Chicken Soup for the Soul Entertainment, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EX-32.2 - Chicken Soup for the Soul Entertainment, Inc.	csse-20200930ex322ab5206.htm
EX-32.1 - EX-32.1 - Chicken Soup for the Soul Entertainment, Inc.	csse-20200930ex321af1516.htm
EX-31.2 - EX-31.2 - Chicken Soup for the Soul Entertainment, Inc.	csse-20200930ex312f5a34e.htm
EX-31.1 - EX-31.1 - Chicken Soup for the Soul Entertainment, Inc.	csse-20200930ex311264c81.htm

Table of Contents

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 September 30, 2020

◻	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 Putman 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 November 12, 2020 totaled 12,670,884 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		4,856,946
Class B Common Stock, $.0001 par value per share*		7,813,938

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

Table of Contents

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 September 30, 2020 and December 31, 2019	3

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019	4

	Condensed Consolidated Statements of Equity for the nine months ended September 30, 2020 and 2019	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	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	45

ITEM 4.	Controls and Procedures	46

	PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings	46

ITEM 1A.	Risk Factors	47

ITEM 2.	Unregistered Sales of Equity Securities	47

ITEM 3.	Defaults Upon Senior Securities	47

ITEM 4.	Mine Safety Disclosures	48

ITEM 5.	Other Information	48

ITEM 6.	Exhibits	48

SIGNATURES		49

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Chicken Soup for the Soul Entertainment, Inc.

Condensed Consolidated Balance Sheets


	September 30,		December 31,
	2020		2019
	(unaudited)
ASSETS
Cash and cash equivalents	$	9,243,315	$	6,447,402
Accounts receivable, net of allowance for doubtful accounts of $1,777,744 and $1,531,247, respectively		24,772,024		34,661,119
Prepaid expenses and other current assets		2,985,503		1,173,223
Goodwill		21,448,106		21,448,106
Indefinite lived intangible assets		12,163,943		12,163,943
Intangible assets, net		20,575,942		35,451,951
Film library, net		36,878,196		33,250,149
Due from affiliated companies		6,081,324		7,642,432
Programming costs and rights, net		20,702,405		15,113,574
Other assets, net		4,794,239		313,585
Total assets	$	159,644,997	$	167,665,484

LIABILITIES AND EQUITY
Current maturities of commercial loan	$	—	$	3,200,000
Commercial loan, net of unamortized deferred finance costs of $0 and $189,525, respectively		—		11,810,475
9.50% Notes due 2025, net of unamortized deferred finance costs of $1,059,401 and $0, respectively		21,040,599		—
Notes payable under revolving credit facility		2,500,000		5,000,000
Film acquisition advance		10,210,000		—
Accounts payable and accrued expenses		25,923,748		26,646,390
Ad representation fees payable		3,021,520		12,429,838
Film library acquisition obligations		10,609,186		5,020,600
Programming obligations		6,416,012		7,300,861
Accrued participation costs		12,894,099		5,066,512
Other liabilities		1,777,548		170,106
Total liabilities		94,392,712		76,644,782
Commitments and contingencies (Note 14)

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; 1,732,139 and 1,599,002 shares issued and outstanding, respectively; redemption value of $43,303,475 and $39,975,050, respectively		173		160
Class A common stock, $.0001 par value, 70,000,000 shares authorized; 4,919,195 and 4,259,920 shares issued, 4,844,960 and 4,185,685 shares outstanding, respectively		492		425
Class B common stock, $.0001 par value, 20,000,000 shares authorized; 7,813,938 shares issued and outstanding		782		782
Additional paid-in capital		96,498,618		87,610,030
Deficit		(67,182,836)		(32,695,629)
Class A common stock held in treasury, at cost (74,235 shares)		(632,729)		(632,729)
Total stockholders’ equity		28,684,500		54,283,039
Subsidiary convertible preferred stock		36,350,000		36,350,000
Noncontrolling interests		217,785		387,663
Total equity		65,252,285		91,020,702
Total liabilities and equity	$	159,644,997	$	167,665,484

See accompanying notes to unaudited condensed consolidated financial statements.

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Chicken Soup for the Soul Entertainment, Inc.

Condensed Consolidated Statements of Operations

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue:
Online networks	$	6,652,562	$	14,383,659	$	21,038,965	$	25,128,001
Distribution and Production		13,318,050		2,662,429		26,948,795		6,655,114
Total revenue		19,970,612		17,046,088		47,987,760		31,783,115
Less: returns and allowances		(608,861)		(255,394)		(1,861,396)		(828,785)
Net revenue		19,361,751		16,790,694		46,126,364		30,954,330
Cost of revenue		14,840,851		13,614,648		37,684,786		23,568,743
Gross profit		4,520,900		3,176,046		8,441,578		7,385,587
Operating expenses:
Selling, general and administrative		9,301,550		6,371,870		23,194,223		13,894,351
Amortization and depreciation		4,576,742		4,695,522		15,022,885		5,631,136
Management and license fees		1,936,175		1,676,303		4,612,636		3,091,093
Total operating expenses		15,814,467		12,743,695		42,829,744		22,616,580
Operating loss		(11,293,567)		(9,567,649)		(34,388,166)		(15,230,993)
Interest expense		659,803		195,881		1,322,831		483,363
Loss on extinguishment of debt		169,219		350,691		169,219		350,691
Acquisition-related costs		—		1,078,637		98,926		3,735,373
Other non-operating income, net		(43,445)		(8,997)		(4,381,292)		(34,546)
Loss before income taxes and preferred dividends		(12,079,144)		(11,183,861)		(31,597,850)		(19,765,874)
Provision for income taxes		26,000		1,248,000		93,000		557,000
Net loss before noncontrolling interests and preferred dividends		(12,105,144)		(12,431,861)		(31,690,850)		(20,322,874)
Net loss attributable to noncontrolling interests		(73,135)		(37,473)		(169,878)		(36,960)
Net loss attributable to Chicken Soup for the Soul Entertainment, Inc.		(12,032,009)		(12,394,388)		(31,520,972)		(20,285,914)
Less: preferred dividends		1,017,691		929,387		2,966,235		2,330,675
Net loss available to common stockholders	$	(13,049,700)	$	(13,323,775)	$	(34,487,207)	$	(22,616,589)
Net loss per common share:
Basic and diluted	$	(1.04)	$	(1.11)	$	(2.83)	$	(1.89)

See accompanying notes to unaudited condensed consolidated financial statements.

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Chicken Soup for the Soul Entertainment, Inc

Condensed Consolidated Statements of Equity

(unaudited)


	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, 2019 (audited)	1,599,002	$	160		4,259,920	$	425		7,813,938	$	782	$	87,610,030	$	(32,695,629)	$	(632,729)	$	36,350,000	$	387,663	$	91,020,702
Share based compensation - stock options													213,585										213,585
Share based compensation - common stock													31,250										31,250
Shares issued to directors					7,805		1						(1)										—
Dividends															(974,272)								(974,272)
Net loss attributable to noncontrolling interest																					(52,854)		(52,854)
Net loss															(10,453,108)								(10,453,108)
Balance, March 31, 2020	1,599,002	$	160		4,267,725	$	426		7,813,938	$	782	$	87,854,864	$	(44,123,009)	$	(632,729)	$	36,350,000	$	334,809	$	79,785,303
Share based compensation - stock options													198,023										198,023
Share based compensation - common stock													31,250										31,250
Dividends															(974,272)								(974,272)
Net loss attributable to noncontrolling interest																					(43,889)		(43,889)
Net loss															(9,035,855)								(9,035,855)
Balance, June 30, 2020	1,599,002	$	160		4,267,725	$	426		7,813,938	$	782	$	88,084,137	$	(54,133,136)	$	(632,729)	$	36,350,000	$	290,920	$	69,960,560
Share based compensation - stock options													230,123										230,123
Share based compensation - common stock													116,650										116,650
Stock options exercised					10,000		1						74,999										75,000
Shares issued to directors					6,470		1						(1)										—
Common stock grant					10,000		1						(1)										—
Issuance of common stock					625,000		63						4,999,937										5,000,000
Issuance of preferred stock, net	133,137		13										2,992,774										2,992,787
Dividends															(1,017,691)								(1,017,691)
Net loss attributable to noncontrolling interest																					(73,135)		(73,135)
Net loss															(12,032,009)								(12,032,009)
Balance, September 30, 2020	1,732,139	$	173		4,919,195	$	492		7,813,938	$	782	$	96,498,618	$	(67,182,836)	$	(632,729)	$	36,350,000	$	217,785	$	65,252,285

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents


	Preferred Stock			Common Stock															Subsidiary
				Class A				Class B				Additional		Retained					convertible
		Par				Par				Par		Paid-In		(Deficit)		Treasury			Preferred		Noncontrolling
	Shares	Value		Shares		Value		Shares		Value		Capital		Earnings		Stock			Stock		Interests	Total
Balance, December 31, 2018 (audited)	918,497	$	92		4,227,740	$	421		7,817,238	$	782	$	59,360,583	$	2,281,187	$	(632,729)	$	—	$	—	$	61,010,336
Share based compensation - stock options													190,847										190,847
Share based compensation - common stock													25,000										25,000
Issuance of preferred stock	140,000		14										3,499,986										3,500,000
Preferred stock issuance costs													(288,160)										(288,160)
Dividends															(603,307)								(603,307)
Net loss															(2,773,430)								(2,773,430)
Balance, March 31, 2019	1,058,497	$	106		4,227,740	$	421		7,817,238	$	782	$	62,788,256	$	(1,095,550)	$	(632,729)	$	—	$	—	$	61,061,286
Share based compensation - stock options													250,097										250,097
Share based compensation - common stock													25,000										25,000
Issuance of preferred stock	279,505		28										6,987,597										6,987,625
Preferred stock issuance costs													(538,295)										(538,295)
Stock options exercised					16,666		2						160,159										160,161
Conversion of class B shares to class A shares					3,300		—		(3,300)		—												—
Dividends															(797,981)								(797,981)
Crackle business combination													15,322,531						36,350,000		521,945		52,194,476
Net income attributable to noncontrolling interest																					513		513
Net loss													—		(5,118,096)								(5,118,096)
Balance, June 30, 2019	1,338,002	$	134		4,247,706	$	423		7,813,938	$	782	$	84,995,345	$	(7,011,627)	$	(632,729)	$	36,350,000	$	522,458	$	114,224,786
Share based compensation - stock options													236,351										236,351
Issuance of preferred stock	261,000		26										6,524,974										6,525,000
Preferred stock issuance costs													(663,251)										(663,251)
Shares issued to directors					6,956		1						25,000										25,001
Employee stock grant					5,258		1						41,854										41,855
Dividends															(929,387)								(929,387)
Crackle business combination													(3,083,130)										(3,083,130)
Net loss attributable to noncontrolling interest																					(37,473)		(37,473)
Net loss															(12,394,388)								(12,394,388)
Balance, September 30, 2019	1,599,002	$	160		4,259,920	$	425		7,813,938	$	782	$	88,077,143	$	(20,335,402)	$	(632,729)	$	36,350,000	$	484,985	$	103,945,364

See accompanying notes to unaudited condensed consolidated financial statements.

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Chicken Soup for the Soul Entertainment, Inc

Condensed Consolidated Statements of Cash Flows

(unaudited)


	Nine months ended September 30,
	2020		2019
Cash flows from Operating Activities:
Net loss	$	(31,690,850)	$	(20,322,874)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation		820,881		794,149
Amortization of programming costs and rights		216,486		451,050
Amortization of deferred financing costs		65,905		72,063
Amortization and depreciation of intangibles, property and equipment		15,661,774		5,631,136
Amortization of film library		16,781,685		3,475,471
Bad debt and video return expense		4,072,785		1,241,243
Realized and unrealized losses on marketable securities		183,815		—
Loss on debt extinguishment		169,219		350,691
Other non-operating income		(5,530,650)		—
Deferred income taxes		—		452,000
Changes in operating assets and liabilities:
Trade accounts receivable		5,816,310		(16,132,075)
Prepaid expenses and other assets		(2,691,799)		(933,210)
Programming costs and rights		(5,805,317)		(1,622,067)
Film library		(20,409,732)		(10,134,353)
Accounts payable, accrued expenses and other payables		(7,000,310)		17,797,811
Film library acquisition and programming obligations		6,093,737		3,019,500
Accrued participation costs		7,827,587		(230,564)
Other liabilities		1,607,442		(278,870)
Net cash used in operating activities		(13,811,032)		(16,368,899)
Cash flows from Investing Activities:
Expenditures for property and equipment		(2,811,225)		—
Sales of marketable securities		640,510		—
Decrease (increase) in due from affiliated companies		1,561,108		(5,796,629)
Net cash used in investing activities		(609,607)		(5,796,629)
Cash flows from Financing Activities:
Proceeds from commercial loan		—		8,665,000
Repayments of commercial loan		(15,200,000)		(666,667)
Repayments of revolving credit facility		(2,500,000)		—
Proceeds from 9.50% notes due 2025, net		20,995,000		—
Proceeds from film acquisition advance		8,820,000		—
Proceeds from issuance of Class A common stock		5,000,000		—
Proceeds from issuance of common stock under equity plans		75,000		160,161
Proceeds from issuance of Series A preferred stock, net		2,992,787		15,522,919
Dividends paid to preferred stockholders		(2,966,235)		(2,330,675)
Payment of deferred financing costs		—		(192,004)
Net cash provided by financing activities		17,216,552		21,158,734
Net increase (decrease) in cash and cash equivalents		2,795,913		(1,006,794)
Cash and cash equivalents at beginning of period		6,447,402		7,201,758
Cash and cash equivalents at end of the period	$	9,243,315	$	6,194,964

Supplemental data:
Interest paid	$	977,925	$	376,881
Non-cash investing activities:
Property and equipment in accounts payable and accrued expenses	$	2,400,000	$	—
Crackle Plus business combination	$

Chicken Soup for the Soul Entertainment, Inc. - FORM 10-Q - November 12, 2020

Attached files