Greetings, ladies and gentlemen, and welcome to the Dolphin Entertainment First Quarter 2022 Earnings Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Carbonara. Sir, the floor is yours.

Thank you. And once again, welcome to Dolphin’s first quarter 2022 earnings call. With me on the call are Bill O’Dowd, Chief Executive Officer; and Mirta Negrini, Chief Financial Officer. I’d like to begin the call by reading the safe harbor statement. This statement is made pursuant to the safe harbor statement for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. All statements made on this call, with the exception of historical facts, may be considered forward-looking statements within Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that expectations and assumptions reflected in these forward-looking statements are reasonable, it makes no assurances that such expectations will prove to have been correct. Actual results may differ materially from those expressed or implied in the forward-looking statements due to various risks and uncertainties. For a discussion of such risk factors and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed in the Company’s annual report on Form 10-K contained in subsequent filed reports on Form 10-Q as well as in other reports that the Company files from time to time with the Securities and Exchange Commission. Any forward-looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events or circumstances. Now, I’d like to turn the call over to Bill O’Dowd, Chief Executive Officer of Dolphin Entertainment. Bill, please proceed.

Thanks, James, and hello everyone. Good afternoon and thank you for being here today. We will begin with a review of financial and operational highlights, followed by a comprehensive financial review, and then we will open the floor for questions. To start with the financials, Q1 revenue was $9.2 million, marking a 28% year-over-year increase. This growth is purely organic, resulting from the cross-selling of services among our entertainment marketing companies. We believe this strong start sets Dolphin up to surpass $40 million in annual revenue for 2022. In line with that, we anticipate a higher EBITDA profit this year compared to last year. For Q1, although our operating loss was $963,709, this includes noncash items from depreciation and amortization totaling $407,238, as well as nearly $440,000 in one-time investments related to our NFT business, which is now fully operational. Additionally, this Q1 operating figure also incorporates roughly $400,000 of one-time professional fee expenses primarily related to our annual audit and the Dolphin 2.0 initiatives. Despite these noncash and one-time costs, Q1 shows an improvement of over $600,000 from Q1 2021, which also had noncash items from depreciation and amortization of $482,712 and adjustments to fair value of contingent consideration of $365,000. Now, moving to the balance sheet, I want to highlight this aspect as it is crucial to today's discussion and something we were unable to address during our previous call post-10-K. The improvement of our balance sheet deserves special attention. During our acquisition strategy for building the Super Group, our debt peaked at over $16 million. It has now decreased significantly to a record low of below $6 million—precisely $5.7 million. This reduction is quite substantial. Moreover, most of our debt is long-term, and importantly, the $5.7 million of remaining debt is considerably less than our cash reserves of $9.6 million. However, that's only part of the story. All puts and all but one of the earn-out contingent considerations have been settled from our six acquisitions, and our shareholders' equity stands at just under $25 million. This complete transformation of our balance sheet has removed the ongoing concern disclosure from our financial statements, which we believe differentiates us in the marketplace. In summary, we have reached a significant milestone; there are no ongoing concerns, we have more cash than debt, which is the lowest it has been since we listed on NASDAQ in 2017, and most of our remaining debt is long-term. All puts have been paid, and all but one earn-out has also been settled. Essentially, we have completed our payments for the Super Group and are now positioned to focus on generating profits and diversifying our investments. Continuing with our financial update, in June, we announced a transition to Grant Thornton LLP as our auditor. Grant Thornton has notable experience in the entertainment industry and provides professional services to 65% of Fortune 1000 companies in media and entertainment, including half of the major studios. As Dolphin continues to grow, we believe Grant Thornton is aligned with our direction and equipped to ensure timely filing of reports. Now let’s move on to operational updates regarding our Super Group, which is driving these strong results. We'll begin with Shore Fire Media, our leading music PR agency, which has had a remarkable start to 2022, launching Q1 with the red carpet at the Bud Light Super Bowl Music Fest featuring artists like Green Day, Miley Cyrus, and others. Shore Fire also recently announced the initial dates and locations for Bruce Springsteen’s 2023 World Tour. Next, Be Social, our influencer marketing division, has kicked off the year with various brand campaigns for companies like Canva, EyeBuyDirect, and LightStim, along with managing talent campaigns for prominent brands such as Prada and Revlon. Turning to Viewpoint, our creative agency has completed marketing videos and brand work for a diverse clientele in Q1, including NBC Sports Peacock and PayPal. Additionally, 42West and The Door were once again recognized in the Observer’s annual list of the 50 Most Powerful Firms in the country, with 42West securing the number two spot. As we further our Dolphin 1.0 initiative, it perfectly transitions to Dolphin 2.0. We want both Dolphin and its shareholders to have equity in projects and share in the success facilitated by our top marketing companies. In December 2021, we acquired an equity stake in Crafthouse Cocktails, a ready-to-drink beverage brand, and in May, we announced a multi-year agreement with IMAX for documentary features. As a reminder, we categorize our business initiatives into Dolphin 1.0, which excels at marketing pop culture, and Dolphin 2.0, which leverages pop culture to market owned assets. We aim for 5% to 10% equity stakes in third-party companies while also developing our own assets in areas like content and consumer products. Regarding our recent initiatives, we are excited about Midnight Theatre, an anchor venue in Manhattan West that combines a theater and a restaurant. This venue is expected to enhance our marketing capabilities and create predictable revenue models. We have invested $1 million for a 12.5% stake in this venture. In NFTs, we launched our Web3 marketing agency, We Come In Peace, which has already attracted numerous clients. A notable partnership includes working with chefs Tom Colicchio and Spike Mendelsohn to develop an NFT collection that sold out quickly. Lastly, we're thrilled about our agreement with IMAX, launching the documentary feature Blue Angels in collaboration with J.J. Abrams' Bad Robot Productions. This film will capture the stories and thrill of the famous Navy flight squadron using advanced IMAX technology. In summary, we are satisfied with our first five Dolphin 2.0 initiatives and are proud of our financial position, which we see as a key differentiator going forward. As we continuously evolve since our uplisting to NASDAQ in 2017, we are excited for what lies ahead. Thank you for joining us, and I will now hand over the call to Mirta Negrini, our Chief Financial Officer.

Thank you, Bill, and good afternoon, everyone. I will now discuss the results for the quarter ended March 31, 2022. Revenues for the quarter were approximately $9.2 million compared to $7.2 million for the quarter ended March 31, 2021. Overall operating expenses for the quarter ended March 31, 2022, were approximately $10.1 million, up from about $8.7 million in the same period last year. Operating expenses include direct costs, payroll and benefits, selling, general and administrative costs, changes in the fair value of contingent consideration, depreciation and amortization, and legal and professional fees. Direct costs for the quarter ended March 31, 2022, were roughly $1.1 million compared to $829,000 in the same period last year, mainly due to expenses from our NFT business. Payroll and benefit costs for the quarter ended March 31, 2022, were about $7 million compared to $5.2 million in the same period last year, primarily driven by increased headcount in 2022 to support our business growth. Selling, general and administrative expenses for the quarter were around $1.5 million, unchanged from the same period last year. Legal and professional fees were approximately $938,000 for the quarter ended March 31, 2022, compared to $344,000 for the quarter ended March 31, 2021. The increase was mainly due to roughly $400,000 in one-time nonrecurring legal and professional fees related to the Q3 2021 restatement, fee overruns from the 2021 audit, and some Dolphin 2.0 initiatives. The operating loss for the quarter ended March 31, 2022, was $963,709, which includes noncash items from depreciation and amortization of $407,238 and a gain in the change of the fair value of contingent consideration of $763,900. This compares to an operating loss of $1.6 million for the quarter ended March 31, 2021, which included noncash items from depreciation and amortization of $482,712 and a loss related to changes in the fair value of contingent consideration of $365,000. The net loss for the quarter ended March 31, 2022, was $792,481, which included noncash items from depreciation and amortization of $407,238, a gain in the change of the fair value of contingent consideration of $763,900, and $347,858 from changes in the fair value of a convertible promissory note and warrants. This compares to a net loss of $5.3 million for the quarter ended March 31, 2021, which included $4.4 million in noncash items from depreciation and amortization of $482,712 and negative changes in the fair value of derivative liabilities, convertible notes payable, warrants, put rights, and contingent consideration totaling $3.9 million. For the quarter ended March 31, 2022, the basic loss per share was $0.09 based on 8,713,700 weighted average shares, and the fully diluted loss per share was $0.13 based on 8,846,567 weighted average shares, compared to a basic and diluted loss per share of $0.73, both based on 7,267,297 weighted average shares for the quarter ended March 31, 2021. Cash and cash equivalents as of March 31, 2022, were $9.6 million compared to $7.7 million as of March 31, 2021. That concludes my financial remarks. I will now ask the operator to open the phone line for Q&A. Operator, would you please poll for questions?

Absolutely. Thank you. The first question is coming from Allen Klee with Maxim Group.

Can you provide an idea of how much of your revenue in that single segment comes from public relations and marketing for 2.0 type projects?

Sure. In the first quarter of this year, we generated very little revenue, likely less than $100,000. The growth we experienced year-over-year, between 7.2% and 9.2%, was entirely due to organic cross-selling among our companies. This supports the thesis we established in 2017, as we had no acquisitions to contribute to this growth. It's simply the same company improving its ability to cross-sell and expanding the number of companies available for cross-selling. This is what contributed to the quarter-over-quarter growth in 2021, and as evidenced by the year-over-year growth, we have now gone 15 consecutive months without an acquisition.

Thank you. I thought I heard you mention around $400,000, and I understand that there are approximately $400,000 of one-time expenses primarily related to auditing and accounting. But I also thought I heard you refer to something like $400,000 in one-time expenses related to NFTs. Did I interpret that correctly? If so, why should those also be considered one-time expenses? Could you clarify that?

We created a marketplace to sell NFTs directly to consumers, utilizing both our own collections and those we will partner with clients on. This marketplace was completed in the first quarter, leading to an expense of around $440,000. We chose not to capitalize this cost, which will impact our profit and loss statement for the first quarter, but we do not anticipate similar expenses in the upcoming quarters.

Okay. Great. So that’s…

We had a number that wasn’t dissimilar, I don’t remember the exact number, but in Q4 of last year as well, because we started building at the very end of Q3 last year, I think, and it carried Q4 and Q1.

That’s very helpful. Thank you. Could you provide an update on the NFTs that have launched and how they’ve performed?

Sure. Our major launches are set to begin in the upcoming weeks, following a series of smaller releases to this point. We recently highlighted Chfty, a project developed by The Door, which has a strong background with celebrity chefs and was created for culinary enthusiasts, featuring live virtual cook-alongs as a key benefit. The mint was relatively small, totaling just over $0.5 million, but it sold out in a few days, earning The Door a commission. We've been utilizing late Q1 and Q2 to test various marketing strategies and enhance our teams. NFTs require a different approach to marketing compared to other products, necessitating around-the-clock management of communities on platforms like Discord and Twitter. We believe the ability to sell directly, along with access to other marketplaces, will give us an advantage, although we are not aiming for exclusivity. We'll assess whether this strategy holds true when we begin launching larger collections this summer. The Bella Hadid collection and Creature Chronicles with Anthony are anticipated to be larger collections, each expecting seven-figure total sales. Our goal is to execute this well and provide benefits that go beyond the NFTs themselves, as we believe this adds unique value to our collections. We'll see if our approach proves successful.

Got it. When do you think you’ll see revenues from 2.0? Will this be in the second quarter, or will it really be in the third quarter?

I believe it will begin in the third quarter. We will not incur the expenses I mentioned earlier from the first and second quarters, and we will generate revenue in the third quarter since the restaurant at Midnight Theatre is now open. However, the venue will truly become impactful once we open the theater, which will occur in the third quarter. The first full quarter with the theater and restaurant operating 5 to 7 days a week will be the fourth quarter, but operations will already have started in September. As for NFTs, I indicated that the first significant collection will likely launch before our next discussion for the second quarter. Therefore, I would anticipate revenue from version 2.0 in the third quarter.

Okay, great. Can you tell me where the additional costs for the NFTs related to building the marketplace were reflected and which cost segment they appeared in?

It’s in direct costs.

That answers a lot. Okay. Because I was wondering what affected gross margin. So, I’m guessing that that had the impact.

Yes. $440,000 of direct costs in Q1, no revenue. So now, we’ll start recouping in Q3.

Great. When does the last contingent earn-out get finished?

Yes, it's Be Social, and it will be completed by December 31st. They will reach it, and it's up to $800,000, consisting of both cash and stock. Once that payment is made next spring, all six companies will be fully settled.

Okay, great. So, in terms of outlook for the year, I think I heard you say you would expect adjusted EBITDA to be higher in ‘22 versus ‘21? Is there any other commentary that you can provide from what you can tell at this point for ‘22?

No, I feel confident about achieving the revenue target of over $40 million, which represents nice continued growth. I believe we will see growth year-over-year and quarter-over-quarter, and that's encouraging. We’re optimistic about Q2 and look forward to sharing those results in four weeks. Q3 is starting off well, and we feel positive about both quarters. This year marks the beginning of partial revenues from Dolphin 2.0 and will also be the last year we see only partial revenues. By 2023, we expect to have a full year of Midnight Theatre operations, a scheduled launch for our NFT business, and the content business, including the IMAX announcement, which is primarily a Q2 event. Since we are discussing this on July 18th, I wanted to mention it. This event signifies a return to the kind of work I did for 20 years before taking Dolphin public. That film is set to release in 2023. Additionally, we feel fortunate to have a Blue Angels documentary in production following the summer release of Top Gun. While I’d love to say that this was all part of a master plan, we certainly knew about the documentary and Top Gun’s release. The success of Top Gun has been a wonderful surprise for everyone involved. In 2023, we will have three significant 2.0 initiatives, each allowing us to take larger ownership stakes, all generating revenue effectively.

Got it. Just going back to the NFT business, we know that trading volumes have dropped a lot, like if we look at open seas and stuff. Does that change your view at all of kind of the outlook for the segment?

I believe this experience sharpens our focus on our enthusiasm for NFTs. For those, including you, Allen, who have heard us discuss NFTs for a year, the core idea is to enable NFT consumers to utilize their tokens for more than just holding them. The access to events, benefits, and virtual interactions with celebrities or experts gives us a competitive edge, distinguishing our NFTs from standard profile picture collections. While we recognize the NFT market's decline in May and June, we haven't witnessed significant marketing efforts that promote NFTs as tickets or gateways to fan clubs. Perhaps we should consider rebranding our NFTs to differentiate them from others in the market. Sports teams are likely to sell tickets exclusively as NFTs for easier tracking and community access. This includes private clubs and restaurants where members purchase NFTs for access and can transfer them among themselves. These are the real-world benefits we're focusing on. For instance, if you want to attend an NBA game or join a private venue, purchasing an NFT or a blockchain ticket plays into our vision of building vibrant communities in areas where we already have a strong presence. We're eager to launch this initiative this summer and have more planned for fall, which is very exciting for us. In some situations, once we establish our marketing strategy, we may collaborate with partners. We could also develop new projects from scratch, similar to how Hollywood works, whether by starting with a book or script or by partnering with someone who has a promising project. We're particularly enthusiastic about exploring how certain existing communities can benefit from events, both virtual and live, tailored for them. This is a key focus for us as we head into Q3 and Q4.

Thank you. I have a question regarding the accounting calculations. Please let me know if I'm mistaken. If I add your operating income to depreciation and amortization, I seem to arrive at a loss of about $556,000 or $557,000. However, if I include the change in the fair value of the contingent earn-out, seeing it more as part of the acquisition cost, along with the one-time legal costs, I believe I exceed $600,000 in a positive figure. This also does not account for the additional $400,000 spent on building the marketplace. Does that calculation seem correct?

No. I think the contingent consideration would shift in the opposite direction. However, to your point, the EBITDA loss would decrease significantly if you went through those four steps. We are very confident in achieving substantial EBITDA growth this year compared to last year. So, yes.

When you say growth, you imply positive EBITDA?

Yes, positive EBITDA, higher than last year’s positive EBITDA.

Great. Regarding The Door, I've been hearing a lot about the strength that hotels have been experiencing. I assume that business has been improving significantly.

Yes, we are seeing returning revenues and businesses. The Door’s restaurant business is beginning to recover and will keep growing in the upcoming quarters. While it may not have been evident in Q1, it is becoming clearer in Q2 and Q3. Similarly, the movie business is also bouncing back. We are fortunate to have our two films, Top Gun and Elvis, contributing to this resurgence. Additionally, 42West is performing well with how many Emmy nominations we are working on, which is an impressive number. Traditionally, the second half of the year tends to be stronger for most of our companies due to various factors, including increased influencer marketing around back-to-school and holiday seasons. 42West will have a strong presence at the Emmys in the third quarter, leading into the fourth quarter’s award season and the independent film season. Historically, our company experiences growth throughout the year, as it did last year, and we anticipate the same for this year. With a robust restaurant sector and a thriving movie and theater business, we are optimistic about what the second half of this year will bring.

Good. It sounds like there should be momentum each quarter, just the way to think about it, right?

I believe so. We are actively pursuing opportunities in 2.0, which will enhance our revenue when we achieve success. We're exercising patience with the NFT business as we aim to launch larger collections at the right time. We are hopeful that the opening of Midnight Theatre in September will significantly impact the fourth quarter.

Great. Okay. Well, that’s it for my questions. Thank you so much. Congratulations.

Thanks, Allen.

The next question is coming from Brad Stevenson with Breakout Investors. We’re obviously taking our swings in 2.0, and that will supercharge things with that revenue that comes in from success. So, we’re being very patient with the NFT business as we’re trying to time it and do it right with bigger collections. Hopefully, Midnight Theatre opening in September will make a significant impact in the fourth quarter as well.

Hey, Bill.

Hey, Brad.

I was wondering if there are any updates on the second drop for Flower Girls. I thought I remembered you mentioning a targeted timeframe around June for that.

Yes. I don’t remember about a drop. But I do remember, we were thinking we have a Flower Girls announcement in June. We did a Flower Girls event June 21st at NFT NYC, the big NFT convention in Manhattan, had a nice event at the Crosby Hotel that night. And that would have been the night that we would have made an announcement with Flower Girls, with the whole Flower Girls creative team there. For different reasons, I’m not at liberty to say now, we postponed that announcement. But we’re very bullish on Flower Girls and are working on a program with Flower Girls through the rest of this year. But I think it was a good time at that conference. There were a lot of people that felt good about the industry, but I don’t know if May and June was the right time to take a successful brand and put something else out there in the NFT space.

Okay. And then Creature Chronicles, I think you said 3 or 4 weeks, maybe on that one?

Yes. Yes. I think we feel good about that. We started the Twitter community and are happy with the progress there. And hopefully, in the next week or two, we’ll be opening up the Discord community, and then it usually goes in as these things are all right, goes for sale within a couple of weeks of that happening. So, that’s kind of the ballpark timing as you try and gauge, surf the wave the right way, right? Different type of marketing.

Okay. And then, talking about your quarter two report, you said you could actually talk about that in a few weeks. I think the deadline on that is August 15th. Do you have any reason to believe you’ll miss that deadline at this point?

No, I feel very good about having Q1 out now because as we switched to Grant Thornton, worked on a plan with them to get us current with Q2 and part of that plan was putting out Q1 today. So, feel good about that and expect to release Q2 on time.

Okay. Midnight Theatre, I don’t think you’ve talked about the timing of when you would actually execute on your additional 25% option? Can you share that, like when the timing of that might be?

It will be after it opens. We'll have the opportunity to effectively market the opening, and we expect to see a strong start. Based on our tracking so far, we feel confident about exercising those options. However, we don't need to make that decision until it's open and we've had a chance to review the results from the first few months. At this moment, we are quite optimistic about it.

Okay. I know this may be asking for guidance, and you might not be able to provide it. But can you provide an idea of when you think you would be able to fund future cash-positive initiatives through cash flow from operations? Are you thinking that will be this year, or will we need to wait until next year to reach that point?

I believe we could potentially achieve that at some point next year. It really depends on how large the investment is; if it's smaller, we might be able to do it even sooner. We’ve consistently aimed to reach EBITDA positive, which we accomplished in several quarters last year, and within three to four years of uplisting on NASDAQ, we plan to develop the Super Group to get to that stage. There will be a transitional period of two to three years as we make our initial 2.0 investments while our companies continue to grow. This will depend on whether we utilize additional capital for certain investments or if we can fund them through our cash flow. Our goal for 2024, as outlined in our multi-year plan, is to generate enough cash flow to finance these investments ourselves without requiring much additional capital. At that point, we believe we’ll have a self-sustaining cycle, where our 1.0 business grows, allowing us to acquire necessary skills through free cash flow, and also enabling our 2.0 investments to contribute additional cash flow. Currently, we are in a transitional phase where we do not need to raise capital to support our operations, although some 2.0 investments might still need funding for the next few quarters. However, we are getting closer to this goal.

I have two more. One, live events. I don’t think you mentioned anything about when we might expect a 2.0 live event.

Yes, thank you for bringing up live events because I don’t know if I explained that well with 2.0. We already have an example of an investment in a company, Crafthouse. We have a venue, though I'm uncertain of its category, but content would tie into that. Consumer products began with the NFT business, and content started with IMAX. The final aspect of 2.0 that we haven't started yet is live events. Now that we've made the content announcement in May, we are actively discussing live events because we feel the time is right to enter that business and seek partners who can help us excel in that area. We're observing a trend across our businesses, particularly with our music PR firm, Shore Fire, where many artists are back on the road, which wasn’t the case a year or six months ago. The Springsteen tour announcement is just one example, multiplied by many clients. The world seems ready for live events, and they are selling out. This situation offers us a significant advantage. We believe we have an edge in promoting and marketing these events daily, as well as having access to key performers across various fields, including music and culinary arts. We aim to share our strategy for live events by the end of the year, and it would be ideal if 2023 includes live events, so that all aspects of our 2.0 strategy can generate revenue in that fiscal year. We are working toward that goal and remain hopeful.

Okay. At this time, I’d like to turn the floor back to Bill O’Dowd for any closing remarks.

Thank you for the questions from both Brad and Allen, and thank you to everyone listening to the call. We are thrilled to be here today reporting our progress. We're also looking forward to reporting on Q2 and getting back on schedule. Each month and quarter brings us closer to our goals. The Super Group we aimed to establish has been created, and most of its components have been funded. Our balance sheet is in a much stronger position compared to one or two years ago, and we're approaching the launch of our advancements. We've made the necessary investments and expect those to begin yielding results in the second half of this year, starting this quarter. In 2023, we will have both our initial and enhanced offerings generating substantial revenue, with multiple new investments contributing. By 2024, we hope to be generating enough free cash flow to fund our future investments independently, whether through acquisitions or further enhancements. The team has worked diligently, and I am very proud of our new restaurant. If you find yourself in Manhattan, I encourage you to visit Midnight Theatre, which is an impressive venue that promises to be something special. Thanks to all our long-time supporters for believing in us to reach this stage. I look forward to providing an update in just a few weeks. Wishing everyone a great rest of your day and a happy Monday.

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.