Business Combination

12 Months Ended

Dec. 31, 2023

Business Combination

Business Combination

Note 4 – Business Combination

Merger with Redbox Entertainment Inc.

On August 11, 2022, the Company acquired all the outstanding equity interests of Redbox. Immediately prior to the merger closing, CSSE entered into a definitive financing arrangement with HPS Investment Partners, LLC (“HPS”), that amended Redbox’s existing credit facility and the Company issued a warrant to HPS to acquire 4.5% of CSSE on a fully diluted post-merger basis. See Note 11, Debt, and Note 16, Stockholder’s Equity, for additional information.

On closing of the merger, based on the exchange rate of 0.087 for each outstanding Redbox Class A common share, each vested and unvested restricted stock units and the common units of Redbox’s Redwood Intermediate LLC subsidiary, the

Company issued an aggregate of approximately 4.7 million shares of Class A common stock and assumed the outstanding warrants of Redbox. Included in the Class A common stock were 199,231 shares issued in connection with the acceleration and settlement of outstanding Redbox’s restricted stock units, or RSUs. The preliminary fair value of the Redbox RSUs was $2.9 million of which $0.7 million was associated with services rendered prior to the acquisition and the remaining $2.2 million was expensed upon the acceleration of vesting immediately following the completion of the acquisition. The results of operations and financial position of Redbox are included in the Company’s consolidated financial statements from the date of acquisition. The Company’s transaction costs of $17.5 million were expensed as incurred in the Merger, transaction, and other costs on the Consolidated Statement of Operations on the Consolidated Statement of Operations for the year ended December 31, 2022.

The transaction was accounted for as a business combination. The purchase price consideration is determined with reference to the value of equity that the Company issued to the Redbox shareholders. The preliminary purchase price was calculated as follows:

Class A common stock	$	65,828,719
Class A common stock issued upon vesting of Redbox RSUs		703,244
Class A common stock warrants issued to Redbox warrant holders		3,473,185
Total merger consideration	$	70,005,148

The acquisition of Redbox has been accounted for using the acquisition method of accounting, which requires that assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed as of the

acquisition date and subject to change up to one year after the date of acquisition and could result in changes to the amounts recorded below:

		Amounts recognized as of acquisition date (as previously reported)		Measurement period adjustments		Purchase price allocation
Assets acquired:
Cash, cash equivalents and restricted cash	$	12,921,550	$	—	$	12,921,550
Accounts receivable		17,704,843		51,607		17,756,450
Content library		21,241,822		(594,668)		20,647,154
Prepaid expenses and other assets		16,783,468		(343,566)		16,439,902
Property and equipment		15,504,940		—		15,504,940
Right-of-use assets		7,183,735		—		7,183,735
Intangible assets(1)		291,200,000		—		291,200,000
Goodwill		215,284,816		(3,352,082)		211,932,734
Total assets acquired		597,825,174		(4,238,709)		593,586,465
Liabilities assumed:
Debt		359,854,921		—		359,854,921
Accounts payable and accrued expenses		91,644,772		(4,238,709)		87,406,063
Operating lease liabilities		7,183,736		—		7,183,736
Financing lease liabilities		2,241,304		—		2,241,304
Other liabilities		66,895,293		—		66,895,293
Total liabilities assumed		527,820,026		(4,238,709)		523,581,317
Net assets acquired	$	70,005,148	$	—	$	70,005,148

(1) The weighted-average useful life of intangible assets acquired is approximately 14 years.

The purchase price allocations for this transaction were formalized during the fiscal year ended December 2023.

The identifiable intangible assets included customer relationships, technology and trade names and are being amortized on a straight-line basis ranging from 3 years to 15 years. The valuation methods require several judgments and assumptions to determine the fair value of intangible assets, including growth rates, discount rates, customer attrition rates, expected levels of cash flows, and tax rate. Key assumptions used included revenue projections for fiscal 2022 through 2037, a tax rate of 25%, a discount rate of 11% - 12%, and a royalty rate of 2%. The technology intangible asset was valued using the estimated replacement cost method. Goodwill is attributable to the workforce of Redbox as well as expected future growth into new and existing markets and $7.9 million is deductible for income tax purposes.

1091 Pictures Acquisitions

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.

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		4,695,000
Other assets		49,347
Intangibles		2,810,000
Goodwill		5,476,711
Total assets acquired		17,708,191
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 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

The purchase price allocations for this transaction were formalized during the fiscal year ended December 2023 and there were no material changes to the amounts previously reported at acquisition.

The $2,810,000 of acquired intangibles represents the estimated fair value of the quality control certification process, trademarks, technology and noncompete agreements. These definite lived intangible assets are being amortized on a straight-line basis over their estimated useful life of 24 to 36 months.

Financial Impact of Acquisitions

The following tables illustrate the stand-alone financial performance attributable to the acquisitions included in the Company’s consolidated statement of operations:

	Year Ended December 31, 2023
		Redbox		1091		Total
Net revenue	$	151,046,990	$	25,662,405	$	176,709,395
Net income (loss)	$	(454,028,894)	$	4,275,804	$	(449,753,090)
	Year Ended December 31, 2022
		Redbox		1091		Total
Net revenue	$	86,322,726	$	40,992,549	$	127,315,275
Net income (loss)	$	(35,870,971)	$	24,034,837	$	(11,836,134)

Unaudited Pro Forma Financial Information

The following table reflects the pro forma operating results for the Company which gives effect to the acquisition of Redbox as if it had occurred on January 1, 2022. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of future results. The pro forma financial information includes the historical results of the Company and Redbox adjusted for certain items, which are described below, and does not include the effects of any synergies or cost reduction initiatives related to the acquisition.

	Year Ended
	December 31, 2022
Net revenue	$	409,200,000
Net loss	$	(287,625,000)

Pro forma net losses for the year ended December 31, 2022 reflect adjustments primarily related to acquisition costs, interest expense, the amortization of intangible assets and stock-based compensation expense. The unaudited pro forma financial information is not necessarily indicative of what the Company’s consolidated results would have been if the acquisition had been completed at the beginning of the respective periods.