Good day, ladies and gentlemen. And welcome to the Dolphin Entertainment Second Quarter 2021 Earnings Conference Call. All lines have been placed on listen-only mode and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to Mr. James Carbonara with Investor Relations. Sir, the floor is yours.

Thank you. And once again, welcome to Dolphin Entertainment's second quarter 2021 earnings call. With me on the call are Bill O'Dowd, Chief Executive Officer; and Mirta Negrini, Chief Financial Officer. I would 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 the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the company believes the 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 would like to turn the call over to Bill O'Dowd, Chief Executive Officer of Dolphin Entertainment. Bill, please proceed.

Well, thanks, James. And hi, everyone. Good afternoon. And thank you for joining us today. Now James has asked me to follow our traditional format where I start by discussing our financials at a high level and then speak about Dolphin 1.0 in the second quarter and then move to our recent launch of Dolphin 2.0 and announcements regarding NFTs. But James, hold on your seat, brother, because I'm going to break from format. This, I realize maybe unconventional. But I would like to first pay tribute to those who have been following Dolphin since before March 23rd of this year. I think everyone knows that date, the one when we made our first Dolphin 2.0 announcement in NFTs and the trading in our stock went nuclear. No, I want to speak to those who have been with us even before January of this year when we made our last acquisition. Yes, I want to speak to the OG [ph] stakeholders and investors, some of whom have followed us since we first spoke of our dream of building an entertainment marketing Super Group at LD Micro in December 2016, when we were an OTC stock and hadn't even brought 42West into the family yet. And I want to speak to those who I met the following year during our roadshow prior to our uplisting to NASDAQ in December 2017. Yes, those are the people I want to speak to right now. To James Carbonara of Hayden IR, who is the first addition to the team after deciding to take Dolphin public in the summer of 2016 and who arranged for that first speaking engagement at LD Micro, I should add. To John Shaw, Jason Sardo and Keith Goodman [ph] of Maxim, who helped us achieve the uplisting to NASDAQ, and…

Thank you, Bill. And good afternoon, everyone. I will now discuss results for the quarter ended June 30, 2021. Revenue for the quarter ended June 30, 2021, was approximately $8.6 million compared to approximately $5.2 million in the quarter ended June 30, 2020. Overall operating expenses for the second quarter of 2021 were approximately $8.6 million compared to approximately $5.4 million in the second quarter of 2020. Operating expenses are composed of direct costs, selling, general and administrative costs, depreciation and amortization, legal and professional fees, and payable costs. Direct costs for the second quarter of 2021 were $833,511 compared to $656,849 in the same period of the prior year. Selling, general and administrative expenses for the second quarter of 2021 were approximately $1.2 million compared to $978,527 in the second quarter of 2020. Legal and professional fees were $457,998 in the second quarter of 2021 compared to $362,853 in the second quarter of 2020. Payroll costs were approximately $5.6 million in the second quarter of 2021 as compared to approximately $2.9 million in the second quarter of 2020. Operating income for the quarter ended June 30, 2021, of $56,293, included non-cash items from depreciation and amortization of $478,270, as compared to an operating loss of $179,038, which included non-cash items from depreciation and amortization of $496,461 for the same period in the prior year. Net income for the quarter ended June 30, 2021 of approximately $1.3 million, included the benefit of approximately net $1 million in non-cash items, primarily from a $1 million gain on extinguishment of debt and positive changes in the fair value of derivative liabilities, warrants and contingent consideration of $498,974, partially offset by depreciation and amortization of $478,270. This compares to a net loss of approximately $2.9 million, which included non-cash items from depreciation and amortization of $496,461, a negative change in fair value of derivative liabilities, warrants, put [ph] rights, and contingent consideration items in the amount of $1.7 million and approximately $0.9 million from the beneficial conversion feature of a certain convertible instruments for the three months ended June 30, 2020. For the three months ended June 30, 2021, we have basic earnings per share of $0.17 per share based on 7,664,000 weighted average shares outstanding and diluted earnings per share of $0.13 per share based on 7,913,396 weighted average shares outstanding. For the three months ended June 30, 2020, we had basic and diluted loss per share of $0.62 per share based on 4,719,241 weighted average shares outstanding. Cash and cash equivalents were $9.9 million as of June 30, 2021, compared to $8.6 million as of December 31, 2020, including restricted cash of approximately $0.7 million in each period. That concludes my financial remarks. I will now ask the operator to open the phone line for Q&A. Operator, can you please poll for questions?

Certainly, thank you. [Operator Instructions] We will go first to Allen Klee at Maxim Group. Your line is open, sir. Please go ahead.

Thank you. And congratulations, this was really an impressive quarter. A couple of things on the financials to start. The sequential increase in revenue from the first quarter, where did that come from? And any thoughts on the sustainability of it? Thank you.

Sure. Allen, thank you. Yes, this is a nice call to be on. Well, I mean, we - first, on the sustainability, we're excited about the fact that our revenues grew as they did without movies and theaters and without the restaurant business and without the live touring to the largest - to a large degree, as we talked about on our last quarter. So really, I want to give the credit, obviously, to each of the subs because this is where having market leaders in their respective fields, they're growing even without certain recovery catalysts. And I think it was a little surprising to many that the growth we did experience from the first quarter. I think with Q3 and through the end of this year, I am feeling that we certainly don't see anything that - there is no one time revenue or event that occurred or something that would - it was just organic growth. And we anticipate - we don't see any reason why it can't continue. And I am not saying though that I think certain of those recovery categories will come back this year. I'm - the movies are right - as of right now, at least, as I stated in the prepared remarks, I don't think we are confident. I do not think we are confident in the music business right now, but we're hopeful. And the restaurants, we're also waiting and seeing. So obviously, that only bodes well for 2022 because I don't think any of us think it will go beyond that. So that's just organic growth across each of the subs.

All right. Thank you. I just have a few more financial related questions. If I were to calculate the gross margin, if I took your direct costs and payroll and imagine that as cost of goods sold and came up with a gross margin, that number also improved sequentially. So the profitability of the gross profits, and I was wondering if you could maybe point to what was behind that and thoughts on the potential for that to improve?

Well, to a large degree, it's that we've invested to keep our very best people during a pandemic, right. And in doing so, I'm trying to look beyond the pandemic and when you've got superstars and we think we've got a whole host of them, we wanted to keep them even if they were working at 70%, 80%, 90% capacity and you're starting to see that. I mean look at the margin growth, to your point, Allen. Quite simply the same amount of people were able to handle a little bit more work, and there it is. And we'd rather invest in the people we have and have them all at full salary and et cetera, et cetera, than some of our competitors who have been laying off people or what not. So it worked out very well for us this quarter and, we think, going forward.

Right. I also - in the last three quarters, your SG&A has declined sequentially. Could you explain what's going on there?

We're pulling it up, Allen, to make sure we - sure. And that one, I don't know at the top of my head, brother.

That's all right. I can move on. So for Dolphin 2.0, where you're owning an asset. In - big picture, not specific numbers, do you think that the margins of the businesses, in general, when you own it compared to where you're doing the PR marketing that - how do you think the margins would be for the 2.0 businesses relative to your legacy other businesses?

Yeah. I mean in one sentence, the thought process is, of course, that when you can own the asset, you make a better margin and gross dollars, too, I might add, than servicing the asset. So I'm excited for the margins we're showing now. And thank you for pointing that out, Allen, that was a sophisticated question you asked previously. But when we go into 2.0 with successful assets, there's just - you could service all day long, you'll never get to the margin, ever, that you could do by servicing assets you own, obviously. So speaking as someone who's produced successful television series in the past and digital series and it just doesn't compare on a dollar for dollar investment basis. So as we get - as our company evolves and includes more and more and more 2.0 initiatives and where we'll be in a quarter, where we'll be 3 years from now, like we - I took us on a trip down memory lane in my prepared remarks to thank those who were with us since 3 years ago, when we laid out the strategy of 3 years for the Super Group that we could get to this day. I think 3 years after starting 2.0, the margin profile will be vastly, hopefully, even stronger than it is today because we'll have a much bigger mix of 2.0 to go with our 1.0 revenue.

That's great. And on...

And by the way, our - if I could add, our CEOs not only know that. That's why they joined Dolphin, right. The whole point of doing Dolphin, the whole point from - and it seems timely to reminisce back to the roadshow that, as I mentioned, at LD Micro as Josh Scheinfeld and Tim Bard were listen - Tim Johnson, sorry, were listening into, then the whole vision was to get to this point so that we could own some of the assets we were marketing. And that's why each of those private company owners joined the group because they know the margin is better. They know what can happen if you have a successful piece of content or live event or consumer product. So I think I mentioned it on the 10-K call this year, what 2021 represented for all of us was the and is the starting line, and that's why we're so excited. And it's great to be at the starting line with where we are financially, obviously. Sorry, Allen, I know you had another question.

No, no, that's fine. Thank you. For NFTs, it seems like the FTX partnership is pretty meaningful and potentially game changing. Could you comment on where you think that can bring this business? And kind of what we can look forward to seeing in '21?

Yeah, sure. And I probably going to - our friends at FTX probably don't need us to share their selling points, if you will, with them. But obviously, they're a great, well recognized company and doing it very quickly with just a couple of years of existence. But what they represent for us as we were out there looking at serving the landscape of NFTs, right, and where the business was going to go, right. I think, we, by that, I mean, people that have sold or marketed collectibles business, not an art business, the collectibles business. Previously, in the physical world, we needed to create price points that were under $50 a product, and we needed to create price points in the $10 to $25 range, and it just wasn't possible until you could eliminate the gas fees. You needed a different blockchain than - or a workaround to the current Ethereum blockchain, where NFTs are primarily sold. So that's point number one. And secondly, to reach all consumers and not just 1% of consumers, you needed to - you'd be able to have the consumer pay with something other than crypto. So when we were looking for those two things, FTX not only fit those two bills and allowed us to do both of those, but they're in exchange, and their - both the US component to FTX and the international one, too. So as we have aspirations to do global NFT marketplaces, right, in those industries and music, I mean, there's nothing more global than music, right, film, television, other industries and verticals that are global by nature, right. Then to be able to accept payment in not just credit card, obviously, it eliminates much of it, but - and in crypto but in fiat currency too,…

It seems like what FTX - and one of the other opportunities, and I think you might have - you did touch on this is - but the NFT market could potentially be transforming from more of a high end art market to more collectibles lower end. And so we may not even know if we're looking at what's happened this year with high end, what the real opportunity is as this market is being created for a different type of product. What do you think about that?

Yeah. I think - I don't think we'll even need a 3 year horizon. I'd be surprised at 12 months from now. Whatever we're calling NFTs today, and maybe a branding or marketing campaign will change that, right. Whatever that is 12 months from now, will be a market that's bifurcated. There still will probably be an art or a speculative market aspect to trading on the blockchain. I don't think it will go away. It's not something we have any particular interest in or our expertise in. But I think imagine a world in which the major studios are launching their own collectibles, from Disney to Paramount to Universal to Warner Bros. to Sony, to the major record labels, Sony Music, Warner Music, Universal Music. That's a lot of marketing, that's a lot of firepower. That's a lot of pop culture recognition across the general consumer population. I mean, they'll be almost unavoidable that products are being offered. And I think - and if you have custom interfaces, which we're getting to, and if you have the ability to pay with a credit card, then purchasing and an NFT is going to be indistinguishable from purchasing a mug on eBay or a product from Amazon, right. You're going to go to a custom interface website and you're going to purchase something. So I think if that all grouped under the umbrella of what an NFT business is, great. If it's something - if it's just seen as just more - if it's just seen as what it will be, selling consumer products and tickets to experiences and unlocking value for collectors or value for people buying these digital products in real world benefits, too, then it's going to look vastly different. And it will be - it will - it has the potential to boom is why we're excited to be in it. I mean, the dollar amounts in the NFT space have been reported widely up until now. But if someone really wants to think about it, how many people, gross number of people in the US have bought an NFT today. I do not believe it would have been - I don't think that number would reach 1 million people. 12 months from now, we might have 10 million, 25 million, 50 million people who have bought what we call an NFT, which is a collectible that just happened to be delivered on the blockchain. So it's an exponential growth of the consumer base, and that's what we see coming and why we want to play in that space.

Last question. How do you feel about the environment for producing an independent film?

Better. I do. I don't want to get ahead of my keys on what any of our content initiatives that we may know are coming, but I would say that I do feel better, Allen. The industry is coming back. Production insurance, while not solved completely, is getting into a place where I feel that we feel there will be more independent production starting even as early as Q4 this year, certainly Q1 of next year. And without having to take the very expensive burden of risking it on a COVID outbreak on set. So I do feel good about production, and I'd be surprised if we aren't able to take advantage of opportunities in the filmed entertainment space in the coming months.

That's great. Congratulations. Thank you.

Thank you.

And with no other questions holding, I'll turn the conference back to Mr. O'Dowd for any additional or closing comments.

Well, thank you. I was looking forward to a second question. But, Allen, as usual, he's very thorough. So he probably took a lot of people's questions. And thank you for those. And I'm excited for what's to come. I think by the time we speak again in this format in 13 weeks in the middle of November, I imagine we'll have quite a few hopeful additional topics to talk about than what we are free to talk about today. And maybe that's just all part of the plan. It allows today to be a celebration of those three milestones we hit. It certainly feels great as I think you probably sensed from my prepared remarks, record revenue. Congratulations to each of the companies within Dolphin, to report positive operating income even after the depreciation and amortization, which is higher for our company than others because we've been an acquisition story up until now. It is really a fabulous milestone since listing on NASDAQ. And of course, our working capital surplus. We've got a great balance sheet that's only going to improve. And I'm very, very thankful for those who believed in us from day one, and we picked up along the way. And this type of validation, I'm sure, is very comforting for them. So thank you, everybody, that's been listening, and I appreciate the time. And we look forward to speaking again in the next quarter and see what we can talk about. Have a great day.

Ladies and gentlemen, that will conclude today's conference. We thank you for your participation. You may disconnect at this time. And have a great day.