Business Context and Reporting Period
Company: Dolphin Entertainment, Inc. (DLPN)
Filing Type: Form 8-K (Current Report)
Date of Report: April 8, 2021
Subject: Non-reliance on previously issued financial statements for the three and nine-month periods ended September 30, 2020, due to an accounting error regarding revenue recognition.
Key Financial Metrics and Impact
The filing addresses a restatement of prior period financial statements rather than reporting new operational results for the current period.
- Revenue Overstatement: $862,710 for both the three and nine-month periods ended September 30, 2020.
- Direct Costs Overstatement: $862,710 for both the three and nine-month periods ended September 30, 2020.
- Net Impact on Profitability: No change to loss from operations, net loss, or loss per share.
- Balance Sheet and Cash Flow: No impact on the consolidated balance sheet or consolidated statement of cash flows.
Material Changes and Accounting Error
The Audit Committee determined that the Company incorrectly concluded it was acting as a principal in certain Statements of Work (SOWs) under a Master Service Agreement. Upon review, it was determined the Company was acting as an agent. Consequently, third-party and out-of-pocket expenses were incorrectly recorded as revenue and direct costs. These amounts should have been treated as pass-through expenses and excluded from the financial statements.
Outlook, Risks, and Management Commentary
- Restatement Plan: Detailed financial information regarding the restatement will be included in the Annual Report on Form 10-K for the year ended December 31, 2020.
- Internal Controls: The Company expects to continue to report material weaknesses in its internal control over financial reporting as of December 31, 2020.
- Auditor Communication: Management and the Audit Committee have discussed these matters with the independent registered public accounting firm, BDO USA, LLP.
Investor Verification Checklist
- Verify the specific details of the restatement in the upcoming Form 10-K for the year ended December 31, 2020.
- Review the Company's disclosure regarding the material weaknesses in internal controls over financial reporting.
- Confirm that the error did not affect the Company's liquidity or solvency position, as the balance sheet and cash flows were unchanged.
- Monitor future filings for updates on the remediation of the identified internal control weaknesses.