Dolphin Entertainment(DLPN) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial information for Dolphin Entertainment, Inc., covering financial statements, management's discussion, and controls ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for Dolphin Entertainment, Inc. and its subsidiaries, including balance sheets, statements of operations, cash flows, and changes in stockholders' equity, along with detailed notes explaining accounting policies, revenue recognition, debt, equity, and other financial commitments Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show a slight increase in total assets and liabilities from December 31, 2024, to June 30, 2025, while total stockholders' equity decreased significantly Condensed Consolidated Balance Sheet Summary | Metric | June 30, 2025 ($) | December 31, 2024 ($) | | :--------------------------- | :-------------- | :------------------ | | Total Assets | 58,611,434 | 58,437,279 | | Total Liabilities | 50,709,023 | 46,791,888 | | Total Stockholders' Equity | 7,902,411 | 11,645,391 | - Current assets increased from $20,067,099 to $22,156,949, primarily driven by increases in accounts receivable (trade and other) and deferred revenue[8][11] - Current liabilities increased from $26,514,137 to $29,131,730, mainly due to increases in accounts payable and deferred revenue, and the introduction of a current portion of convertible note payable[11] Condensed Consolidated Statements of Operations The company reported a net loss for both the three and six months ended June 30, 2025, with a significant increase in net loss for the six-month period compared to the prior year, primarily due to a loss on extinguishment of debt Condensed Consolidated Statements of Operations Summary | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | 14,087,529 | 11,449,089 | 26,257,240 | 26,684,981 | | Total expenses | 14,144,583 | 12,568,554 | 28,087,820 | 27,639,907 | | Loss from operations | (57,054) | (1,119,465) | (1,830,580) | (954,926) | | Total other (expenses) income, net | (1,335,341) | (481,453) | (1,869,355) | (949,221) | | Net loss | (1,413,918) | (1,624,458) | (3,742,980) | (1,951,226) | | Basic Loss per share | (0.13) | (0.17) | (0.33) | (0.20) | | Diluted Loss per share | (0.13) | (0.17) | (0.34) | (0.20) | - Revenues increased by $2.6 million for the three months ended June 30, 2025, but decreased by $0.4 million for the six months ended June 30, 2025, compared to the prior year periods[13] - A significant loss on extinguishment of debt of $835,324 was recorded for both the three and six months ended June 30, 2025, contributing to the increased net loss[13] Condensed Consolidated Statements of Cash Flows Cash flows from operating activities shifted from a net inflow in 2024 to a net outflow in 2025, while financing activities provided less cash in 2025 compared to 2024, leading to a smaller net increase in cash and cash equivalents Condensed Consolidated Statements of Cash Flows Summary | Cash Flow Activity | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | (197,522) | 661,239 | | Net cash used in investing activities | (1,088) | (1,136,510) | | Net cash provided by financing activities | 692,128 | 2,761,515 | | Net increase in cash and cash equivalents and restricted cash | 493,518 | 2,286,244 | - Operating activities used $197,522 cash in H1 2025, a significant change from providing $661,239 in H1 2024, primarily due to an increased net loss and changes in working capital[16][169] - Financing activities provided $692,128 in H1 2025, down from $2,761,515 in H1 2024, mainly due to lower proceeds from related party loans and equity line of credit, despite new convertible and nonconvertible notes[16][171][178] Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $11,645,391 at December 31, 2024, to $7,902,411 at June 30, 2025, primarily due to net losses incurred during the period Consolidated Statements of Changes in Stockholders' Equity Summary | Metric | December 31, 2024 ($) | June 30, 2025 ($) | | :--------------------------- | :---------------- | :-------------- | | Total Stockholders' Equity | 11,645,391 | 7,902,411 | | Net loss for Q1 2025 | N/A | (2,329,062) | | Net loss for Q2 2025 | N/A | (1,413,918) | - The accumulated deficit increased from $(146,214,429) at December 31, 2024, to $(149,957,409) at June 30, 2025, reflecting the net losses[21] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed disclosures on the company's accounting policies, revenue recognition, goodwill and intangible assets, debt instruments, related party transactions, segment performance, leases, and recent accounting pronouncements, offering crucial context to the condensed financial statements NOTE 1 – GENERAL Dolphin Entertainment, Inc. is a leading independent entertainment marketing and production company, operating through various subsidiaries providing strategic marketing, publicity, and content production services. The financial statements are prepared in accordance with U.S. GAAP for interim reporting, and management's estimates are crucial for fair value and impairment assessments - The Company operates through subsidiaries like 42West, The Door, Shore Fire, The Digital Dept., Special Projects, Always Alpha, and Elle, offering services in motion picture, television, music, gaming, culinary, hospitality, and lifestyle industries[23][24] - New accounting standard ASU 2023-09 (Income Taxes) will require additional disclosures for income tax rate reconciliation and disaggregation of taxes paid, effective for fiscal year ending December 31, 2025[28] - ASU 2024-03 (Disaggregation of Income Statement Expenses) will require disaggregated disclosure of specific expense categories, effective for annual periods beginning after December 15, 2026[29] NOTE 2 – REVENUE Revenue is primarily generated from the Entertainment Publicity and Marketing (EPM) segment, which saw significant growth, while the Content Production (CPD) segment experienced a decrease due to the prior year's Blue Angels film revenue Revenue by Segment | Segment | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Entertainment publicity and marketing | 14,087,529 | 11,449,089 | 26,165,207 | 23,263,840 | | Content production | — | — | 92,033 | 3,421,141 | | Total Revenues | 14,087,529 | 11,449,089 | 26,257,240 | 26,684,981 | - EPM segment revenue increased by $2.6 million (22.9%) for the three months and $2.9 million (12.5%) for the six months ended June 30, 2025, driven by acquisitions (Elle) and organic growth (The Digital Dept., Special Projects, The Door)[35][149] - CPD segment revenue decreased by $3.3 million for the six months ended June 30, 2025, primarily due to the prior year's revenue from The Blue Angels documentary film[35][150] NOTE 3 – GOODWILL AND INTANGIBLE ASSETS The company's goodwill remained stable at $21.5 million, all related to the EPM segment, with no impairment triggers identified in H1 2025. Finite-lived intangible assets, primarily customer relationships and trademarks, decreased due to amortization - Goodwill balance was $21,507,944 as of June 30, 2025, unchanged from December 31, 2024, and is entirely allocated to the EPM segment[39] - No goodwill impairment was recorded for the six months ended June 30, 2025, compared to $190,565 impairment in H1 2024 related to the closure of Viewpoint subsidiary[40][155] Intangible Assets Net Carrying Amount | Intangible Asset Category | June 30, 2025 (Net Carrying Amount) ($) | December 31, 2024 (Net Carrying Amount) ($) | | :------------------------ | :---------------------------------- | :-------------------------------------- | | Customer relationships | 7,472,293 | 8,355,778 | | Trademarks and trade names | 1,568,248 | 1,833,248 | | Total Intangible Assets | 9,040,541 | 10,189,026 | NOTE 4 – OTHER CURRENT LIABILITIES Other current liabilities increased to $12.0 million at June 30, 2025, from $11.1 million at December 31, 2024, driven by higher accumulated customer deposits and other liabilities, partially offset by decreases in accrued commissions and professional fees Other Current Liabilities Summary | Category | June 30, 2025 ($) | December 31, 2024 ($) | | :--------------------------------------- | :-------------- | :------------------ | | Accrued funding under Max Steel production agreement | 620,000 | 620,000 | | Accrued audit, legal and other professional fees | 154,501 | 369,347 | | Accrued commissions | 836,361 | 1,285,751 | | Accrued bonuses | 1,084,380 | 1,207,829 | | Talent liability | 5,778,347 | 5,595,816 | | Accumulated customer deposits | 2,187,174 | 937,766 | | Other | 1,387,285 | 1,087,527 | | Total Other current liabilities | 12,048,048 | 11,104,036 | - An additional $416,171 acquisition cost related to the Special Projects working capital adjustment was recorded in H1 2025, with a balance of $277,447 remaining in other current liabilities[44] NOTE 5 – DEBT Total debt increased to $24.4 million at June 30, 2025, from $22.4 million at December 31, 2024, driven by new convertible and non-convertible notes, including a significant convertible note from a related party, partially offset by term loan repayments Debt Summary | Debt Type | June 30, 2025 ($) | December 31, 2024 ($) | | :------------------------------------ | :-------------- | :------------------ | | Convertible notes payable | 7,000,000 | 5,100,000 | | Convertible note payable - fair value option | 250,000 | 320,000 | | Non-convertible promissory notes | 4,430,000 | 3,880,000 | | Non-convertible promissory notes – Socialyte | 3,000,000 | 3,000,000 | | Convertible note payable – related party | 3,078,197 | — | | Loans from related party | 983,112 | 3,225,985 | | Revolving line of credit | — | 400,000 | | First BKU Term loan | 4,033,725 | 4,565,048 | | Second BKU Term loan | 1,695,946 | 2,000,000 | | Total debt | 24,382,633 | 22,394,274 | - The company issued fourteen new convertible notes payable totaling $1.9 million in H1 2025, with conversion prices tied to market prices or fixed rates, and maturity dates ranging from 2026 to 2030[46][47] - Interest expense for debt increased by $0.04 million (three months) and $0.1 million (six months) YoY, primarily due to new convertible and nonconvertible notes and the Second BKU Term Loan[162] NOTE 6 – LOANS FROM RELATED PARTY The company exchanged nonconvertible promissory notes from its CEO's entity (DE LLC) for convertible notes, resulting in a $0.8 million loss on extinguishment of debt. Additionally, notes from the CEO's brother (Mock Notes) remain outstanding - On May 12, 2025, the company exchanged $2,242,873 in nonconvertible notes from DE LLC (CEO's entity) for convertible notes (DE New Notes) with extended maturities and a conversion price of $1.00 per share[69] - This exchange resulted in an $835,324 loss on extinguishment of debt, recorded in the condensed consolidated statement of operations for H1 2025[69] - The company has $983,112 in Mock Notes (from CEO's brother) outstanding, bearing 10% interest, with no principal or interest payments made in H1 2025[72][73] NOTE 7 – FAIR VALUE MEASUREMENTS The company uses Level 3 inputs for fair value measurements of convertible notes and contingent consideration, with a gain recognized on the fair value change of a specific convertible note. The fair value of a warrant was nominal Fair Value Measurements | Financial Instrument | Level in Fair Value Hierarchy | June 30, 2025 (Fair Value) ($) | December 31, 2024 (Fair Value) ($) | | :------------------------------------ | :---------------------------- | :--------------------------- | :----------------------------- | | Convertible notes payable | 3 | 6,632,000 | 5,065,000 | | Convertible notes payable, related party | 3 | 3,246,259 | — | | Convertible note payable at fair value | 3 | 250,000 | 320,000 | | Contingent consideration | 3 | — | 486,000 | - A gain of $70,000 was recorded for the six months ended June 30, 2025, from the change in fair value of the convertible note for which the fair value option was elected[53][158] - The fair value of convertible notes is computed using a Monte Carlo Simulation, with assumptions including stock price, minimum conversion price, annual asset volatility, and risk-free discount rate[80] NOTE 8 – STOCKHOLDERS' EQUITY The company did not sell common stock under the 2022 Lincoln Park Purchase Agreement in H1 2025, but issued shares in H1 2024. Shareholder approval was obtained to decrease the voting rights of Series C Convertible Preferred Stock, and shares were issued for a Special Projects working capital adjustment in 2024 - No shares were sold under the LP 2022 Purchase Agreement during the three and six months ended June 30, 2025[84] - Shareholders approved an amendment on January 21, 2025, to decrease the conversion votes per share of Series C Convertible Preferred Stock from ten to three votes per share[86] - In May 2024, 357,289 shares of common stock were issued for a Special Projects working capital adjustment, increasing the purchase price and goodwill[87] NOTE 9 – LOSS PER SHARE Basic and diluted loss per share increased for the six months ended June 30, 2025, compared to the prior year, with potentially dilutive instruments excluded from diluted EPS calculation due to their antidilutive effect Loss Per Share Data | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic loss per share | (0.13) | (0.17) | (0.33) | (0.20) | | Diluted loss per share | (0.13) | (0.17) | (0.34) | (0.20) | | Basic weighted average shares outstanding | 11,168,572 | 9,723,155 | 11,166,596 | 9,481,034 | | Diluted weighted average shares outstanding | 11,232,511 | 9,787,094 | 11,230,535 | 9,544,973 | - Potentially dilutive instruments, including convertible notes and warrants, were excluded from diluted EPS calculations for both periods as their inclusion would have been antidilutive due to the net loss[90][91] NOTE 10 — RELATED PARTY TRANSACTIONS The company has significant accrued compensation and interest owed to its CEO, totaling $2.6 million in compensation and $1.6 million in accrued interest as of June 30, 2025. A consulting agreement was also entered with a director - Accrued compensation to the CEO totaled $2,625,000 as of June 30, 2025, along with $1,633,976 in accrued interest, both payable on demand[92][93] - Interest expense related to CEO's accrued compensation was $130,171 for the six months ended June 30, 2025, with no cash payments made[94] - A one-year consulting agreement was signed with director Hilarie Bass for $100,000, providing commercial litigation advice[95] NOTE 11 — SEGMENT INFORMATION The Entertainment Publicity and Marketing (EPM) segment showed adjusted income from operations, while the Content Production (CPD) segment reported an adjusted loss, reflecting the company's primary focus on marketing services Adjusted Income (Loss) from Operations by Segment | Segment | Six Months Ended June 30, 2025 (Adjusted Income (Loss) from Operations) ($) | Six Months Ended June 30, 2024 (Adjusted Income (Loss) from Operations) ($) | | :-------------------------------- | :------------------------------------------------------ | :------------------------------------------------------ | | Entertainment Publicity and Marketing | 1,540,030 | 1,127,241 | | Content Production | (1,593,877) | (495,825) | | Total Adjusted Income (Loss) from Operations | (53,847) | 631,416 | - EPM segment revenue increased to $26.2 million in H1 2025 from $23.3 million in H1 2024, while CPD segment revenue significantly decreased to $92,033 from $3.4 million[102][106] - All goodwill and intangible assets are assigned to the EPM segment, totaling $21.5 million and $9.0 million (net), respectively, as of June 30, 2025[106] NOTE 12 — LEASES The company holds both operating and finance leases for office space, with total operating lease liabilities of $4.2 million and finance lease liabilities of $0.15 million as of June 30, 2025. Cash payments for operating leases decreased in H1 2025 Lease Liabilities | Lease Type | June 30, 2025 (Total Lease Liability) ($) | December 31, 2024 (Total Lease Liability) ($) | | :---------------- | :------------------------------------ | :---------------------------------------- | | Operating Leases | 4,169,310 | 5,086,614 | | Finance Leases | 150,222 | 139,091 | - Cash payments for operating leases were $1,129,444 for the six months ended June 30, 2025, a decrease from $1,333,342 in the prior year[114] - The weighted average remaining lease term for operating leases is 3.96 years, and for finance leases is 1.83 years, as of June 30, 2025[115] NOTE 13 — COLLABORATIVE ARRANGEMENT The company co-produced and co-financed 'The Blue Angels' documentary with IMAX, which was distributed by Amazon. Revenue from this agreement was recognized in 2024 upon film delivery - The company co-produced and co-financed 'The Blue Angels' documentary with IMAX, contributing $2,250,000 to production costs[116] - Net revenues of $3,421,141 were recorded in H1 2024 from the Amazon Agreement for distribution rights of 'The Blue Angels' upon film delivery[34][118] NOTE 14— COMMITMENTS AND CONTINGENCIES The company is involved in a lawsuit against the Socialyte seller and its principals for alleged breach of contract, fraud, and negligence, with a trial scheduled for February 2026. No estimate of potential loss can be made at this early stage - A complaint was filed on June 21, 2024, against NSL Ventures (Socialyte seller) and its principals for alleged breach of the Socialyte Purchase Agreement, fraud, and negligence[119] - NSL Ventures filed a cross-complaint for breach of contract, and the trial is scheduled for February 2026[119] - Due to the early stage of litigation, an estimate of any possible loss or range of loss cannot be made[119] NOTE 15— SUBSEQUENT EVENTS Subsequent to June 30, 2025, the company entered into a new $15 million equity purchase agreement with Lincoln Park Capital Fund, LLC, issued additional convertible notes, and is assessing the impact of the recently signed One Big Beautiful Bill Act (OBBBA) on its financial statements - On August 12, 2025, the company entered into a new $15,000,000 equity purchase agreement with Lincoln Park Capital Fund, LLC, allowing the sale of common stock over a 36-month term[120] - The company issued 244,698 shares of Common Stock to Lincoln Park as an initial commitment fee for the new purchase agreement[125] - The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, and the company is currently assessing its impact on consolidated financial statements[129][130] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance and condition, highlighting revenue trends, expense drivers, and liquidity. It details the performance of the Entertainment Publicity and Marketing (EPM) and Content Production (CPD) segments, explains changes in key financial metrics, and discusses debt and financing arrangements Overview Dolphin Entertainment, Inc. is a leading independent entertainment marketing and production company, pursuing an acquisition strategy for complementary businesses and an investment strategy ('Ventures' or 'Dolphin 2.0') to develop or acquire ownership stakes in entertainment content, live events, and consumer products - The company operates through subsidiaries like 42West, The Door, Shore Fire, The Digital Dept., Special Projects, Always Alpha, and Elle, providing strategic marketing and publicity services[132] - An acquisition strategy focuses on complementary entertainment publicity and marketing services and content production businesses to create synergistic opportunities[133] - The 'Ventures' investment strategy aims to develop or acquire ownership stakes in entertainment content, live events, and consumer products, leveraging existing marketing expertise[134] HOW WE ASSESS THE PERFORMANCE OF OUR BUSINESS The company assesses performance using key financial indicators such as revenues, direct costs, payroll and benefits, selling, general and administrative expenses, legal and professional expenses, other income/expense, and net income, across its two reportable segments: Entertainment Publicity and Marketing (EPM) and Content Production (CPD) - Key performance indicators include revenues, direct costs, payroll and benefits, selling, general and administrative expenses, legal and professional expenses, other income/expense (mainly interest and fair value changes), and net income[136] - The company operates in two reportable segments: Entertainment Publicity and Marketing (EPM) and Content Production (CPD)[137] Entertainment Publicity and Marketing ("EPM") The EPM segment generates revenue from diverse marketing services, including celebrity talent services, entertainment marketing and brand strategy, strategic communications, digital media influencer campaigns, and celebrity booking for live events, with fees collected through fixed monthly retainers, percentage-based contracts, or project-based fees - Revenue is driven by client retention, spending levels, and new client acquisition, with a stable client base and organic growth through referrals[138] - Key revenue sources include talent services, entertainment marketing and brand strategy, strategic communications, digital media influencer marketing campaigns, and celebrity booking and live event programming[139] Content Production ("CPD") The CPD segment focuses on project development for digital, television, or motion picture productions, seeking third-party financing for future projects. The segment recognized significant revenue in 2024 from 'The Blue Angels' documentary and is partnering on a 'Youngblood' movie reboot expected in September 2025 - The CPD team identifies scripts, story treatments, and novels for acquisition, development, and production, with future projects contingent on obtaining financing[140][141] - The Blue Angels documentary, co-produced with IMAX, generated $3,421,141 in revenue from the Amazon Agreement during the six months ended June 30, 2024[142] - Dolphin Films partnered with Aircraft Productions in February 2025 to produce a reboot of the movie 'Youngblood,' expected to be completed by September 2025[143] Revenues For the three months ended June 30, 2025, all revenues were derived from the EPM segment. For the six months ended June 30, 2025, EPM accounted for 99.6% of total revenue, while CPD contributed 0.4%, a significant shift from 2024 when CPD had a 13.1% share due to the Blue Angels film Revenue Contribution by Segment | Segment | Q2 2025 (%) | Q2 2024 (%) | H1 2025 (%) | H1 2024 (%) | | :-------------------------- | :------ | :------ | :------ | :------ | | Entertainment publicity and marketing | 100 | 100 | 99.6 | 86.9 | | Content production | — | — | 0.4 | 13.1 | | Total revenue | 100 | 100 | 100 | 100 | - The majority of revenues for both periods were from the entertainment publicity and marketing segment[144] - Content production revenue in H1 2025 was minimal ($92,033) compared to H1 2024 ($3,421,141) due to the prior year's Blue Angels film distribution[144] Expenses Expenses include direct costs, payroll and benefits, selling, general and administrative, acquisition costs, impairment of goodwill, depreciation and amortization, and legal and professional fees, with direct costs and payroll showing notable changes year-over-year - Direct costs increased by $0.5 million in Q2 2025 due to Digital Dept. showrooms but decreased by $1.4 million in H1 2025 due to the absence of Blue Angels film amortization[151] - Payroll and benefits expenses increased by $1.1 million in Q2 2025 and $1.8 million in H1 2025, primarily due to the inclusion of Elle and Always Alpha payroll expenses[152] - Acquisition costs of $0.4 million were recorded in H1 2025 for a Special Projects working capital adjustment, with no such costs in prior periods[154] Other (Expense) Income Other expense (income) primarily consists of changes in fair value of convertible notes, interest income, and interest expense. A significant loss on extinguishment of debt was recorded in H1 2025 - Other expense (income) includes changes in fair value of convertible notes, interest income, and interest expense[147] - A loss on extinguishment of debt was recorded for the three and six months ended June 30, 2025[147] RESULTS OF OPERATIONS The company experienced increased revenues in its EPM segment but a significant decline in CPD revenue due to the prior year's Blue Angels film. Total expenses increased, driven by payroll and acquisition costs, while a substantial loss on debt extinguishment contributed to a higher net loss for the six months ended June 30, 2025 Revenues Entertainment publicity and marketing revenues increased by $2.6 million for the three months and $2.9 million for the six months ended June 30, 2025, primarily due to the inclusion of Elle and growth in The Digital Dept. and Special Projects. Content production revenues decreased significantly due to the prior year's Blue Angels film distribution Revenues by Segment | Segment | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Entertainment publicity and marketing | 14,087,529 | 11,449,089 | 26,165,207 | 23,263,840 | | Content production | — | — | 92,033 | 3,421,141 | | Total revenue | 14,087,529 | 11,449,089 | 26,257,240 | 26,684,981 | - EPM revenue increase for the three months was driven by Elle ($0.9M), The Digital Dept. ($0.8M), Special Projects ($0.6M), and The Door ($0.3M)[149] - CPD revenue decreased by approximately $3.3 million for the six months ended June 30, 2025, due to the Amazon Agreement for The Blue Angels film being recognized in 2024[150] Expenses Total expenses increased for the three months ended June 30, 2025, but slightly for the six months, primarily due to higher payroll and benefits from acquisitions (Elle, Always Alpha) and acquisition costs related to Special Projects. Direct costs decreased for the six-month period due to the absence of film amortization Expenses by Category | Expense Category | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Direct costs | 742,171 | 216,247 | 1,086,585 | 2,535,474 | | Payroll and benefits | 10,302,292 | 9,195,018 | 20,606,985 | 18,769,269 | | Selling, general and administrative | 1,922,336 | 1,864,852 | 3,694,319 | 3,841,843 | | Acquisition cost | — | — | 416,171 | — | | Impairment of goodwill | — | 190,565 | — | 190,565 | - Payroll and benefits increased by $1.1 million (Q2) and $1.8 million (H1) YoY, mainly due to Elle and Always Alpha payroll expenses[152] - Selling, general and administrative expenses decreased by $0.15 million for the six months ended June 30, 2025, primarily due to a decrease in office rent expense from lease expirations[153] Other Expense (Income), net Total other expenses increased significantly for both the three and six months ended June 30, 2025, primarily due to an $0.8 million loss on extinguishment of debt from the exchange of related party notes, coupled with higher interest expense Other (Expense) Income, Net | Other (expense) income, net | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Change in fair value of convertible notes | 50,000 | 40,000 | 70,000 | 65,000 | | Loss on extinguishment of debt | (835,324) | — | (835,324) | — | | Interest expense | (561,222) | (522,184) | (1,121,310) | (1,025,821) | | Total other (expenses) income, net | (1,335,341) | (481,453) | (1,869,355) | (949,221) | - A $0.8 million loss on extinguishment of debt was recorded in H1 2025 due to the exchange of nonconvertible notes from the CEO for convertible notes[160] - Interest expense increased by $0.04 million (Q2) and $0.1 million (H1) YoY, driven by new convertible and nonconvertible notes and the Second BKU Term Loan[162] Income Taxes Income tax expense remained relatively stable, reflecting the accrual of a valuation allowance due to limitations on using indefinite-lived tax assets to offset indefinite-lived tax liabilities Income Tax Expense | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax expense | (21,523) | (23,540) | (43,045) | (47,079) | - The income tax expense reflects the accrual of a valuation allowance due to limitations on offsetting indefinite-lived tax assets against indefinite-lived tax liabilities[164] Net Loss The net loss for the three months ended June 30, 2025, was $1.4 million, an improvement from $1.62 million in the prior year. However, the net loss for the six months ended June 30, 2025, significantly increased to $3.7 million from $1.95 million in the prior year, primarily due to the factors discussed above, including the loss on extinguishment of debt Net Loss and Loss Per Share | Metric | Three Months Ended June 30, 2025 ($) | Three Months Ended June 30, 2024 ($) | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | (1,413,918) | (1,624,458) | (3,742,980) | (1,951,226) | | Basic loss per share | (0.13) | (0.17) | (0.33) | (0.20) | | Diluted loss per share | (0.13) | (0.17) | (0.34) | (0.20) | - The increase in net loss for the six months ended June 30, 2025, was primarily driven by the loss on extinguishment of debt and higher interest expenses[166] LIQUIDITY AND CAPITAL RESOURCES The company's liquidity saw a shift from cash provided by operating activities in 2024 to cash used in 2025, with financing activities providing less cash. Total debt increased, and the company entered into a new equity line of credit agreement with Lincoln Park Capital Fund, LLC, post-period end Cash Flows Cash used in operating activities for the six months ended June 30, 2025, was $0.2 million, a significant change from $0.7 million provided in the prior year. Financing activities provided $0.7 million, down from $2.8 million in 2024, leading to a smaller net increase in cash Cash Flow Summary | Cash Flow Activity | Six Months Ended June 30, 2025 ($) | Six Months Ended June 30, 2024 ($) | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | (197,522) | 661,239 | | Net cash used in investing activities | (1,088) | (1,136,510) | | Net cash provided by financing activities | 692,128 | 2,761,515 | | Net increase in cash and cash equivalents and restricted cash | 493,518 | 2,286,244 | - The increase in cash used in operating activities was primarily due to a $2.1 million increase in net loss, partially offset by a $2.5 million net change in working capital[169] - Financing activities in H1 2025 included $1.9 million from convertible notes and $0.6 million from nonconvertible notes, offset by $0.8 million in term loan repayments and $0.5 million for contingent consideration[171] Debt and Financing Arrangements Total debt increased to $23.5 million at June 30, 2025, driven by new convertible and nonconvertible notes, including related party debt. The company entered into a new $15 million equity purchase agreement with Lincoln Park post-period end to support working capital and general corporate purposes - Total debt increased by $1.1 million to $23.5 million as of June 30, 2025, primarily due to an increase in convertible and nonconvertible promissory notes[173] - The company expects its current cash, operational cash generation, and available funds to meet its $5.6 million debt obligations in the next twelve months[174] - Subsequent to June 30, 2025, the company entered into a new $15,000,000 equity purchase agreement with Lincoln Park Capital Fund, LLC, allowing for the sale of common stock over 36 months for working capital and general corporate purposes[120][128] Critical Accounting Estimates The most critical accounting estimates involve fair value assessments for acquisitions, goodwill, intangible assets, acquisition-related contingent consideration, and convertible debt, as these require significant judgment and can materially impact financial statements - Critical accounting estimates include fair value estimates for acquisitions, goodwill, intangible assets, acquisition-related contingent consideration, and convertible debt[209] - These estimates are considered critical due to their reliance on assumptions about uncertain future events and their potential material impact on consolidated financial statements[208][209] Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, refer to Note 1 to the unaudited condensed consolidated financial statements - Refer to Note 1 for details on recent accounting pronouncements, including ASU 2023-09 (Income Taxes) and ASU 2024-03 (Disaggregation of Income Statement Expenses)[210] SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This section contains forward-looking statements based on current plans and expectations, which are subject to risks and uncertainties. Readers are cautioned not to place undue reliance on these statements and to refer to 'Risk Factors' in the Annual Report on Form 10-K for potential material differences in actual results - Forward-looking statements are based on assumptions and assessments of historical trends, current conditions, and future developments[213] - These statements are not guarantees of future performance and are subject to risks and uncertainties, many outside the company's control[213] - Readers should refer to the 'Risk Factors' section in the Annual Report on Form 10-K for factors that could cause actual results to differ materially[214] ITEM 4. CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to un-remediated material weaknesses identified in the prior annual report. Remediation efforts are underway, with no material changes in internal control over financial reporting during the quarter Management's Report on the Effectiveness of Disclosure Controls and Procedures The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were not effective as of June 30, 2025, due to material weaknesses previously disclosed in the Annual Report on Form 10-K that have not yet been remediated - Disclosure controls and procedures were deemed not effective as of June 30, 2025[216] - This conclusion is based on un-remediated material weaknesses disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[216] Remediation of Material Weaknesses in Internal Control over Financial Reporting The company has initiated remediation efforts to improve internal control over financial reporting, including developing formal policies for fraud risk assessment, enhancing management review, engaging third-party consultants for complex transactions, and strengthening period-end closing procedures and independent review of journal entries - Remediation efforts include developing formal policies for fraud risk assessment and risk management[219] - The company is enhancing management review precision, engaging third-party consultants for complex transactions, and improving period-end closing procedures[219] - Policies and procedures are being implemented to enhance independent review and documentation of journal entries, including segregation of duties[219] Changes in Internal Control over Financial Reporting There were no changes in the company's internal control over financial reporting during the most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[218] PART II — OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and exhibits ITEM 1. LEGAL PROCEEDINGS The company is engaged in a lawsuit against NSL Ventures, the Socialyte seller, and its principals, alleging breach of contract, fraud, and negligence, with a trial scheduled for February 2026. A cross-complaint has also been filed against the company - The company filed a complaint on June 21, 2024, against NSL Ventures and its principals for alleged breach of the Socialyte Purchase Agreement, fraud, and negligence[221] - NSL Ventures filed a cross-complaint against the company for breach of contract[221] - Trial for the litigation is scheduled for February 2026, and an estimate of any possible loss cannot be made at this time[221] ITEM 1A. RISK FACTORS As a 'smaller reporting company,' the registrant is not required to provide a detailed discussion of risk factors in this quarterly report - The company is a 'smaller reporting company' and is not required to disclose risk factors in this Form 10-Q[222] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[222] ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities to report for the period - No defaults upon senior securities to report[223] ITEM 4. MINE SAFETY DISCLOSURES There were no mine safety disclosures to report for the period - No mine safety disclosures to report[224] ITEM 5. OTHER INFORMATION This section details subsequent events, including a new $15 million equity purchase agreement with Lincoln Park Capital Fund, LLC, and the issuance of additional convertible promissory notes to investors, along with the related registration rights and terms Item 1.01 Entry into a Material Definitive Agreement On August 12, 2025, the company entered into a new $15 million equity purchase agreement with Lincoln Park Capital Fund, LLC, allowing the company to sell common stock over a 36-month term, with specific purchase terms and volume limitations. An initial commitment fee of 244,698 shares was issued to Lincoln Park - The company entered into a 2025 LP Purchase Agreement with Lincoln Park Capital Fund, LLC, to sell up to $15,000,000 of common stock over 36 months[226] - Regular Purchases allow the company to sell up to 20,000 shares daily (or more at higher stock prices), with a maximum commitment of $500,000 per purchase, at 97% of the lesser of the lowest sale price or the average of the three lowest closing prices[227] - An initial fee of 244,698 shares of Common Stock was issued to Lincoln Park for its commitment[231] Item 3.02 Unregistered Sales of Equity Securities. Between May 30, 2025, and July 28, 2025, the company issued five convertible promissory notes totaling $660,000 to investors, bearing 10% interest and convertible into common stock at various fixed conversion prices, in reliance on the Section 4(a)(2) exemption from registration - Five convertible promissory notes, totaling $660,000, were issued to investors between May 30, 2025, and July 28, 2025[239] - These notes bear 10% interest per annum and are convertible into common stock at conversion prices ranging from $1.06 to $1.28 per share[239] - The issuance was made in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act[241] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including articles of incorporation, bylaws, various agreements (e.g., Lincoln Park Purchase Agreement, Bass Consulting Agreement), and certifications - Exhibits include organizational documents (Amended and Restated Articles of Incorporation, Bylaws), material agreements (Lincoln Park Registration Rights Agreement, Bass Consulting Agreement, Dolphin Entertainment LLC Note Exchange Agreement, Lincoln Park Purchase Agreement), and certifications (CEO/CFO Sarbanes-Oxley Act certifications)[243] SIGNATURES The report is signed by William O'Dowd IV, Chief Executive Officer, and Mirta A Negrini, Chief Financial Officer, on behalf of Dolphin Entertainment, Inc., as of August 14, 2025 - The report was signed by William O'Dowd IV, Chief Executive Officer, and Mirta A Negrini, Chief Financial Officer, on August 14, 2025[247][249]