Dolphin Entertainment Inc

Previous wording

Through our subsidiaries 42West, Shore Fire and The Door, we provide expert strategic marketing and publicity services to many of the top brands, both individual and corporate, in the entertainment and hospitality industries. 42West (Film and Television, Gaming), Shore Fire (Music), and The Door (Culinary, Hospitality, Lifestyle) are each recognized global PR and marketing leaders for the industries they serve. 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. 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, 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.

Current wording

Through our subsidiaries 42West, Shore Fire, The Door and Elle, we provide expert strategic marketing and publicity services to many of the top brands, both individual and corporate, in the entertainment and hospitality industries. 42West (Film and Television, Gaming), Shore Fire (Music), The Door (Culinary, Hospitality, Lifestyle) and Elle (Impact, Philanthropy, Non-Profit) are each recognized global PR and marketing leaders for the industries they serve. 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. 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. Our newly launched talent management firm, Always Alpha, is the first management firm of its kind, fully focused on women’s sports. Dolphin’s legacy content production business, 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.

Previous wording

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, such as public relations companies in new and distinct entertainment verticals, can create synergistic opportunities and bolster profits and cash flow. We completed the acquisition of Special Projects during 2023 (discussed below) and completed the acquisition of Elle Communications, LLC in July of 2024. We will continue to identify potential acquisition targets but there is no assurance that one will be identified nor that we will be successful in completing the acquisition if one is identified.

Current wording

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, such as public relations companies in new and distinct entertainment verticals, can create synergistic opportunities and bolster profits and cash flow. We completed the acquisition of Special Projects during 2023 and completed the acquisition of Elle Communications, LLC in July of 2024. We will continue to identify potential acquisition targets but there is no assurance that one will be identified nor that we will be successful in completing the acquisition if one is identified.

Previous wording

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, Viewpoint, The Digital Dept. and Special Projects, and provides clients with diversified services, including public relations, entertainment content marketing, strategic communications, influencer marketing, celebrity booking and live event production, creative branding, and the production of promotional video content. The content production segment is composed of Dolphin Films, Inc. (“Dolphin Films”) and Dolphin Digital Studios, which produce and distribute feature films and digital content.

Current wording

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

Previous wording

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, (viii) curating and booking celebrities for live events; and (ix) content production of marketing materials on a project contract basis. 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.

Current wording

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, athletes, broadcasters 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.

Previous wording

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. As of June 30, 2024, we had paid $2,250,000 in connection with this agreement. On April 25, 2023, IMAX entered into an acquisition agreement with Amazon Content Services LLC, (the “Amazon Agreement”) for the distribution rights of The Blue Angels. During the six months ended June 30, 2024, we recorded revenue of $3,421,141 related to the Amazon Agreement. On February 22, 2024, we received $777,905 from IMAX, as a first installment in connection with the Amazon Agreement and on July 9, 2024, the Company received the second installment from IMAX in the amount of $2,556,452.

Current wording

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. As of September 30, 2024, we had paid $2,250,000 in connection with this agreement. On April 25, 2023, IMAX entered into an acquisition agreement with Amazon Content Services LLC, (the “Amazon Agreement”) for the distribution rights of The Blue Angels. During the nine months ended September 30, 2024, we recorded revenue of $3,421,141 related to the Amazon Agreement. On February 22, 2024, we received $777,905 from IMAX, as a first installment in connection with the Amazon Agreement and on July 9, 2024, the Company received the second installment from IMAX in the amount of $2,556,452.

Previous wording

For the three and six months ended June 30, 2024 and 2023, we derived a majority of our revenues from our entertainment publicity and marketing segment. During the six months ended June 30, 2024, we generated income in our content production segment related to the “The Blue Angels” documentary motion picture.

Current wording

For the three and nine months ended September 30, 2024 and 2023, we derived a majority of our revenues from our entertainment publicity and marketing segment. During the nine months ended September 30, 2024, we generated income in our content production segment related to the “The Blue Angels” documentary motion picture.

Previous wording

The table below sets forth the percentage of total revenue derived from our segments for the three and six months ended June 30, 2024 and 2023:

Current wording

The table below sets forth the percentage of total revenue derived from our segments for the three and nine months ended September 30, 2024 and 2023:

Previous wording

For the three and six months ended June 30, 2024 and 2023, other income and expenses consisted primarily of: (1) changes in fair value of convertible notes and warrants; (2) interest income; and (3) interest expense.

Current wording

For the three and nine months ended September 30, 2024 and 2023, other income and expenses consisted primarily of: (1) changes in fair value of convertible notes and warrants; (2) interest income; and (3) interest expense.

Previous wording

Three and six months ended June 30, 2024 as compared to three and six months ended June 30, 2023

Current wording

Three and nine months ended September 30, 2024 as compared to three and nine months ended September 30, 2023

Previous wording

For the three and six months ended June 30, 2024 and 2023 revenues were as follows:

Current wording

For the three and nine months ended September 30, 2024 and 2023 revenues were as follows:

Previous wording

Revenues from entertainment publicity and marketing increased by approximately $0.4 million and $2.3 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in the prior year. The increase for the six months ended June 30, 2024 is primarily driven by increases across substantially all subsidiaries, as well as the inclusion of $1.6 million of Special Projects revenues that were not present in 2023. For the three months ended June 30, 2024, the increase is primarily driven by inclusion of $0.8 million in revenues of Special Projects that were not present in 2023 offset by a decrease in the revenues of Viewpoint. The Company decided to cease the operations of Viewpoint during the three months ended June 30, 2024.

Current wording

Revenues from entertainment publicity and marketing increased by approximately $2.5 million and $4.8 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in the prior year. The increase for the nine months ended September 30, 2024 is primarily driven by increases across substantially all subsidiaries, especially 42West as a result of the 2023 Writers Guild of America and the Screen Actors Guild-American Federation of Television and Radio Arts (“SAG-AFTRA”) strikes that ended in September 2023 and November 2023, respectively. The remaining increase is due to the inclusion of $3.2 million of Special Projects and Elle revenues that were not present in 2023. For the three months ended September 30, 2024, the increase is primarily driven increases in revenues of 42West of $1.1 million, and the inclusion of $1.7 million in revenues of Special Projects and Elle that were not present in 2023 offset by a decrease in the revenues of Viewpoint. The Company decided to cease the operations of Viewpoint during the nine months ended September 30, 2024.

Previous wording

Revenues from content production increased by approximately $3.4 million during the six months ended June 30, 2024, compared to the same period in the prior year, in connection with revenue generated from The Blue Angels documentary film, which was released in theatres on May 17, 2024.

Current wording

Revenues from content production increased by approximately $3.4 million during the nine months ended September 30, 2024, compared to the same period in the prior year, in connection with revenue generated from The Blue Angels documentary film, which was released in theatres on May 17, 2024.

Previous wording

For the three and six months ended June 30, 2024 and 2023, our expenses were as follows:

Current wording

For the three and nine months ended September 30, 2024 and 2023, our expenses were as follows:

Previous wording

Direct costs remained consistent for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, and increased $2.1 million for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023. The increase in direct costs for the six months ended June 30, 2024 is directly attributable to (i) $1.8 million of capitalized production costs being amortized for the production of The Blue Angels and (ii) the increase in subsidiaries’ revenues as compared with the same periods in the prior year.

Current wording

Direct costs increased $69.0 thousand for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, and increased $2.2 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The increase in direct costs for the three months ended September 30, 2023 is attributed to increase in subsidiaries’ revenues compared to the same period in the prior year. The increase in direct costs for the nine months ended September 30, 2024 is directly attributable to (i) $1.8 million of capitalized production costs being amortized for the production of The Blue Angels and (ii) the increase in subsidiaries’ revenues as compared with the same period in the prior year.

Previous wording

Payroll and benefits expenses increased by approximately $0.5 million and $1.0 million, respectively, for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023, primarily due to the inclusion of the Special Projects payroll expenses in the three and six months ended June 30, 2024.

Current wording

Payroll and benefits expenses increased by approximately $1.2 million and $2.2 million, respectively, for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023, primarily due to the inclusion of the Special Projects and Elle payroll expenses in the three and nine months ended September 30, 2024.

Previous wording

Selling, general and administrative expenses decreased by approximately $0.1 million and $35.4 thousand for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023. The decrease is mainly due to a decrease in office rent expense from the expiration of one of our New York office leases in August of 2023.

Current wording

Selling, general and administrative expenses decreased by approximately $0.3 million and $0.4 million, respectively, for the three and nine months ended September 30, 2024 as compared to the three and nine months ended September 30, 2023. The decrease is mainly due to a decrease in office rent expense from the expiration of one of our New York office leases in August of 2023 and a reduction of bad debt expense due to improvements in collections of our accounts receivable.

Previous wording

Depreciation and amortization remained consistent for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023. The minor increases related primarily to the depreciation of Special Projects property and equipment during the three and six months ended June 30, 2024.

Current wording

Depreciation and amortization increased by $0.1 million for the three and nine months ended September 30, 2024, as compared to the three and nine months ended September 30, 2023. The increase in depreciation and amortization expense are related primarily to the amortization of Special Projects and Elle’s intangibles assets, such as the trade name and customers list, during the three and nine months ended September 30, 2024, which were not present in the same period of the prior year.

Previous wording

Change in fair value of the contingent consideration was $17.7 thousand and $33.2 thousand for the three and six months ended June 30, 2023 and all related to the settlement of the contingent consideration for the acquisition of Be Social. As all contingent consideration was settled by June 2023, there were no changes in fair value of contingent consideration for the three and six months ended June 30, 2024.

Current wording

Change in fair value of the contingent consideration was $33.2 thousand for the nine months ended September 30, 2023 and all related to the settlement of the contingent consideration for the acquisition of Be Social. There were no changes in fair value of contingent consideration for the three and nine months ended September 30, 2024, and the three months ended September 30, 2023.

Previous wording

Legal and professional fees remained consistent for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023.

Current wording

Legal and professional fees remained consistent for the three months ended September 30, 2024 as compared to same period of the prior year. Legal and professional fees decreased by $0.1 million for the nine months ended September 30, 2024 as compared to the same period in the prior year, and related to the Company obtaining a consent from the predecessor auditor for the 2021 audited financial statements that were included by reference in the S-3 registration statement.

Previous wording

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 June 30, 2024 and 2023, we recorded gains in the change in fair value of the convertible note issued in 2020 in the amount of $40.0 thousand and $4.0 thousand, respectively. For the six months ended June 30, 2024 and 2023, we recorded a change in fair value of the convertible note issued in 2020 in the amount of a gain of $65.0 thousand and a loss of $6.4 thousand, respectively. None of the decrease in the value of the convertible note was attributable to instrument specific credit risk and as such, all the gain in the change in fair value was recorded within net (loss) income.

Current wording

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 September 30, 2024, we recorded a loss in the change in fair value of the convertible note issued in 2020 in the amount of $10.0 thousand. For the three months ended September 30, 2023, there was no change in fair value. For the nine months ended September 30, 2024 and 2023, we recorded a change in fair value of the convertible note issued in 2020 in the amount of a gain of $55.0 thousand and a loss of $6.4 thousand, respectively. 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.

Previous wording

Change in fair value of warrants– Warrants issued with the convertible note payable at fair value issued in 2020 were 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 each respective warrant liability recognized as other income or expense. The change in fair value of the 2020 warrants that were not exercised decreased minimally for the three and six months ended June 30, 2024 and 2023.

Current wording

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 and nine months ended September 30, 2024 and 2023.

Previous wording

Interest income– Interest income decreased by $0.1 million and $0.2 million for the three and six months ended June 30, 2024 as compared to the same periods in the prior year, primarily due to the write-off of notes receivable in the fourth quarter of 2023.

Current wording

Interest income– Interest income decreased by $0.1 million and $0.3 million for the three and nine months ended September 30, 2024 as compared to the same periods in the prior year, primarily due to the write-off of notes receivable in the fourth quarter of 2023.

Previous wording

Interest expense– Interest expense increased by $69.5 thousand and $0.2 million for the three and six months ended June 30, 2024, respectively, as compared to the same periods in the prior year. The increases were primarily due to increased convertible and nonconvertible notes and the term loan outstanding during 2023 as compared to the same period in the prior year.

Current wording

Interest expense– Interest expense decreased by $71.2 thousand and increased by $0.1 million for the three and nine months ended September 30, 2024, respectively, as compared to the same periods in the prior year. The increases were primarily due to increased related party nonconvertible notes and the term loan outstanding during 2024 as compared to the same period in the prior year.

Previous wording

We recorded an income tax expense of approximately $23.5 thousand and $47.1 thousand for the three and six months ended June 30, 2024, respectively, and approximately $33.1 thousand and $60.2 thousand for the three and six months ended June 30, 2023, 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”).

Current wording

We recorded an income tax benefit of approximately $2.0 thousand and an income tax expense of $44.7 thousand for the three and nine months ended September 30, 2024, respectively, and approximately $31.1 thousand and $91.2 thousand for the three and nine months ended September 30, 2023, 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”).

Previous wording

Equity in earnings or losses of unconsolidated affiliates includes our share of income or losses from equity investments. The Company impaired its equity investment in the unconsolidated affiliates during the fourth quarter of 2023, therefore no income or loss has been recorded during the three and six months ended June 30, 2024.

Current wording

Equity in earnings or losses of unconsolidated affiliates includes our share of income or losses from equity investments. The Company impaired its equity investment in the unconsolidated affiliates during the fourth quarter of 2023. Therefore, no income or loss has been recorded during the three and nine months ended September 30, 2024.

Previous wording

Net loss was approximately $2.0 million or $(0.10) per share based on both 18,962,067 weighted average shares outstanding for basic loss per share and 19,089,944 fully diluted loss per share, for the six months ended June 30, 2024. Net loss was approximately $10.9 million or $(0.85) per share based on 12,926,273 weighted average shares outstanding for both basic loss per share and fully diluted loss per share for the six months ended June 30, 2023. The change in net loss for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023, is related to the factors discussed above.

Current wording

Net loss was approximately $8.7 million or ($0.80) per share based on 10,930,286 weighted average shares outstanding for both basic loss per share and fully diluted loss per share, for the three months ended September 30, 2024. Net loss was approximately $3.9 million or ($0.55) per share based on 7,060,638 weighted average shares outstanding for both basic loss per share and fully diluted loss per share for the three months ended September 30, 2023. The change in net loss for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, is related to the factors discussed above.

Previous wording

Net loss was approximately $1.6 million or $(0.08) per share based on 19,446,310 weighted average shares outstanding for basic loss per share and $1.7 million of $(0.08) per share based on 19,574,187 weighted average shares outstanding fully diluted loss per share, for the three months ended June 30, 2024. Net loss was approximately $8.0 million or $(0.60) per share based on 13,212,311 weighted average shares outstanding for both basic loss per share and fully diluted loss per share for the three months ended June 30, 2023. The change in net loss for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023, is related to the factors discussed above.

Current wording

Net loss was approximately $10.6 million or ($1.07) per share based on 9,964,607 weighted average shares outstanding for both basic loss per share and fully diluted loss per share, for the nine months ended September 30, 2024. Net loss was approximately $14.8 million or ($2.22) per share based on 6,664,069 weighted average shares outstanding for both basic loss per share and fully diluted loss per share for the nine months ended September 30, 2023. The change in net loss for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, is related to the factors discussed above.

Previous wording

Cash provided by operating activities was $0.7 million for the six months ended June 30, 2024, a change of $3.8 million from cash used in operating activities of $3.1 million for six months ended June 30, 2023. The increase in cash flows from operations was primarily as a result a $9.0 million of decreased net loss for the period, offset by $4.9 million non-cash items such as depreciation and amortization, bad debt expense, share-based compensation, impairment of capitalized production costs, impairment of goodwill and other non-cash losses and $0.3 million net change in working capital.

Current wording

Cash used in operating activities was $1.0 million for the nine months ended September 30, 2024, a change of $3.9 million from cash used in operating activities of $4.9 million for nine months ended September 30, 2023. The increase in cash flows from operations was primarily as a result a $4.1 million of decreased net loss for the period, an increase of $1.0 million non-cash items such as depreciation and amortization, bad debt expense, share-based compensation, impairment of capitalized production costs, impairment of goodwill and other non-cash losses, which was offset by $1.3 million net change in working capital.

Previous wording

Cash flows used in investing activities for the six months ended June 30, 2024 were $1.1 million, mainly related to the issuance of notes receivable to Midnight Theatre. There were no significant cash flows used in investing activities for the six months ended June 30, 2023.

Current wording

Cash flows used in investing activities for the nine months ended September 30, 2024 were $2.5 million, mainly related to the net issuance of $1.3 million of notes receivable to Midnight Theatre, and $1.2 million payment related to the acquisition of Elle, net of cash acquired. There were no significant cash flows used in investing activities for the nine months ended September 30, 2023.

Previous wording

Cash flows provided by financing activities for the six months ended June 30, 2024 were $2.8 million, which mainly related to:

Current wording

Cash flows provided by financing activities for the nine months ended September 30, 2024 were $2.5 million, which mainly related to:

Previous wording

Cash flows provided by financing activities for the six months ended June 30, 2023 were $4.0 million, which mainly related to:

Current wording

Cash flows provided by financing activities for the nine months ended September 30, 2023 were $7.8 million, which mainly related to:

Previous wording

Total debt amounted to $20.9 million as of June 30, 2024, compared to $19.3 million as of December 31, 2023, an increase of $1.6 million, primarily related to an increase in related party nonconvertible promissory notes.

Current wording

Total debt amounted to $20.7 million as of September 30, 2024, compared to $19.3 million as of December 31, 2023, an increase of $1.4 million, primarily related to an increase in related party nonconvertible promissory notes, offset by the repayment of the term loan.

Previous wording

Our debt obligations in the next twelve months from June 30, 2024 are $5.3 million, an increase of $0.4 million from $4.9 million from those as of December 31, 2023. 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.

Current wording

Our debt obligations in the next twelve months from September 30, 2024 and December 31, 2023, were approximately $4.9 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.

Previous wording

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

Current wording

On August 10, 2022, the Company 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 the Company could sell and issue to Lincoln Park, and Lincoln Park was obligated to purchase, up to $25,000,000 in value of its shares of the Company’s common stock from time to time over a 36-month period.

Previous wording

During the three and six months ended June 30, 2024, the Company sold 600,000 and 950,000 shares of its common stock, respectively, at prices ranging between $1.07 and $1.53 and received proceeds of $690,100 and 1,185,300.

Current wording

During the three months ended September 30, 2024, the Company did not sell shares of common stock. During the nine months ended September 30, 2024, the Company sold 475,000 shares of its common stock, at prices ranging between $2.14 and $3.06 and received proceeds of $1,185,300.

Previous wording

During the three and six months ended June 30, 2023, the Company sold 600,000 and 850,000 shares of its common stock, respectively, at prices ranging between $1.65 and $2.27 pursuant to the LP 2022 Purchase Agreement and received proceeds of $1,081,850 and $1,611,300, respectively.

Current wording

During the three and nine months ended September 30, 2023, the Company sold 150,000 and 575,000 shares of its common stock, respectively, at prices ranging between $3.31 and $4.54 pursuant to the LP 2022 Purchase Agreement and received proceeds of $550,850 and $2,162,150, respectively.

Previous wording

As of June 30, 2024, the Company has ten 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 note payable and any accrued interest may be converted at the noteholder’s option at any time at a purchase price based on a 90-day average closing market price per share of the common stock. Three of the convertible notes payable may not be converted at a price less than $2.50 per share, four of the convertible notes payable may not be converted at a price less than $2.00 per share, and three of the convertible notes payable may not be converted at a price less than $1.00 per share.

Current wording

As of September 30, 2024, the Company has ten 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 note payable and any accrued interest may be converted at the noteholder’s option at any time at a purchase price based on a 90-day average closing market price per share of the common stock. Three of the convertible notes payable may not be converted at a price less than $5.00 per share, four of the convertible notes payable may not be converted at a price less than $4.00 per share, and three of the convertible notes payable may not be converted at a price less than $2.00 per share.

Previous wording

The Company recorded interest expense related to these convertible notes payable of $127,500 and $141,583 during the three months ended June 30, 2024, and 2023, respectively, and $255,250 and $286,139 during the six months ended June 30, 2024, and 2023, respectively. In addition, the Company made cash interest payments amounting to $255,250 and $305,573 during the six months ended June 30, 2024 and 2023, respectively, related to the convertible notes payable.

Current wording

The Company recorded interest expense related to these convertible notes payable of $127,500 and $128,750 during the three months ended September 30, 2024, and 2023, respectively, and $382,750 and $414,880 during the nine months ended September 30, 2024, and 2023, respectively. In addition, the Company made cash interest payments amounting to $382,750 and $413,764 during the nine months ended September 30, 2024 and 2023, respectively, related to the convertible notes payable.

Previous wording

The Company had a balance of $290,000 and $355,000 in noncurrent liabilities as of June 30, 2024, and December 31, 2023, respectively, on its condensed consolidated balance sheets related to the convertible promissory note payable measured at fair value.

Current wording

The Company had a balance of $300,000 and $355,000 in noncurrent liabilities as of September 30, 2024, and December 31, 2023, respectively, on its condensed consolidated balance sheets related to the convertible promissory note payable measured at fair value.

Previous wording

The Company recorded gains in fair value of $40,000 and $4,000 for the three months ended June 30, 2024, and 2023, respectively, and a gain in fair value of $65,000 and a loss in fair value of $6,444 for the six months ended June 30, 2024 and 2023, respectively, on its condensed consolidated statements of operations related to this convertible promissory note at fair value.

Current wording

The Company recorded a loss in fair value of $10,000 for the three months ended September 30, 2024. There was no change in fair value for the three months September 30, 2023. A gain in fair value of $55,000 and a loss in fair value of $6,444 for the nine months ended September 30, 2024 and 2023, respectively, on its condensed consolidated statements of operations related to this convertible promissory note at fair value.