Business Context and Reporting Period
Company: Dolphin Digital Media, Inc. (formerly Dolphin Entertainment, Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: August 14, 2013
Reporting Period: The filing addresses errors in previously issued financial statements covering the years ended December 31, 2008 through 2011, and quarterly periods from June 30, 2008 through June 30, 2012.
Key Financial Metrics
This filing does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures. Instead, it declares that all previously reported financial metrics for the periods listed above are unreliable due to material errors.
Material Changes and Restatement
The Company has determined that its previously issued audited and unaudited financial statements contain material errors and should no longer be relied upon. The primary cause of the error is the failure to properly account for anti-dilution protection granted to William O'Dowd under a June 23, 2008 Stock and Purchase Agreement.
- Error Description: The Company failed to record the anti-dilution provision as a derivative liability measured at fair value.
- Accounting Impact: Changes in the fair value of this liability should have been recorded through earnings in the initial and subsequent reporting periods.
- Scope: The error impacts Annual Reports (Form 10-K) for 2008–2011 and Quarterly Reports (Form 10-Q) from Q2 2008 through Q2 2012.
Management Commentary, Risks, and Outlook
Management Action: Management and the Board of Directors have concluded the financial statements are erroneous. The Company is currently assessing the format for restating these statements.
Auditor Involvement: The matter has been discussed with the independent registered public accounting firm, Crowe Horwath, LLP, and the predecessor auditor, RBSM LLP.
Internal Controls: Management will reassess and modify disclosures regarding the effectiveness of internal controls over financial reporting in future filings (Form 10-K/A and 10-Q/A).
Risks: The filing highlights a significant risk regarding the accuracy of historical financial data and the effectiveness of the Company's internal financial reporting controls.
Investor Verification Checklist
- Verify the timeline and format of the upcoming restated financial statements.
- Review the magnitude of the fair value adjustments required for the derivative liability.
- Monitor future filings (10-K/A and 10-Q/A) for updated disclosures on internal control deficiencies.
- Confirm the status of the audit relationship with Crowe Horwath, LLP.