0001558370-22-008334.txt : 20220511 0001558370-22-008334.hdr.sgml : 20220511 20220511163953 ACCESSION NUMBER: 0001558370-22-008334 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 93 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220511 DATE AS OF CHANGE: 20220511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Chicken Soup for the Soul Entertainment, Inc. CENTRAL INDEX KEY: 0001679063 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ALLIED TO MOTION PICTURE PRODUCTION [7819] IRS NUMBER: 812560811 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38125 FILM NUMBER: 22914379 BUSINESS ADDRESS: STREET 1: 132 E. PUTNAM AVE CITY: COS COB STATE: CT ZIP: 06807 BUSINESS PHONE: 203-861-4000 MAIL ADDRESS: STREET 1: PO BOX 700 CITY: COS COB STATE: CT ZIP: 06807 10-Q 1 csse-20220331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                 to

Commission File Number:  001-38125

CHICKEN SOUP FOR THE SOUL ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

Delaware

81-2560811

(State or other jurisdiction of incorporation)

(I.R.S. Employer Identification No.)

132 East Putnam Avenue – Floor 2W, Cos Cob, CT

06807

(Address of Principal Executive Offices)

(Zip Code)

855-398-0443

(Registrant’s Telephone Number, including Area Code)

Not Applicable

Former Name or Former Address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s) 

Name of each exchange on which registered

Class A Common Stock
9.75% Series A Cumulative Redeemable Perpetual Preferred Stock

 

CSSE
CSSEP

 

The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC

9.50% Notes Due 2025

CSSEN

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The number of shares of Common Stock outstanding as of May 10, 2022 totaled 14,777,429 as follows:

transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

-2 of the Exchange Act). Yes  No 

12,642,428 as follows:

Title of Each Class

    

Class A Common Stock, $.0001 par value per share

7,122,923

Class B Common Stock, $.0001 par value per share*

7,654,506

*Each share convertible into one share of Class A Common Stock at the direction of the holder at any time.

Chicken Soup for the Soul Entertainment, Inc.

Table of Contents

 

Page

    

Number

 

 

PART 1 - FINANCIAL INFORMATION

ITEM 1.

Financial Statements (unaudited)

3

Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021

4

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2022 and 2021

5

Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

7

Notes to Condensed Consolidated Financial Statements

8

ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

28

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

40

ITEM 4.

Controls and Procedures

40

PART II - OTHER INFORMATION

ITEM 1.

Legal Proceedings

41

ITEM 1A.

Risk Factors

41

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

ITEM 3.

Defaults Upon Senior Securities

41

ITEM 4.

Mine Safety Disclosures

41

ITEM 5.

Other Information

41

ITEM 6.

Exhibits

42

SIGNATURES

43

2

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Chicken Soup for the Soul Entertainment, Inc.

Condensed Consolidated Balance Sheets

    

March 31, 

    

December 31, 

2022

2021

(unaudited)

ASSETS

 

  

 

  

Cash, cash equivalents and restricted cash

$

21,499,311

$

44,286,105

Accounts receivable, net of allowance for doubtful accounts of $785,497, and $786,830, respectively

 

66,224,566

 

60,213,807

Prepaid expenses and other current assets

 

3,043,049

 

1,904,273

Due from affiliated companies

684,946

Operating lease right-of-use assets

8,385,948

Content assets, net

86,816,164

63,645,396

Intangible assets, net

21,649,516

18,035,091

Indefinite lived intangible assets

12,163,943

12,163,943

Goodwill

 

44,906,055

 

39,986,530

Other assets, net

 

5,570,677

 

5,190,954

Total assets

$

270,944,175

$

245,426,099

LIABILITIES AND EQUITY

 

  

 

  

Accounts payable and accrued other expenses

$

43,836,814

$

34,984,226

Due to affiliated companies

489,959

Programming obligations

15,570,000

1,641,250

Film library acquisition obligations

19,139,499

24,673,866

Accrued participation costs

18,118,463

12,323,329

Film acquisition advances

12,970,779

6,196,909

Revolving loan

22,035,713

17,585,699

9.50% Notes due 2025, net of deferred issuance costs of $1,303,991 and $1,402,880, respectively

31,591,909

31,493,020

Contingent consideration

6,639,061

9,764,256

Put option obligation

11,400,000

11,400,000

Operating lease liabilities

9,799,043

Other liabilities

 

5,481,387

 

3,274,432

Total liabilities

 

196,582,668

 

153,826,946

Commitments and contingencies (Note 15)

 

  

 

  

Equity

Stockholders' Equity:

 

  

 

  

Series A cumulative redeemable perpetual preferred stock, $.0001 par value, liquidation preference of $25.00 per share, 10,000,000 shares authorized; 3,830,378 and 3,698,318 shares issued and outstanding, respectively; redemption value of $95,759,450 and $92,457,950, respectively

 

383

 

370

Class A common stock, $.0001 par value, 70,000,000 shares authorized; 9,423,330 and 8,964,330 shares issued, 7,701,722 and 8,019,828 shares outstanding, respectively

 

945

 

899

Class B common stock, $.0001 par value, 20,000,000 shares authorized; 7,654,506 shares issued and outstanding, respectively

 

766

 

766

Additional paid-in capital

 

245,978,573

 

240,609,345

Deficit

 

(150,589,204)

 

(136,462,244)

Accumulated other comprehensive loss

(18)

571

Class A common stock held in treasury, at cost (1,721,608 and 944,502 shares, respectively)

 

(21,786,509)

 

(13,202,407)

Total stockholders’ equity

 

73,604,936

 

90,947,300

Noncontrolling interests

756,571

651,853

Total equity

74,361,507

91,599,153

Total liabilities and equity

$

270,944,175

$

245,426,099

See accompanying notes to unaudited condensed consolidated financial statements.

3

Chicken Soup for the Soul Entertainment, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

Three Months Ended March 31, 

    

2022

    

2021

    

Net revenue

$

29,206,197

$

23,196,842

Cost of revenue

 

22,575,408

 

16,242,934

Gross profit

 

6,630,789

 

6,953,908

Operating expenses:

 

 

  

Selling, general and administrative

 

12,816,520

 

9,234,819

Amortization and depreciation

 

1,648,258

 

1,238,027

Management and license fees

 

2,920,620

 

2,319,684

Total operating expenses

 

17,385,398

 

12,792,530

Operating loss

 

(10,754,609)

 

(5,838,622)

Interest expense

 

1,310,459

 

1,087,944

Other non-operating income, net

 

(201,792)

 

(570)

Loss before income taxes and preferred dividends

 

(11,863,276)

 

(6,925,996)

Provision for income taxes

 

20,000

 

14,000

Net loss before noncontrolling interests and preferred dividends

 

(11,883,276)

 

(6,939,996)

Net loss attributable to noncontrolling interests

(38,385)

Net loss attributable to Chicken Soup for the Soul Entertainment, Inc.

(11,844,891)

(6,939,996)

Less: preferred dividends

 

2,282,069

 

2,253,385

Net loss available to common stockholders

$

(14,126,960)

$

(9,193,381)

Net loss per common share:

 

  

 

  

Basic and diluted

$

(0.92)

$

(0.67)

Weighted-average common shares outstanding:

Basic and diluted

 

15,331,743

 

13,635,759

See accompanying notes to unaudited condensed consolidated financial statements.

4

Chicken Soup for the Soul Entertainment, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

Three Months Ended March 31, 

    

2022

    

2021

Net loss

$

(11,883,276)

$

(6,939,996)

Other comprehensive income (loss):

Foreign currency translation adjustments

 

(1,604)

 

Comprehensive loss attributable to noncontrolling interests

1,015

Comprehensive loss

$

(11,883,865)

$

(6,939,996)

See accompanying notes to unaudited condensed consolidated financial statements.

5

Chicken Soup for the Soul Entertainment, Inc

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

Preferred Stock

Common Stock

Accumulated

Class A

Class B

Additional

Other

Par

Par

Par

Paid-In

Treasury

Comprehensive

Noncontrolling

    

Shares

    

Value

    

Shares

    

Value

    

Shares

    

Value

    

Capital

    

Deficit

    

Stock

    

Income (Loss)

    

Interests

    

Total

Balance, December 31, 2021 (audited)

3,698,318

$

370

8,964,330

$

899

7,654,506

$

766

$

240,609,345

$

(136,462,244)

$

(13,202,407)

$

571

$

651,853

$

91,599,153

Share based compensation - stock options

 

933,047

933,047

Share based compensation - common stock

63,750

63,750

Issuance of preferred stock, net

52,060

5

1,288,734

1,288,739

Purchase of treasury stock

 

(8,584,102)

(8,584,102)

Acquisition of subsidiary noncontrolling interest

 

84,000

8

(2,200,008)

(2,200,000)

Locomotive business combination

144,118

144,118

1091 business combination

80,000

8

375,000

38

5,283,705

5,283,751

Net income attributable to noncontrolling interest

(38,385)

(38,385)

Other comprehensive loss, net

(1,604)

(1,604)

Comprehensive loss attributable to noncontrolling interests

1,015

(1,015)

Dividends on preferred stock

(2,282,069)

(2,282,069)

Net loss

 

(11,844,891)

(11,844,891)

Balance, March 31, 2022

 

3,830,378

$

383

 

9,423,330

$

945

 

7,654,506

$

766

$

245,978,573

$

(150,589,204)

$

(21,786,509)

$

(18)

$

756,571

$

74,361,507

.

Preferred Stock

Common Stock

Subsidiary

Class A

Class B

Additional

convertible

Par

Par

Par

Paid-In

Treasury

Preferred

Noncontrolling

    

Shares

    

Value

    

Shares

    

Value

    

Shares

    

Value

    

Capital

    

Deficit

    

Stock

    

Stock

Interests

Total

Balance, December 31, 2020 (audited)

2,098,318

$

210

5,157,053

$

516

7,654,506

$

766

$

106,425,548

$

(77,247,982)

$

(632,729)

$

36,350,000

$

205,462

$

65,101,791

Share based compensation - stock options

200,594

200,594

Share based compensation - common stock

31,250

31,250

Issuance of common stock

1,122,727

112

23,858,435

23,858,547

Stock options exercised

77,415

8

(8)

Warrant exercises - Class W and Z

43,571

4

(4)

Issuance of preferred stock, net

1,600,000

160

36,349,840

(36,350,000)

Dividends on preferred stock

(2,253,385)

(2,253,385)

Elimination of noncontrolling interests

205,462

(205,462)

Net loss

(6,939,996)

(6,939,996)

Balance, March 31, 2021

 

3,698,318

$

370

 

6,400,766

$

640

 

7,654,506

$

766

$

166,865,655

$

(86,235,901)

$

(632,729)

$

$

$

79,998,801

See accompanying notes to unaudited condensed consolidated financial statements.

6

Chicken Soup for the Soul Entertainment, Inc

Condensed Consolidated Statements of Cash Flows

(unaudited)

Three months ended March 31, 

    

2022

    

2021

Cash flows from Operating Activities:

  

  

Net loss

$

(11,883,276)

$

(6,939,996)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

  

Share-based compensation

 

996,797

 

231,844

Content asset amortization

 

4,878,232

 

9,134,528

Amortization of deferred financing costs

 

149,069

 

98,889

Amortization and depreciation of intangibles, property and equipment

 

2,004,073

 

1,621,360

Bad debt and video return expense

 

581,834

 

694,212

Changes in operating assets and liabilities:

 

 

Trade accounts receivable

 

(1,915,460)

 

(1,552,003)

Prepaid expenses and other assets

 

(950,440)

 

(229,653)

Content assets

 

(24,906,339)

 

(10,665,762)

Accounts payable, accrued expenses and other payables

 

1,638,507

 

(1,087,368)

Film library acquisition and programming obligations

 

8,394,383

 

4,345,165

Accrued participation costs

 

5,795,134

 

(5,006,136)

Other liabilities

 

2,170,050

 

1,089,986

    Net cash used in operating activities

 

(13,047,436)

 

(8,264,934)

Cash flows from Investing Activities:

 

  

 

  

Expenditures for property and equipment

 

(612,813)

 

(123,351)

Business combination, net of cash acquired

(6,672,474)

(Increase) decrease in due from affiliated companies

 

(684,946)

 

1,259,274

    Net cash (used in) provided by investing activities

 

(7,970,233)

 

1,135,923

Cash flows from Financing Activities:

  

  

     Principal payments on debt

 

(22,130)

 

(4,963,962)

     Repurchase of common stock

(8,584,102)

     Payment of contingent consideration

(2,100,195)

     Acquisition of subsidiary noncontrolling interest

(750,000)

     Proceeds from revolving loan, net

4,350,014

     Proceeds from film acquisition advance

6,796,000

     Proceeds from issuance of Class A common stock

23,858,547

     Proceeds from issuance of Series A preferred stock, net

1,288,739

     Decrease in due to affiliated companies

(489,959)

     Dividends paid to preferred stockholders

(2,255,888)

(1,928,425)

    Net cash (used in) provided by financing activities

 

(1,767,521)

 

16,966,160

Effect of foreign exchanges on cash, cash equivalents and restricted cash

(1,604)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

(22,786,794)

 

9,837,149

Cash, cash equivalents and restricted cash at beginning of period

 

44,286,105

 

14,732,726

Cash, cash equivalents and restricted cash at end of the period

$

21,499,311

$

24,569,875

Supplemental data:

 

  

 

  

Cash paid for interest

$

1,151,636

$

1,470,015

Non-cash investing activities:

Property and equipment in accounts payable and accrued expenses

$

410,935

$

251,914

Non-cash financing activities:

 

  

 

  

Class A common stock and additional consideration for acquisition of noncontrolling interest

$

2,228,680

$

Preferred stock issued for Crackle Plus acquisition

$

$

40,000,000

See accompanying notes to unaudited condensed consolidated financial statements.

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Table of Contents

Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Description of the Business

Chicken Soup for the Soul Entertainment, Inc. is a Delaware corporation formed on May 4, 2016, and is a leading streaming video-on-demand (VOD) company. We operate Crackle Plus, a portfolio of ad-supported streaming services, as well as Screen Media, Halcyon Television, the newly formed Chicken Soup for the Soul Television Group, and a number of affiliates that collectively enable us to acquire, produce, co-produce and distribute content, including our original and exclusive content, all in support of our streaming services. References to “CSSE,” the “Company,” “we,” “us” and “our” refer to Chicken Soup for the Soul Entertainment, Inc. and its consolidated subsidiaries, unless the context otherwise requires.

The Company operates and is managed by the CEO Mr. William J. Rouhana, Jr, as one reportable segment, the production and distribution of video content. The Company currently operates in the United States and India and derives its revenue primarily in the United States. The Company distributes content in over 56 countries and territories worldwide.

Financial Condition and Liquidity

As of March 31, 2022, the Company has a deficit of $150,589,204 and for the three months ended March 31, 2022, the Company had a net loss attributable to common stockholders of $14,126,960. The Company does not expect to continue to incur net losses at this level for the foreseeable future. The Company has evaluated its current financial condition and has determined that the losses incurred in the current year are not indicative of the Company’s ongoing operations.  However, it does expect to incur losses for the remainder of 2022 as it continues to invest in and scale its AVOD networks, distributed film library and original productions. 2021 was a transformative year for the Company led by acquisition of the assets of Sonar Entertainment Inc., positioning the Company to leverage its global film rights, its television production capabilities and to enable the launch of a new ad-supported streaming service Chicken Soup for the Soul AVOD in the first quarter of 2022, as well as the acquisition of 1091 Pictures. This strategic shift, in scale and capabilities, will support the Company’s future grow both domestically and internationally.

The Company believes that with the cash on hand, together with equity and debt offerings, and film financings, if necessary, should be adequate to meet the Company’s operational cash requirements, programming commitments, debt service requirements (i.e., principal and interest payments) and dividend payments of the preferred stock for the foreseeable future. The Company monitors cash flow liquidity, availability, capital base, operational spending and leverage ratios with the long-term goal of maintaining the Company’s credit worthiness.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

The accompanying interim condensed consolidated financial statements of Chicken Soup for the Soul Entertainment, Inc. have been prepared in conformity with accounting principles generally accepted in the United States and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022. These condensed consolidated financial statements are unaudited and have been prepared by the Company following the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted as permitted by such rules and regulations; however, the Company believes the disclosures are adequate to make the information presented not misleading.

The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Interim results are not necessarily

8

Table of Contents

Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

indicative of the results for a full year. Certain prior year amounts have been reclassified to conform to the current year presentation.

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include revenue recognition, estimated film ultimate revenues, allowance for doubtful accounts, intangible assets, share-based compensation expense, valuation allowance for deferred income taxes and amortization of programming and film library costs. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, except for the adoption of ASU 2016-02, Leases (Topic 842) as further described in Note 3.

Cash and Cash Equivalents

Cash and cash equivalents includes restricted cash of $1,923,216 at March 31, 2022 and $1,552,052 at December 31, 2021.

Note 3 – Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under current GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 was effective for public companies’ fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach. Because the Company is an emerging growth company, the Company adopted the new lease accounting standard by applying the new lease guidance at the adoption date on January 1, 2022, and as allowed under the standard, elected not to restate comparative periods. As of January 1, 2022, in connection with the adoption of the new lease accounting standard, the Company recorded an operating lease right-of-use asset totaling $8,612,596 with a corresponding lease liability totaling $9,991,977. Refer to Note 10, Leases, for further details on our adoption of the new standard.  

In March 2020, FASB issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The Company adopted ASU-2020-04 in the second quarter of 2021 on a prospective basis and will apply this guidance as contracts are modified through December 2022. The adoption did not have an immediate direct impact on our financial statements. We do not expect there to be a material impact on our financial statements.

9

Table of Contents

Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires an entity to assess impairment of its financial instruments based on its estimate of expected credit losses. Since the issuance of ASU 2016-13, the FASB released several amendments to improve and clarify the implementation guidance. The provisions of ASU 2016-13 and the related amendments are effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2022 (fiscal year 2023 for the Company). Entities are required to apply these changes through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company does not expect the adoption of the amendments to have a material impact on its consolidated financial statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the condensed consolidated financial statements.

Note 4 – Business Combinations

1091 Pictures Acquisition

On March 4, 2022, the Company consummated its acquisition of certain of the assets of 1091 Media, LLC, including all of the outstanding equity of its operating subsidiary, TOFG LLC, which does business under the name 1091 Pictures (“1091 Pictures”). 1091 Pictures provides full-service distribution services to film and series owners, including access to platforms that reach more than 100 countries, and related marketing support, and has a library of approximately 4,000 licensed films and television shows.  The Company paid consideration of $13,283,750 through the payment of $8,000,000 in cash, the issuance of 375,000 shares of the Company’s Class A common stock and the issuance of 80,000 shares of the Company’s Series A preferred stock.

The Company has allocated the purchase price to the identifiable net assets acquired, including intangible assets and liabilities assumed, based on the estimated fair values at the date of acquisition. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities was recorded as goodwill.

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Table of Contents

Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The purchase price allocation is preliminary and subject to change up to one year after the date of acquisition and could result in changes to the amounts recorded below. The preliminary allocation of the purchase price to the fair values of the assets acquired and liabilities assumed at the date of the acquisition was as follows:

    

Accounts receivable, net

$

4,677,133

Content assets

3,142,661

Other assets

49,347

Intangibles

4,919,525

Total identifiable assets acquired

 

12,788,666

Accounts payable and accrued expenses

 

129,244

Revenue share payable

1,623,177

Accrued third party share

3,999,544

Total liabilities assumed

 

5,751,965

Net identifiable assets acquired

7,036,701

Goodwill

4,919,525

Net assets acquired

$

11,956,226

    

  

Cash consideration

$

8,000,000

Equity consideration - Class A common stock

3,303,750

Equity consideration - Series A Preferred Stock

1,980,000

Purchase price consideration

13,283,750

Less: cash acquired

(1,327,524)

Total Estimated Purchase Price

$

11,956,226

Sonar Acquisition

On May 21, 2021, the Company consummated its acquisition of the principal assets of Sonar Entertainment, Inc. (“SEI”) and certain of the direct and indirect subsidiaries of SEI (collectively, “Sonar”). Sonar is an award-winning independent television studio that owns, develops, produces, finances and distributes content for global audiences. In consideration for the assets purchased from Sonar (“Purchased Assets”), the Company paid to Sonar an initial cash purchase price of $18,902,000 and from time to time will be required to pay additional purchase price based on the performance of the acquired assets.

During the 18-month period following the closing, the Company has the right (the “Buyout Option”), exercisable upon written notice to Sonar during such period, to buy out all future entitlements (i.e., additional purchase price and other entitlements not yet due and payable to Sonar as of the date of such notice) in exchange for a one-time payment to Sonar. In connection with the transaction, the Company formed a new subsidiary, CSS AVOD Inc., and issued shares of common stock, representing 5% of the after-issued equity of CSS AVOD, to MidCap Financial Trust, as Agent. At any time during the three-year period immediately following the 18-month anniversary of the asset purchase agreement closing, MidCap, as Agent, shall have the right upon 60 days’ prior written notice to CSSE to require CSSE to purchase such CSS AVOD Shares for $11,500,000 (“Put Election”).

The Sonar acquisition was accounted for as a purchase of a business in accordance with ASC 805 and the aggregate purchase price consideration of $53,812,000 has been allocated to the assets acquired and liabilities assumed, based on the estimated fair values at the date of acquisition. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities was recorded as goodwill.

11

Table of Contents

Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The purchase price allocation is preliminary and subject to change up to one year after the date of acquisition and could result in changes to the amounts recorded below. The preliminary allocation of the purchase price to the fair values of the assets acquired assumed at the date of the acquisition was as follows:

May 21, 2021

Accounts receivable, net

    

$

17,373,257

Film library

 

13,000,000

Intangible asset

 

3,600,000

Total identifiable assets acquired

33,973,257

Goodwill

 

19,838,743

Net assets acquired

$

53,812,000

In estimating the fair value of the acquired assets, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected growth rates and estimated discount rates.

The amount related to the acquired intangible asset represent the estimated fair value of the distribution network. This definite lived intangible asset is being amortized on a straight-line basis over its estimated useful life of 36 months.

Goodwill was calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and liabilities assumed, and represents the future economic benefits expected to arise from the intangible assets acquired that do not qualify for separate recognition.

The fair values of assets acquired were based upon valuations performed by independent third party valuation experts.

Cash

    

$

18,902,000

Fair Value of Additional Purchase Price – Library Account Receivable

1,580,000

Fair Value of Additional Purchase Price – Contracted TV Cash Flow

13,700,000

Fair Value of Additional Purchase Price – % of Film Cash Flow

630,000

Fair Value of Additional Purchase Price – % of Non-TV Business Cash Flow

2,300,000

Fair Value of Additional Purchase Price – Development Slate Cash Flow

 

5,200,000

Fair Value of Additional Purchase Price – CSS AVOD Equity Put

 

11,500,000

Total Estimated Purchase Price

$

53,812,000

Based on the terms of the asset purchase agreement, the Company estimated the fair value of the Additional Purchase Price components based on, but not limited to, expected future collection of receivables, expected future revenue and cash flows, expected growth rates, and estimated discount rates.

The Additional Purchase Price included a 5% interest in CSS AVOD and a Put Option that requires the Company to purchase the shares of CSS AVOD, Inc. (5.0% of the entity) from the investor for $11,500,000. The fair value of the 5.0% interest in CSS AVOD, Inc. was estimated based on expected future cash flows. The Put Option was valued by the Company via a Black-Sholes valuation model assuming an initial price of $125,000, a strike price of $11,500,000, volatility of 100.0% and term of 1.5 years.

12

Table of Contents

Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table illustrates Sonar’s stand-alone financial performance included in the Company’s condensed consolidated statement of operations:

Three Months Ended

    

March 31, 

    

2022

Net revenue

$

7,207,243

Net income

$

3,294,072

The unaudited financial information in the table below summarizes the combined results of operations of the Company and Sonar on a pro forma basis, as though the companies had been combined as of January 1, 2020. These pro forma results were based on estimates and assumptions, which we believe are reasonable. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at January 1, 2020. The pro forma financial information assumes our revolving loan was entered into as of January 1, 2020 and includes adjustments to amortization for acquired intangible assets and interest expense.

    

Three Months Ended March 31, 

    

2022

    

2021

    

Net revenue

$

29,206,197

 

$

28,196,550

 

Net loss