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

Thank you. And once again, welcome to Dolphin’s second 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 hi everyone. Good afternoon. And thank you for joining us today. As always, we'll start with a review of some financial and operating highlights followed by a full financial review, and then we'll open it up for Q&A. So starting with the financials, Q2 revenue of $10.3 million represented a 19% increase year-over-year, six months 2022 revenue was $19.5 million, up 23% year-over-year. That's all organic revenue growth coming from our Dolphin 1.0 business of entertainment marketing. We continue to believe Dolphin is positioned to exceed $40 million in annual revenue for 2022 and to generate a larger EBITDA profit in 2022 versus last year. Turning to key profit metrics, operating income was $489,000. This includes non-cash items from depreciation and amortization of $416,000, as well as an impairment of the right-of-use asset in the amount of $100,000 related to the sublease of one of Dolphin's offices, offset by a gain from the change in fair value of contingent consideration of approximately $671,000, which nets out to an operating profit of approximately $334,000, while we continue to invest in Dolphin 2.0, which offers upside optionality. As great as positive operating income is, our balance sheet is also worthy of extra focus. At the apex of our acquisition strategy to build the Super Group, our debt reached a high of over $16 million and has now reached a record low of below $5.3 million. This is a dramatic reduction, and furthermore, the vast majority of our debt is long-term. Even so, the total remaining debt is less than our cash on hand, but that only tells part of the story. It's also extremely important to point out that all puts and all but one earn-out contingent consideration has been paid from all six of our acquisitions to date. This complete transformation of our balance sheet has allowed us to remove our financial statement disclosure ongoing concern, and we believe serves as a differentiating factor for us in the marketplace. Simply put, financially speaking, we have moved to the next milestone for Dolphin: no going concern, more cash on the books, and all remaining debt, which is the lowest amount it's been since we listed on NASDAQ in 2017 and almost all of the remaining debt is long-term. Basically, we finished paying for the Super Group and can now look to building profits and diversifying our investments. And as I mentioned on the last earnings call with Q1, at this point in our company's history and continuing with our financial update in June, we announced a change of auditor to Grant Thornton LLP. Grant Thornton is a firm with more entertainment industry experience, providing professional services to 65% of the Fortune 1000 companies in the media and entertainment space, including half of the major studios. Dolphin is growing, and we believe Grant Thornton best understands where we are heading and has the systems and procedures in place to ensure timely filing of Qs and Ks as we did today. We are now current in our financial reporting and look forward to staying that way. I'm excited to share some of those 2.0 updates, but first let's move to operational highlights on Dolphin 1.0, our Super Group of companies helping us to grow revenue on a double-digit basis profitably, which both enables and turbocharges our 2.0 investments. That success could result in exponential upside. We'll start with our entertainment PR Powerhouse 42West. During the second quarter, 42West helped longtime client Tom Cruise launch a sequel to his 1986 film Top Gun with more than $1.3 billion in global box office revenue so far. Top Gun: Maverick has already surpassed Titanic to become Paramount's biggest domestic movie of all time. Also, we have announced that 42West is hard at work on 97 Emmy Nomination campaigns, a truly staggering number. If 42West keeps your eyes popping, The Door, our leading culinary, hospitality, and lifestyle PR firm will have your mouth watering. During Q2, The Door worked on campaigns ranging from Pat LaFrieda’s Tomahawk and Gift Box, which includes a colossal 40 ounces, Prime Tomahawk rib steak, wow, alongside tender filet mignons and other grilling staples. As temperatures soared in the summer, The Door also rolled out a promotion for Häagen Dazs’ new City Sweets ice cream collection, preparing for fall. The Door also began promoting New York City's biggest wine and food festival, which will return October 13 through 16 and is celebrating its 15th anniversary with over 80 events, including a musical performance from Joseph Rev. Run Simmons from Run-DMC. Speaking of music, Shore Fire Media, Dolphin’s industry-leading music PR firm, itself had an eventful quarter as it was award season. And what a season Shore Fire had. I’d like to highlight each of our companies every so often on these earnings calls. And I think this call deserves a special shout out to Shore Fire; they just had a tremendous second quarter, really, truly tremendous in company history, I believe. Shore Fire musicians won seven Grammys plus a Lifetime Achievement Award for client Bonnie Raitt, whose brand new album also topped six Billboard charts. Chance the Rapper showcased new music at the BET Awards and Hot Gospel of Maverick City were among the top nominees of the Billboard Music Awards. Shore Fire also added Canada's top music award show, the Junos, to its roster. Shore Fire client, Steve Aoki, was named Adweek's Creator Visionary of the Year and not to be outdone, Shore Fire corporate clients, streaming platform Mandolin and Debate Series Intelligence Squared were also winners, named the number one most innovative music company by Fast Company and top podcast event by Adweek, respectively. Shore Fire placements also included client Chance the Rapper on The Late Show with Stephen Colbert, Mandy Moore, performing on The Today Show and The Tonight Show with Jimmy Fallon, Joel appearing as musical guest on Late Night with Seth Meyers, as well as Kesha appearing on Seth Meyers to promote her new show on Discovery Plus, and so much more. Shore Fire is doing exceptionally well; congrats to Marilyn and the team. Moving along to Dolphin’s influencer marketing group, Be Social kicked off the quarter with their Spring Showroom, working with brands from Lulu's and POM Wonderful, capped off with a spring trend report before heading off to Coachella to elevate clients. Also during the quarter, Be Social worked on projects that included Coco Chanel, a partnership with Barbie and Forever 21 paired with the hottest spring and summer styles with the timeless classic Michael Jordan's Air Jordan brand, produced by Nike. Turning now to Viewpoint, Dolphin’s respected creative agency and video production boutique, Viewpoint completed marketing videos and brand work for a wide range of clients in Q2, including A&E Networks, CBS, AAA, and PayPal. That concludes our update on Dolphin 1.0. Now turning to Dolphin 2.0, where Dolphin and its shareholders have equity in projects and participate in the upside that our best-in-class marketing companies regularly enable for our clients. As a reminder for anyone new on the call, we define the work of our Super Group under Dolphin 1.0 as the very best at marketing pop culture. We define what we call Dolphin 2.0 as using pop culture to market assets that we own. Broadly speaking, there are two types of Dolphin 2.0 initiatives: one is where we develop assets in the categories of content, consumer products, or live events, and the other is where we receive ownership stakes in other people’s companies that have assets in those categories. That's the core thesis behind Dolphin 2.0: taking ownership stakes and assets that we know how to market. More simply, we want to own some of the types of things that we know we can market better than anybody else. We have a couple of models for Dolphin 2.0, which include ownership stakes only and equity plus asset development. For ownership stakes, we typically look to receive somewhere between 5% and 10% of the equity in the respective company. In addition to the monthly cash fee, examples include Crafthouse Cocktails, a pioneering brand of ready-to-drink all-natural classic cocktails that is promoted by the Super Group and led by The Door to help market their award-winning product. During the quarter, promotional activity included brand activations with Wiz Khalifa, and Crafthouse also won global recognition in Q2 and is now available in London, England. Regarding the other types of Dolphin 2.0 initiatives, wherein we develop and own assets that we are eager to market, we do not receive a monthly cash fee since we would often only be paying it to ourselves. Thus, we take a larger ownership position in the product or venture. Examples of these types of Dolphin 2.0 investments would be Midnight Theatre and the NFT marketplace we have built. Let’s start with Midnight Theatre. It was actually the first week in July, just after Q2 ended, that Midnight Theatre’s restaurant, Hidden Leaf, opened. Hidden Leaf, as I mentioned on the last earnings call, is the newest restaurant concept from Brooklyn restaurateur Josh Cohen of Chez Ma Tante, Lilia, and Saint Vitus fame. It opened its doors at 75 Manhattan, WEST PLAZA. The beautiful standalone restaurant tucked inside our exciting new performance venue, Midnight Theatre, features a pan-Asian menu created by executive chef Chai Trivedi of Pranna, Tamarind, Buddakan, and Eventi Hotel fame. Internationally renowned bartender Ian Griffith, co-founder of the wildly acclaimed Dandelyan and White Lyan bars in London, is making their first permanent foray into the New York City drink scene with the opening of Hidden Leaf’s bar and its street-level companion, a high-energy aperitivo bar, Midnight Café. A few weeks later, Midnight Theatre also held the first of many anticipated private events prior to its official opening this September with the premiere of Kevin Durant’s basketball documentary, NYC Point Gods. NYC Point Gods profiles influential 80’s and 90’s NYC hoops legends that emerged from New York City, highlighting some of the most famous point guards in New York City history, including Rafer Alston, Kenny Anderson, Mark Jackson, Stephon Marbury, God Shammgod, Kenny the Jet Smith, Rod Strickland, and Dwayne Pearl Washington. We’re highly encouraged by the potential for private events at Midnight Theatre, and we’re excited to share more in coming quarters, especially as the theatre opens publicly this fall. As a reminder for modeling purposes, there are 100 seats in the restaurant and 160 seats in the theatre. Anyone can model out an average ticket price and the number of churns in the restaurant and do the same in the theatre with an assumption of a number of shows per week. This will quickly get you to a revenue model, and you can apply a reasonable profit margin standard in the industry. Dolphin is the largest single owner within Midnight Theatre, and we manage all aspects of publicity and marketing for both the restaurant and the theatre, as well as facilitate talent and commercial relationships within the entertainment and culinary industries. We invested $1 million into the venture for a stake of approximately 12.5%. We also invested in options for up to another approximately 25%. In success, we will look to add locations around the country and around the world. Now turning to NFTs. In terms of the launch of two high-profile NFT collections that we have previously discussed, Flower Girls and Creature Chronicles, we have decided to push those launches from the summer to this fall. Our decision was based on the calculation that the native crypto community will be stronger in the coming months than it has been in the previous two to three months. We have high hopes for both of these collections and want to give them the best possible chance of success. However, the postponement of the release of those two collections does not mean that our NFT teams have been idle—far from it. During the second quarter, We Come In Peace, our Web3 agency, developed a full slate of metaverse-related clients and NFT projects to market for others. We Come In Peace worked on promoting a new NFT gated community called the Venice Music Collective, built for independent music artists in partnership with music and tech industry entrepreneurs Troy Carter and Suzy Ryoo. We Come In Peace has also helped bring to market a generative NFT project that reimagines a new visual language for Web3 made up of variations of the 26 letters in the English alphabet, called the Symbols. Finally, We Come In Peace was tapped by reBASE, the first ever geo-minting NFT platform to help market and promote a new metaverse and NFT initiative co-founded by Bella Hadid. The marketing campaign for Bella’s collection has already started and gained a large number of followers. Now turning to our most recent Dolphin 2.0 initiative, our multi-year co-production distribution agreement with IMAX for a slate of documentary features. The first project we have greenlit is Blue Angels, developed and co-produced with the renowned producer JJ Abrams and his Bad Robot Productions along with Zipper Bros Films. Blue Angels is currently in production and is expected to hit IMAX theatres in the second half of 2023. We are tremendously excited by this partnership with the IMAX team as we work together to build a slate of unforgettable documentaries that need to be seen on the big screen. I’ve seen the first footage from this film, and it is truly nothing short of spectacular. We will be very excited to bring this picture to market, and we believe it will be a tremendous ambassador for Dolphin’s aspirations to invest in content as one of the four legs of our Dolphin 2.0 stool. To remind those on the call, in summary, we’re very excited about these five Dolphin 2.0 investments on top of a growing sustainable 1.0 business that generated an operating profit here in Q2. Purely on Dolphin 1.0 alone, we are on a path to exceed $40 million in revenue this year and generate a larger EBITDA profit than last year. As I mentioned, 1.0 enables and turbocharges our opportunities with 2.0, and we’re excited to keep building on that portfolio of investments for Dolphin and our fellow shareholders. Thank you for joining us on this ride, and to walk through the financials, I’ll now turn it over to Mirta Negrini, our CFO.

Thank you, Bill, and good afternoon everyone. I will now discuss results for the quarter ended June 30, 2022. Revenues for the quarter were approximately $10.3 million as compared to approximately $8.6 million for the quarter ended June 30, 2021. Overall, operating expenses for the quarter ended June 30, 2022 were approximately $9.8 million compared to approximately $8.4 million in the same period of the prior year. Operating expenses are composed of direct costs, payroll and benefits, selling, general and administrative costs, SG&A, changes in the fair value of contingent consideration, depreciation and amortization, and legal and professional fees. Direct costs for the quarter ended June 30, 2022 were approximately $939,000 compared to approximately $833,000 for the quarter ended June 30, 2021. The increase is primarily a result of expenses incurred in our NFT business. Payroll and benefit costs for the quarter ended June 30, 2022 were approximately $7 million compared to $5.6 million for the quarter ended June 30, 2021. The increase is primarily due to additional headcount in 2022 to support the growth of our business. SG&A expenses for the quarter ended June 30, 2022 were approximately $1.5 million compared to approximately $1.2 million for the quarter ended June 30, 2021, primarily due to an increase in our bad debt expense. Legal and professional fees were approximately $613,000 for the quarter ended June 30, 2022 compared to approximately $458,000 for the quarter ended June 30, 2021. The increase is primarily due to legal consulting and audit fees related to our restatement of the September 30, 2021 Form 10-Q, revisions of the Form 10-Q for March 31, 2021, and June 30, 2021 included in our Form 10-K filed on May 26, 2022, as well as fees associated with our change of auditors in June of 2022. Operating income for the quarter ended June 30, 2022 was $488,958, which includes non-cash items from depreciation and amortization of $415,547. An impairment of the right-of-use asset in the amount of $98,857 related to the sublease of one of our LA offices and a gain in the change of fair value of contingent consideration of $670,878, compared to operating income of $221,293 for the quarter ended June 30, 2021, which includes non-cash items from depreciation and amortization of $478,270 and a gain in the change of fair value of contingent consideration of $165,000. Net income for the quarter ended June 30, 2022 was $612,008 and includes non-cash items from depreciation and amortization of $415,547, an impairment of the right-of-use asset in the amount of $98,857, a gain in the change in fair value of contingent consideration of $670,878, and a gain in the change in fair value of warrants and a convertible note of $279,022 compared to net income for the quarter ended June 30, 2021 of $1,349,942, which included non-cash items from depreciation and amortization of $478,270, a gain in the change of fair value of contingent consideration of $165,000, a gain in the change of fair value of warrants and a convertible note of $333,974, and a net gain of $1 million stemming from the extinguishment of debt, primarily related to the Paycheck Protection Program loans. For the quarter ended June 30, 2022, $0.06 basic earnings per share is based on 9,498,266 weighted average shares and $0.04 fully diluted earnings per share is based on 9,626,143 weighted average shares compared to a basic earnings per share of $0.17 based on 7,664,000 weighted average shares and $0.13 fully diluted earnings per share based on 7,913,396 weighted average shares for the quarter ended June 30, 2021. Cash and cash equivalents were $7.2 million as of June 30, 2022, as compared to $9.3 million as of June 30, 2021. That concludes my financial remarks. I will now ask the operator to open the phone lines for Q&A.

Thank you. Our first question is from Allen Klee with Maxim Group. Please go ahead.

Good afternoon. The revenues, can you confirm, are all the revenues in Dolphin 1.0? And if so, how should we think about the build up of 2.0 revenues in the third and fourth quarters?

Sure. Hi, Allen, good afternoon. Yes, all the revenues are from 1.0; that was all organic growth, again. And 2.0 revenues would start with really the Midnight Theatre openings in September. So really it’ll kick into Q4 because we’re expecting a late September opening. With the push of the NFT collections into the fall, I’d say Q4 will be when some of them may go in September, but some in October. So I’d say Q4 will be the month that we have Dolphin 2.0 revenues really starting.

Okay. So likely Flower Girls and Alien Exile; those would likely be Q4 events?

Yes, one of those.

Okay. And then at this point, are you assuming that the size that you’re going to be raising hopefully for those two NFTs is similar to what you were thinking in the past, or has the decision made to cut back the size of those launches?

No. We’re keeping the size the same and looking for the optimal time to go after that community. We’re seeing some signs of recovery. Again, we want to transition NFT collections to the broad consumer, and we’re excited to be able to take payment by credit card, etc. But we can’t ignore the fact that Flower Girls sold out its first collection entirely to a crypto community. Creature Chronicles has such an appeal to the crypto community with the comic book crossover. So we want to make sure that we’re not rushing things. It’s easy to say in the movie business, you’re shooting a movie, not a release date, and we want to give it the best chance possible. So fall seems better to us than the summer given the volatility over the last couple of months.

So following up on NFTs. On the last earnings call, you mentioned how you were creating like an ongoing discourse community for your projects. And I was just wondering, does that have a material impact on how we should think about the overall margins of this business or how do you think about that?

No, that's really just a marketing tool on Discord to build a community of followers, people that are excited to see an NFT collection drop. It doesn't affect our margins. It really is just trying to find an optimal time to put the release out. In some of these worlds, it goes day to day and week to week. But we are building those communities for both of those, and others, by the way—it's not just those two, right? Bella Hadid is another one, and it's going quite well actually. And it's not just our collections; other collections that we’re marketing are all trying to find when they have confidence that the market will be there to support them. So we’ll see a couple of launches probably in the next few weeks, and if they have success, we’ll see more right after it.

Okay. You mentioned that there were some costs in the quarter related to the audit-related issues. Is there a sense of kind of more normalized legal and professional type of expenses?

Yes. Q1 was heavily impacted by the one-time audit-related charges, several hundred thousand dollars. Q2 had a little bit of spillover as well because of course we filed the K in late May. So this quarter had a little bit of that as well. It’s still down from the first quarter, but as you can see, it’s still up by about 30% over Q2 last year. We think we can return to normal starting with Q3.

And normal, what does that mean? Is that like looking at kind of last year’s type numbers, like $500,000 or so?

I think so. And obviously, we're pleased to report on time today and thank Grant Thornton for their work to help us do that. We’re back to being current and look forward to maintaining that, especially when you have good numbers, Allen, right? It is something not to be able to tell the world about them.

As there appear to be no further questions in the queue, I’d like to turn it back to management for any closing remarks.

Sure. Thank you. I know we just spoke again about four weeks ago, so here we are—our revenue really jumped; I know it beats virtually anybody's expectations, and so did our operating income. We’re happy to continue to believe in the forecast we gave on the last earnings call of our revenue and positive EBITDA. We’re here in the middle of August, so Q4 is right around the corner. For Midnight Theatre to be operating in full, we expect, as I mentioned, a late September opening and moving to a full entertainment schedule. With that, the restaurant's open now, the theatre has been fully installed, and we're starting to take private events. We just did a comedy showcase last week, following up on the film screening of a week before that. So as we practice with different events, getting ready for an every-night-of-the-week schedule, we're on pace. That will be a nice 2.0 initiative for us. The NFT collections will continue to be good for us once we get some of the bigger ones out there. And Blue Angels is off and flying, no pun intended. So by 2023, we'll have real revenue coming from all those sources of 2.0, and we continue to expect to be able to share more on our live event strategy here in 2022. Once we have that up and running, then we’ll have all facets of our Dolphin 2.0 business open for business and producing revenue for us. Thank you for our long-time listeners, and I look forward to speaking to you again with Q3, but we’ll have some announcements between now and then that you should keep an eye out for. Thank you to our loyal listeners, and we’ll talk soon.

Sorry, if I may interrupt quickly. After I handed back to management, we had a question coming in the queue if you wish to take it.

Sure.

Thank you. We have a question from a participant.

Thank you. And Bill, good afternoon. Thank you for hosting this call. I just had one quick question for you. As you've mentioned in the first six months of the year, advertising spending across many companies, from newspapers to ad agencies to Facebook, has weakened as businesses watch their spending with concerns about the economy weakening. My question is this: if you look at all kind of your clients out there that your firms do business with, to what degree are these companies possibly reducing the manpower they have working in their marketing departments internally, so that as a result, if that's happening, they might be more dependent on the outside services from your various Dolphin 1.0 firms?

Yes, that's a very astute question, and thank you for it. While we certainly never root for layoffs, if those occur—and to a degree, some of that is occurring at our clients' streaming services, as well as some of the social media platforms you mentioned—then they need to turn to their outside partners to do more. Also, an interesting thought process is that if we're in a recession or heading towards one, as companies get more nervous about their ad spending, they'll traditionally cut back on the more expensive advertising—the paid media, right? Buying TV commercials, billboards, radio ads, etc. Those are costly in comparison. They’ll double down on earned media spend of PR and influencer marketing, which are less expensive by comparison. So we may be the beneficiaries in certain circumstances of that. We certainly haven't seen a slowdown in our services, as you can see by our organic revenue growth. So we don’t want to take anything for granted. As we go into the second half of the year and as companies make their budgets for 2023, we certainly expect that earned media will stay the same, if not increase, and hope for the best for our colleagues that they don’t experience layoffs.

Got it. Great. Well, thank you very much, and best of luck.

Thank you very much.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your lines at this time. Have a wonderful day, and we thank you for your participation.