BKU Commercial Card are collectively referred to as the “Bank United Credit Facility”).

Interest accrues at 8.10% fixed rate per annum on the First BKU Term Loan and 7.10% fixed rate per annum on the Second BKU Term Loan. Principal and interest are payable on a monthly basis based on a 5-year amortization for the First BKU Term Loan and 3-year amortization for the Second BKU Term Loan. Interest on the BKU Line of credit is payable on a monthly basis, with all principal due at maturity. The BKU Commercial Card payment is due in full at the end of each bi-weekly billing cycle. During the three months ended March 31, 2025 and 2024, we did not used the BKU Commercial Card. During the three months ended March 31, 2025 and 2024, we made payments in the amount of $354,621, inclusive of $90,722 and $112,299 of interest related to the First BKU Term Loan, respectively. During the three months ended March 31, 2025, we made payments in amount of $185,995, inclusive of $32,182 of interest related to the Second BKU Term Loan. During the three months ended March 31, 2024, there were no payments made in connection with the Second BKU Term Loan.

Interest on the BKU Line of Credit is variable based on the Lender’s Prime Rate. During the three months ended March 31, 2025 and 2024, the Company recorded interest expense and made payments of $7,550 and $8,594, respectively, related to the BKU Line of Credit.

As of March 31, 2025, we had a balance of $1,708,051 classified as current liabilities and $4,349,537 classified as noncurrent liabilities, net of $92,554 of debt issuance costs, in our consolidated balance sheet related to the First BKU Term Loan and the Second BKU Term Loan. As of December 31, 2024, we had a balance of $1,686,018 classified as current liabilities and $4,782,271 classified as noncurrent liabilities, net of $96,759 of debt issuance costs, in our consolidated balance sheet related to the First BKU Term Loan and the Second BKU Term Loan. As of March 31, 2025 and December 31, 2024, we had a balance of $400,000 of principal outstanding under the BKU Line of Credit.

Amortization of debt origination costs under the Bank United Credit Facility is included as a component of interest expense in the consolidated statements of operations and amounted to approximately $7,012 and $4,206 for the three months ended March 31, 2025 and 2024, respectively.

The BankUnited Credit Facility contains financial covenants tested semi-annually, on June 30th and December 31st, on a trailing twelve-month basis that require us to maintain a minimum debt service coverage ratio of 1.25:1.00 and a maximum funded debt/EBITDA ratio of 3.00:1.00. In addition, the BankUnited Credit Facility contains a liquidity covenant that requires us to hold a cash balance at BankUnited with a daily minimum deposit balance of $2,000,000.

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions about future events that affect amounts reported in our consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the date of the financial statements. Management evaluates its accounting policies, estimates and judgments on an on-going basis. Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. Our significant accounting policies are discussed in Note 2 to our Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2024.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements.

We consider the fair value estimates, including those related to acquisitions, valuations of goodwill, intangible assets, acquisition-related contingent consideration and convertible debt to be the most critical in the preparation of our consolidated financial statements as they are important to the portrayal of our financial condition and require significant or complex judgment and estimates on the part of management.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 1 to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, as well as statements, other than historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. These statements are often characterized by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” ”intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” “goal” or “continue” or the negative of these terms or other similar expressions.

Forward-looking statements are based on assumptions and assessments made in light of our experience and perception of historical trends, current conditions, expected and future developments and other factors believed to be appropriate. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, many of which are outside of our control. You should not place undue reliance on these forward-looking statements, which reflect our views only as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update these forward-looking statements in the future, except as required by applicable law.

Risks that could cause actual results to differ materially from those indicated by the forward-looking statements include those described as “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

The information set forth in Item 1.01 above under the caption DE LLC Note Exchange Agreement is incorporated by reference into this Item 3.02. The issuance of the New Notes, and any shares of common stock to be issued upon conversion thereof, by the Company in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act.

Management’s Report on the Effectiveness of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2025. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to material weaknesses disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on March 27, 2025, which have not been remediated as of the date of the filing of this report.

Remediation of Material Weaknesses in Internal Control over Financial Reporting

We have begun the process of designing and implementing effective internal controls measures to improve our internal control over financial reporting and remediate the material weaknesses. Our internal control remediation efforts include the following:

• Developing formal policies and procedures over the Company’s fraud risk assessment and risk management function;
• Developing policies and procedures to enhance the precision of management review of financial statement information and control impact of changes in the external environment;
• Entering into an agreement with a third-party consultant that assists us in analyzing complex transactions and the appropriate accounting treatment;
• Enhancing our policies, procedures and documentation of period end closing procedures;
• Implementing policies and procedures to enhance independent review and documentation of journal entries, including segregation of duties; and
• Reevaluating our monitoring activities for relevant controls.

Management is beginning the process of implementing and monitoring the effectiveness of these and other processes, procedures and controls and will make any further changes deemed appropriate. Management believes our planned remedial efforts will effectively remediate the identified material weaknesses. As we continue to evaluate and work to improve our internal control over financial reporting, management may determine it is necessary to take additional measures to address control deficiencies or determine it necessary to modify the remediation plan described above.

Changes in Internal Control over Financial Reporting

During the most recently completed fiscal quarter, there have been no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting for the fiscal quarter covered by this report.