Dolphin Entertainment, Inc. (DLPN)

Is this a good news or bad news?

https://fintel.io/doc/sec-dlpn-dolphin-entertainment-nt-10qa-2020-july-01-18444-853

During the three months ended March 31, 2020, Dolphin Entertainment, Inc. (the “Company”) deconsolidated Max Steel Productions, LLC, a variable interest entity, (“Max Steel VIE”). Max Steel VIE was initially formed for the purpose of recording the production costs of the motion picture Max Steel. Prior to the commencement of the production, the Company entered into a Production Service Agreement to finance the production of the film. The Production Service Agreement was for a total amount of $10,419,009 with the lender taking a producer fee of $892,619. Pursuant to the financing agreements, the lender acquired 100% of the membership interests of Max Steel VIE with the Company controlling the production of the motion picture and having the rights to sell the motion picture. On February 20, 2020, the lender of the Production Service Agreement confirmed that Max Steel VIE did not owe any debt under the Production Service Agreement. The Company recorded a gain on extinguishment of debt in the amount of $3,311,198. In addition, the Company assessed its status as primary beneficiary of the VIE and determined that it was no longer the primary beneficiary. As such, the Company deconsolidated Max Steel VIE and recorded a loss on deconsolidation in the amount of $1,484,591 on its condensed consolidated statement of operations for the three months ended March 31, 2020. This transaction is the primary reason for a significant change in net income of approximately $2.4 million, from $0.1 million for the three months ended March 31, 2019 to approximately $2.5 million for the three months ended March 31, 2020.