Dolphin Entertainment(DLPN) - 2021 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and equity, with detailed notes for the three months ended March 31, 2021 Condensed Consolidated Financial Statements Q1 2021 saw increased revenues to $7.18 million but a net loss of $5.27 million due to non-cash expenses, with total assets at $49.16 million Condensed Consolidated Balance Sheet Highlights (unaudited) | Account | March 31, 2021 (USD) | December 31, 2020 (USD) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $7,111,717 | $7,923,280 | | Total current assets | $12,857,192 | $13,896,367 | | Goodwill | $20,098,451 | $19,627,856 | | Total Assets | $49,164,090 | $49,351,951 | | Liabilities & Equity | | | | Total current liabilities | $16,886,441 | $16,852,510 | | Total Liabilities | $28,677,269 | $29,683,154 | | Total Stockholders' Equity | $20,486,821 | $19,668,797 | Condensed Consolidated Statement of Operations (unaudited) | Metric | Three months ended March 31, 2021 (USD) | Three months ended March 31, 2020 (USD) | | :--- | :--- | :--- | | Total revenues | $7,177,117 | $6,633,800 | | Loss from operations | ($1,194,940) | ($870,859) | | Total other (expense) income, net | ($4,115,896) | $2,944,706 | | Net (loss) income | ($5,271,985) | $2,073,847 | | (Loss) earnings per share - Basic | ($0.73) | $0.40 | | (Loss) earnings per share - Diluted | ($0.73) | $0.05 | Condensed Consolidated Statement of Cash Flows (unaudited) | Cash Flow Activity | Three months ended March 31, 2021 (USD) | Three months ended March 31, 2020 (USD) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($52,036) | ($351,666) | | Net Cash Used in Investing Activities | ($525,856) | ($260,532) | | Net Cash (Used in) Provided by Financing Activities | ($233,671) | $296,693 | | Net Decrease in Cash | ($811,563) | ($315,505) | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, COVID-19 impact, acquisitions, and a going concern warning due to recurring losses and working capital deficit - The company's financial statements raise substantial doubt about its ability to continue as a going concern due to recurring losses, a net loss of $5.3 million for the quarter, and an accumulated deficit of $103.2 million as of March 31, 2021[44] - On January 8, 2021, the company acquired B/HI Communications, Inc., an entertainment public relations agency, for total consideration of $0.8 million in common stock plus potential earn-outs, adding $470,595 to goodwill[52][49] Debt Composition as of March 31, 2021 | Debt Type | Amount (USD) | | :--- | :--- | | Convertible notes payable | $150,000 | | Convertible notes payable - fair value option | $1,298,740 | | Nonconvertible notes payable | $1,250,656 | | Term loan | $800,260 | | Payroll Protection Program loans | $3,099,869 | | Total debt | $6,599,525 | - The company recorded significant non-cash losses from changes in fair value for various financial instruments in Q1 2021, including a $2.56 million loss on warrants, an $871,449 loss on convertible notes, a $365,000 loss on contingent consideration, and a $71,106 loss on put rights[15] - All revenue for Q1 2021 and Q1 2020 was generated by the Entertainment Publicity and Marketing segment, with the Content Production segment reporting no revenue in either period[140][145] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2021 performance, highlighting revenue growth from acquisitions, a significant net loss due to non-cash charges, and ongoing going concern doubts Results of Operations Q1 2021 revenues increased to $7.2 million due to acquisitions, but a $5.3 million net loss resulted from higher operating expenses and significant non-cash fair value losses - Revenue from entertainment publicity and marketing increased by approximately $0.5 million year-over-year, primarily due to the revenues of the recently acquired Be Social and B/HI[198] - Payroll expenses increased by approximately $0.3 million year-over-year, reflecting the inclusion of Be Social and B/HI payroll costs, partially offset by personnel reductions in other subsidiaries due to COVID-19[206] - The significant increase in net loss was primarily driven by non-cash charges, including a $2.56 million loss on the change in fair value of warrants and an $871,449 loss on the change in fair value of convertible notes[207][211][209] Liquidity and Capital Resources The company faces substantial doubt about its going concern ability due to a $4.0 million working capital deficit and $103.2 million accumulated deficit, relying on external capital - The company's financial condition, including a working capital deficit of $4.0 million and an accumulated deficit of $103.2 million, raises substantial doubt about its ability to continue as a going concern[222] - The company received approximately $2.8 million in Paycheck Protection Program (PPP) loans, which it expects will be forgiven[223] - As of March 31, 2021, all put rights related to the 42West acquisition had been exercised, with a remaining liability of $1,054,235[228] - The company believes it is out of compliance with certain debt covenants for its Term Loan as of March 31, 2021, classifying the entire $800,260 balance as a current liability[231] Controls and Procedures Management concluded disclosure controls and procedures were ineffective due to material weaknesses, with remediation plans underway including external accounting firm assistance - Management concluded that disclosure controls and procedures were not effective as of March 31, 2021, due to material weaknesses disclosed in the 2020 Form 10-K[249] - Remediation plans are in progress, including a review of the COSO framework, enhancing segregation of duties, and documenting procedures for complex transactions[250][251] - During the quarter, the company hired an accounting firm to assist in the review of accounting for complex transactions as part of its remediation efforts[252] PART II — OTHER INFORMATION Risk Factors No material changes to previously disclosed risk factors were reported in the current period - There have been no material changes to the risk factors disclosed in the company's 2020 Annual Report on Form 10-K[255] Unregistered Sales of Equity Securities and Use of Proceeds The company issued a $150,000 convertible promissory note and repurchased 22,867 common shares during the quarter - On March 30, 2021, the company issued a convertible promissory note for $150,000 with a 10% annual interest rate, maturing in two years[256] Company Purchases of Equity Securities (Q1 2021) | Period | Total Number of Shares Purchased | Average Price Paid Per Share (USD) | | :--- | :--- | :--- | | Jan 2021 | — | $ — | | Feb 2021 | — | $ — | | Mar 2021 | 22,867 | $46.10 | | Total | 22,867 | $46.10 | Other Information Post-quarter events include CEO and CFO salary increases and a director's resignation from the Board - Effective January 1, 2021, the annual base salary for the CEO was increased to $400,000 and for the CFO to $300,000[259] - On May 16, 2021, Leslee Dart resigned from the Board of Directors but will continue as an employee, with the resignation not due to any disagreements with the company[260] Exhibits This section lists exhibits filed, including CEO and CFO certifications and XBRL documents - The report includes required certifications from the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act of 2002[261]