Dolphin Entertainment(DLPN) - 2023 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements The company reported increased revenue but a significantly widened net loss due to impairment charges, with declining assets and equity Condensed Consolidated Balance Sheets Total assets decreased to $65.7 million due to goodwill impairment, while liabilities rose and equity significantly declined Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2023 ($) | Dec 31, 2022 ($) | | :--- | :--- | :--- | | Total Assets | $65,740,268 | $75,376,832 | | Cash and cash equivalents | $6,406,646 | $6,069,889 | | Goodwill | $22,796,683 | $29,314,083 | | Total Liabilities | $42,845,304 | $41,285,740 | | Total debt (Current + Noncurrent) | $19,234,619 | $13,737,981 | | Total Stockholders' Equity | $22,894,964 | $34,091,092 | Condensed Consolidated Statements of Operations Revenue increased to $31.1 million, but net loss significantly widened to $14.8 million due to impairment charges and higher expenses Statement of Operations Summary (Unaudited) | Metric | Nine Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2022 ($) | | :--- | :--- | :--- | | Revenues | $31,100,867 | $29,366,748 | | Total Expenses | $43,228,963 | $32,333,954 | | Impairment of goodwill | $6,517,400 | $0 | | Loss from operations | $(12,128,096) | $(2,967,206) | | Net loss | $(14,791,892) | $(2,850,863) | | Diluted loss per share | $(1.11) | $(0.37) | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $4.5 million, offset by $7.4 million from financing, resulting in a $2.9 million cash increase Cash Flow Summary (Unaudited) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2022 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,492,645) | $(3,634,388) | | Net cash used in investing activities | $(21,893) | $(3,172,544) | | Net cash provided by financing activities | $7,447,203 | $4,169,351 | | Net increase (decrease) in cash | $2,932,665 | $(2,637,581) | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, significant impairments, debt refinancing, and subsequent events including an acquisition and public offering - All revenue for the three and nine months ended September 30, 2023, was generated by the Entertainment Publicity and Marketing (EPM) segment, with no revenue from the Content Production (CPD) segment[37] - A goodwill impairment of $6,517,400 was recorded in Q2 2023 due to a sustained low market capitalization relative to book value, which was considered a triggering event[42][43] - An intangible asset impairment of $341,417 was recorded in Q3 2023 for the trademarks and trade names of Socialyte and Be Social, following their rebranding into "The Digital Dept."[45] - The company's investment in Crafthouse Cocktails was fully impaired by $1,169,587 during Q3 2023 after Crafthouse failed to secure a new funding round[58] - On September 29, 2023, the company refinanced its debt, entering into a new loan agreement with BankUnited for a $5.8 million term loan and a $750,000 revolving line of credit, which was used to repay the existing BankProv facility[83] - Subsequent to the quarter end, on October 31, 2023, the company raised gross proceeds of approximately $2.31 million through an underwritten public offering of 1.4 million shares at $1.65 per share[140] - On October 2, 2023, the company acquired Special Projects Media LLC for approximately $10.0 million, consisting of $5.0 million in cash and 2.5 million shares of common stock[141][142] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth from acquisitions, increased net loss due to impairments and payroll, and strategic investments in content and live events - The company operates in two segments: Entertainment Publicity and Marketing (EPM) and Content Production (CPD). The EPM segment includes subsidiaries like 42West, The Door, and the newly formed 'The Digital Department' (from Be Social and Socialyte)[145] - The 'Dolphin Ventures' investment strategy focuses on acquiring ownership stakes in assets where the company's marketing expertise can influence success, such as content, live events, and consumer products. Key investments include Midnight Theatre and 'The Blue Angels' documentary[144][146] Nine-Month Revenue Comparison (2023 vs 2022) | Segment | Nine Months Ended Sep 30, 2023 ($) | Nine Months Ended Sep 30, 2022 ($) | | :--- | :--- | :--- | | Entertainment publicity and marketing | $31,100,867 | $29,366,748 | | Content production | $0 | $0 | | Total revenue | $31,100,867 | $29,366,748 | - Payroll and benefits expenses for the nine months ended Sep 30, 2023, increased by $5.2 million compared to the prior year, primarily due to the inclusion of Socialyte payroll ($3.5 million) and other salary increases[161][166] - The company expects to generate income in its Content Production segment in early 2024 from the release of 'The Blue Angels' documentary, from which it estimates it will derive approximately $3.5 million[148][153] - Total debt increased to $19.2 million as of September 30, 2023, from $13.7 million at year-end 2022, an increase of $5.5 million[187] Controls and Procedures Management concluded disclosure controls and procedures were ineffective due to un-remediated material weaknesses, with remediation efforts underway - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were not effective as of September 30, 2023[232] - The ineffectiveness is due to material weaknesses disclosed in the Form 10-K for the year ended December 31, 2022, which have not been remediated[232] - Remediation efforts are underway, including developing formal policies, enhancing review precision, using a third-party consultant, improving closing procedures, and reevaluating monitoring activities[233][235] PART II — OTHER INFORMATION Legal Proceedings The company is not aware of any pending litigation expected to materially affect its financial position or operations - As of the report date, the company is not aware of any pending litigation[238] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes have occurred to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[239] [Unregistered Sales of Equity Securities and Use of Proceeds](index=54&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) No unregistered sales of equity securities or use of proceeds were reported for the period - None[240] Exhibits The report lists various exhibits filed with the SEC, including CEO/CFO certifications and Inline XBRL data files - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files[244]