Dolphin Entertainment(DLPN) - 2021 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's analysis for Dolphin Entertainment, Inc FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and equity, along with detailed notes Condensed Consolidated Balance Sheets The balance sheets show the company's financial position, highlighting assets, liabilities, and equity as of September 30, 2021, and December 31, 2020 Consolidated Balance Sheet Highlights (Unaudited) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $19,951,080 | $13,896,367 | | Cash and cash equivalents | $12,652,902 | $7,923,280 | | Goodwill | $20,015,800 | $19,627,856 | | Total Assets | $54,133,675 | $49,351,951 | | Total Current Liabilities | $15,416,314 | $16,852,512 | | Total Liabilities | $30,601,506 | $29,683,154 | | Total Stockholders' Equity | $23,532,169 | $19,668,797 | - The company's financial position strengthened, with total assets growing to $54.13 million and stockholders' equity increasing to $23.53 million. The increase in assets was primarily driven by a rise in cash and cash equivalents[10][14] Condensed Consolidated Statements of Operations The statements of operations detail the company's revenues, expenses, and net income or loss for the three and nine months ended September 30, 2021 and 2020 Statement of Operations Summary (Unaudited, in USD) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $9,399,432 | $5,527,943 | $25,219,793 | $17,356,468 | | Income (Loss) from Operations | $38,289 | ($493,185) | ($1,100,358) | ($1,543,083) | | Net Income (Loss) | $141,651 | ($137,630) | ($3,780,392) | ($1,007,384) | | Diluted EPS | $0.02 | ($0.04) | ($0.50) | ($0.45) | - Revenues for the third quarter of 2021 increased by 70% year-over-year, leading to a net income of $141,651 compared to a net loss in the prior-year period. However, for the nine-month period, the net loss widened, primarily due to non-cash expenses related to changes in fair value of financial instruments[17] Condensed Consolidated Statements of Cash Flows The statements of cash flows summarize the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 Cash Flow Summary for Nine Months Ended Sep 30 (Unaudited, in USD) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $519,960 | ($607,707) | | Net cash used in investing activities | ($525,856) | ($1,060,524) | | Net cash provided by financing activities | $4,563,305 | $8,685,121 | | Net increase in cash | $4,557,409 | $7,016,890 | - The company generated positive cash flow from operations of $0.52 million for the first nine months of 2021, a significant improvement from the $0.61 million used in the same period of 2020. Financing activities were a major source of cash, primarily from the issuance of $5.95 million in convertible notes[19] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations of the accounting policies, significant transactions, and financial items presented in the consolidated financial statements - The company's recurring losses and accumulated deficit of $101.8 million as of September 30, 2021, raise substantial doubt about its ability to continue as a going concern. Management plans to raise additional capital to fund operations[53][56] - On January 1, 2021, the company acquired B/HI Communications, an entertainment public relations agency, for consideration including stock and potential earn-outs[63][64] - During 2021, the company received forgiveness for approximately $2.8 million in Paycheck Protection Program (PPP) loans, which was recorded as a gain on extinguishment of debt. The remaining $0.3 million loan was forgiven subsequent to the quarter end[33][89][144] - All company revenue for the reported periods was generated by the Entertainment Publicity and Marketing segment. The Content Production segment generated no revenue and incurred operating losses[130][134] MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial performance, liquidity, and capital resources, highlighting revenue growth, non-cash charges, and going concern considerations - Revenue growth was primarily attributed to the acquisitions of Be Social and B/HI, alongside increased spending from existing clients as COVID-19 related restrictions eased[177] - The increase in net loss for the nine-month period was largely driven by non-cash charges, including a $2.4 million loss on the change in fair value of exercised warrants and a $0.8 million loss on the change in fair value of convertible notes[186][187][195] - The company's liquidity is supported by cash on hand and funds raised through financing activities, including the issuance of $5.95 million in convertible notes in 2021. Management continues to seek additional funding to support operations[204][208][213] - Management believes the company is out of compliance with certain debt covenants for its Term Loan with Bank United, N.A. as of September 30, 2021, and has consequently classified the entire loan balance as a current liability[212] CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were ineffective due to material weaknesses, with remediation efforts underway - Disclosure controls and procedures were determined to be ineffective due to ongoing material weaknesses[231] - A new material weakness was identified during the quarter concerning the processes and controls over valuation models used for measuring the fair value of certain financial instruments[231] - The company is implementing remediation measures, including reviewing the COSO framework, enhancing segregation of duties, and utilizing a third-party consulting firm to assist with complex accounting transactions[232][234] PART II — OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, defaults, and other required disclosures LEGAL PROCEEDINGS The company reports no material pending legal proceedings that would significantly impact its financial condition or operations - As of the report date, the Company is not aware of any material pending legal proceedings[238] RISK FACTORS No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - No material changes have been made to the risk factors disclosed in the 2020 Form 10-K[239] UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company issued $2.9 million in convertible promissory notes through unregistered private placements during the third quarter of 2021 - Between July and September 2021, the Company issued $2.9 million in convertible promissory notes in unregistered transactions, relying on the exemption provided by Section 4(a)2 of the Securities Act[240][241] DEFAULTS UPON SENIOR SECURITIES The company reports no defaults upon its senior securities - None reported[242] MINE SAFETY DISCLOSURES This item is not applicable to the company's operations - None reported[243] OTHER INFORMATION The company reports no other information required to be disclosed in this section - None reported[244] EXHIBITS This section lists the exhibits filed with the Form 10-Q, including required certifications and XBRL data files - The report includes standard exhibits such as CEO/CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act and Inline XBRL documents[245]