Dolphin Digital Media, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. The filing registrant is Dolphin Digital Media, Inc. (now identified in the request as Dolphin Entertainment, Inc.). The company produced and distributed online digital programming and operated online kids clubs.
Financial performance
| Metric | Three months ended September 30, 2015 | Nine months ended September 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $2.425 million | $2.441 million | $0.517 million quarter; $1.568 million nine months |
| Net loss | $0.341 million | $2.448 million | $0.536 million quarter; $1.480 million nine months |
| Net loss attributable to Dolphin | $0.353 million | $2.463 million | $0.540 million quarter; $1.484 million nine months |
| Loss per share | $0.00 | $0.03 | $0.01 quarter; $0.02 nine months |
2015 revenue was almost entirely production and distribution revenue, principally from the web series South Beach-Fever; membership revenue was $45,000 for the quarter and $61,011 year to date. 2014 revenue included $500,000 and $1.5 million, respectively, from management and back-office services for a related party, an agreement that expired at year-end 2014 and was not renewed.
For the quarter, direct costs were $1.334 million and operating expenses were $2.503 million; loss before interest was $77,535 and interest expense was $263,784. For nine months, direct costs were $1.334 million, general and administrative expense $1.869 million, payroll $1.029 million, and interest expense $657,237. Revenue less direct costs was approximately 45% of revenue in both 2015 reporting periods; this is a simple calculation, not a company-reported margin.
Cash, liquidity, and debt
- At September 30, cash was $633,108, versus $198,470 at December 31, 2014. Receivables and other current assets were $1.380 million; total current assets were $2.013 million.
- Current liabilities were $14.345 million, resulting in a reported working-capital deficit of $12.332 million. Total assets were $3.075 million and total stockholders’ deficit was $11.271 million.
- Current obligations included $5.145 million under investor loan and security agreements, $3.979 million owed to the CEO, a $300,000 demand note, and $1.938 million in accrued compensation. The CEO’s unsecured loan bears 10% interest and is repayable on ten days’ notice.
- Nine-month operating cash use was $2.243 million, compared with $866,000 in 2014. Financing provided $2.678 million, including $2.550 million of CEO advances; ending cash increased by $435,000. Investing cash flow was zero.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing losses, a $41.024 million accumulated deficit, and insufficient working capital. It warned that failure to obtain funding within 12 months could force liquidation.
Changes, outlook, and risks
- The release of South Beach-Fever drove the sharp rise in quarterly revenue. The company recognized $2.380 million of production and distribution revenue and amortized $1.334 million of production costs. It reported approximately $2.9 million in advertising commitments, of which $1.9 million had been earned; the filing also notes limited cash receipts relative to revenue.
- Management expected additional revenue from digital productions in the fourth quarter of 2015 and anticipated receiving $1.4 million earned during the third quarter and a further $500,000 after year-end. It planned to finance future projects through CEO and investor loans and project-specific funding. These expectations are not guaranteed.
- After quarter-end, the CEO advanced an additional $247,500. On October 14, the company agreed to acquire related-party Dolphin Films, subject to shareholder approval, with closing expected in the first quarter of 2016. Consideration includes 2.3 million Series B and 1 million Series C convertible preferred shares. The filing describes Series B shares as convertible into 19 common shares each.
- Management said disclosure controls were not effective; previously identified material weaknesses had not been fully remediated. Planned remediation included stronger accounting reviews, documentation, and additional finance personnel.
- A Canadian litigation matter could result in a loss from zero to $325,000; no accrual was recorded because management considered a loss not probable. The company also reported $40,000 accrued for late information-return filing penalties.
- Other risks include uncertain commercial performance of web content, advertising-market and financing dependence, and the need for shareholder approval and other conditions to complete the merger. No quantified formal revenue or earnings guidance was provided.
Key facts for investors to verify
- Whether advertising and distribution receivables and stated commitments convert to cash on the expected schedule.
- Availability, terms, and repayment demands for CEO and third-party financing, and the company’s ability to meet near-term obligations.
- The status, approval, financing, related-party terms, and potential dilution associated with the Dolphin Films merger.
- Progress in remediating material weaknesses in internal controls and the status of the disclosed litigation and tax-related accruals.