Dolphin Entertainment(US:DLPN)2022-11-13 16:00PART I Financial Statements This section presents the unaudited condensed consolidated financial statements for Dolphin Entertainment, Inc. as of September 30, 2022, and for the three and nine-month periods then ended, including balance sheets, statements of operations, cash flows, changes in stockholders' equity, and accompanying notes Condensed Consolidated Balance Sheets As of September 30, 2022, total assets increased to $55.7 million from $52.8 million at year-end 2021, driven by increases in notes receivable and right-of-use assets, while total liabilities decreased to $26.7 million from $29.9 million, primarily due to a reduction in contingent consideration and convertible notes, leading to an increase in total stockholders' equity to $29.0 million from $22.9 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2022 ($) | Dec 31, 2021 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 4,452,562 | 7,688,743 | | Notes receivable | 4,323,153 | 1,510,137 | | Goodwill | 20,021,357 | 20,021,357 | | Total Assets | 55,725,468 | 52,791,451 | | Liabilities & Equity | | | | Total current liabilities | 15,502,876 | 14,953,271 | | Total Liabilities | 26,745,527 | 29,856,561 | | Total Stockholders' Equity | 28,979,941 | 22,934,890 | | Total Liabilities and Stockholders' Equity | 55,725,468 | 52,791,451 | Condensed Consolidated Statements of Operations For the third quarter of 2022, the company reported a net loss of $1.3 million, compared to a net income of $0.1 million in Q3 2021, while for the nine months ended September 30, 2022, the net loss was $1.5 million, an improvement from a net loss of $3.8 million in the same period of 2021, with revenue growth offset by increased operating expenses, particularly in payroll and benefits Key Operating Results (Unaudited) | Metric | Q3 2022 ($) | Q3 2021 ($) | Nine Months 2022 ($) | Nine Months 2021 ($) | | :--- | :--- | :--- | :--- | :--- | | Revenues | 9,899,013 | 9,399,432 | 29,366,748 | 25,219,793 | | Loss from operations | (1,133,767) | (1,071,711) | (1,608,534) | (2,433,265) | | Net (Loss) Income | (1,311,719) | 141,651 | (1,492,191) | (3,780,392) | | Basic (Loss) EPS | (0.14) | 0.02 | (0.16) | (0.50) | | Diluted (Loss) EPS | (0.14) | 0.02 | (0.23) | (0.50) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, net cash used in operating activities was $3.6 million, a significant shift from $0.5 million provided by operations in the prior year period, with net cash used in investing activities of $3.2 million primarily for notes receivable, and net cash provided by financing activities of $4.2 million largely from an equity line of credit, resulting in an overall decrease in cash and restricted cash by $2.6 million during the period Cash Flow Summary (Unaudited, Nine Months Ended Sep 30) | Activity | 2022 ($) | 2021 ($) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | (3,634,388) | 519,960 | | Net cash used in investing activities | (3,172,544) | (525,856) | | Net cash provided by financing activities | 4,169,351 | 4,563,305 | | Net (decrease) increase in cash | (2,637,581) | 4,557,409 | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide details on accounting policies and financial statement line items, highlighting revenue entirely from the Entertainment Publicity and Marketing segment, stable goodwill of $20.0 million, a decrease in total debt to $4.8 million, and significant financing through Lincoln Park equity agreements, with subsequent events including the acquisition of Socialyte, LLC for $13 million plus potential earn-outs and a co-production agreement with IMAX - All reported revenue for the three and nine months ended September 30, 2022, came from the Entertainment Publicity and Marketing (EPM) segment, with no revenue from the Content Production (CPD) segment49 - Goodwill remained unchanged at $20,021,357 as of September 30, 2022, with no impairment indicators identified during the period5455 - Total debt decreased from $6.2 million at year-end 2021 to $4.8 million as of September 30, 202270 - The company sold a total of 1,280,000 shares of common stock under its 2021 and 2022 Lincoln Park agreements during the nine months ended September 30, 2022, receiving total proceeds of approximately $5.05 million112118 - On June 24, 2022, the company entered into a co-production and co-financing agreement with IMAX for a documentary called "The Blue Angels," committing to fund 50% of the production budget, with $1.5 million paid towards this by September 30, 2022152 - Subsequent to the quarter end, on November 14, 2022, the company acquired Socialyte, LLC for $13 million, paid through a combination of cash, stock, and a promissory note, plus a potential $5 million earn-out158159 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's performance, highlighting revenue growth driven by the entertainment publicity and marketing segment, the "Dolphin 2.0" strategy focusing on acquiring ownership in content, live events, and consumer products with initial investments in NFTs, Midnight Theatre, and Crafthouse Cocktails, and detailing operational results where increased payroll and professional fees offset revenue gains, with liquidity supported by cash from operations and financing activities, including equity line agreements with Lincoln Park Overview and Strategy Dolphin operates as an entertainment marketing and content production company with two segments: Entertainment Publicity and Marketing (EPM) and Content Production (CPD), pursuing a "Dolphin 2.0" investment strategy to acquire ownership stakes in assets it can promote, including content, live events, and consumer products, with initial investments in an NFT collection, an ownership interest in the Midnight Theatre in Manhattan, and an interest in Crafthouse Cocktails - The company's "Dolphin 2.0" strategy is to invest in and own an interest in assets it markets, focusing on content, live events, and consumer products162164 - Key Dolphin 2.0 investments include the "Creature Chronicles" NFT collection which generated ~$435,000, an ownership stake in the Midnight Theatre, and an interest in Crafthouse Cocktails166167169 - The company entered into a co-production agreement with IMAX for the documentary feature "The Blue Angels"170182 Results of Operations Revenues increased by $0.5 million (5.3%) for Q3 2022 and $4.1 million (16.3%) for the nine months ended Sep 30, 2022, compared to the prior year periods, driven entirely by the Entertainment Publicity and Marketing segment, while total expenses also rose, led by a $4.2 million year-to-date increase in payroll and benefits due to higher headcount and stock compensation, and a significant swing in the fair value of contingent consideration from a $1.3 million loss in 2021 to a $1.4 million gain in 2022 contributed to a reduced net loss for the nine-month period Revenue Comparison (YoY) | Period | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months | 9,899,013 | 9,399,432 | +499,581 | +5.3% | | Nine Months | 29,366,748 | 25,219,793 | +4,146,955 | +16.4% | - Payroll and benefits expenses increased by $1.2 million for Q3 and $4.2 million for the nine-month period year-over-year, due to additional headcount and stock compensation194 - The change in fair value of contingent consideration shifted from a $1.3 million loss for the first nine months of 2021 to a $1.4 million gain in the same period of 2022193199 - Legal and professional fees increased by $1.0 million for the nine-month period year-over-year, primarily due to costs associated with the Lincoln Park agreement, financial restatements, and a change of auditors200 Liquidity and Capital Resources The company's liquidity is primarily managed through cash from operations and financing arrangements, with $3.6 million in cash used in operations for the nine months ended Sep 30, 2022, and $5.1 million in proceeds secured from its equity line of credit with Lincoln Park, while total debt was reduced by $1.4 million to $4.8 million during the first nine months of 2022, and subsequent to the quarter, the company issued $1.3 million in new convertible notes and took on a $3.0 million secured loan to partially finance the Socialyte acquisition - Cash used in operating activities was $3.6 million for the nine months ended Sep 30, 2022, compared to cash provided by operating activities of $0.5 million in the prior year period215216 - The company received $5.1 million in proceeds from its equity line of credit agreements with Lincoln Park during the first nine months of 2022219228235 - Total debt was reduced by 22.0% from $6.2 million at Dec 31, 2021, to $4.8 million at Sep 30, 2022224 - Subsequent to quarter-end, the company issued $1.3 million in convertible promissory notes and took on a $3.0 million five-year secured loan to finance the Socialyte acquisition240253 Controls and Procedures Management concluded that as of September 30, 2022, the company's disclosure controls and procedures were not effective due to previously disclosed material weaknesses in the 2021 Form 10-K that have not yet been fully remediated, with remediation efforts underway including developing formal policies, enhancing management review precision, using a third-party consultant for complex transactions, and reevaluating monitoring activities - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to previously identified material weaknesses264 - Remediation efforts are underway, including developing formal policies, enhancing management review, using a third-party consultant, and improving period-end closing procedures265 PART II — OTHER INFORMATION Legal Proceedings The company is not aware of any pending litigation that is expected to have a material effect on its financial position, results of operations, or cash flows - As of the report date, the Company is not aware of any pending litigation271 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - No material changes to risk factors from the Annual Report on Form 10-K for the year ended December 31, 2021 have been reported272 Other Information This section details the acquisition of Socialyte, LLC on November 14, 2022, for a total consideration of $13 million, consisting of $5 million in cash, 1,346,257 shares of common stock, and a $3 million promissory note, with a potential additional $5 million earn-out, where the cash portion was partially financed by a $3 million secured loan, and the shares issued to the seller were unregistered, relying on an exemption under the Securities Act - On November 14, 2022, the Company acquired 100% of the membership interests of Socialyte, LLC, a social media influencer marketing agency276 - The acquisition consideration was $13 million plus a potential $5 million earn-out, with payment including $5 million cash, 1,346,257 common shares, and a $3 million promissory note278 - The acquisition was partially financed with a $3 million, five-year secured term loan from Bank Prov278 Exhibits This section lists the exhibits filed with the quarterly report, including the Membership Interest Purchase Agreement for the Socialyte acquisition, CEO and CFO certifications, and Inline XBRL data files