Table of Contents
(Mark One)
Director*
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
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
(State or other jurisdiction of incorporation)
132 East Putnam Avenue – Floor 2W, Cos Cob, CT
(Address of Principal Executive Offices)
81-2560811
(I.R.S. Employer Identification No.)
06807
(Zip Code)
855-398-0443
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Class A common stock, $.0001 par value per share
Trading
Symbol(s)
CSSE
Name of Each Exchange on Which Registered
The Nasdaq Stock Market LLC
9.75% Series A Cumulative Redeemable Perpetual Preferred Stock,
$0.0001 par value per share
CSSEP
The Nasdaq Stock Market LLC
9.50% Notes Due 2025
CSSEN
Securities registered pursuant to Section 12(g) of the Act: None
The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐ No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ⌧
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 ☐
Non-accelerated filer ⌧
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
reports. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ⌧
As of June 30, 2021, the aggregate market value of the shares of the registrant’s common stock held by non-affiliates was approximately $277.4 million.
The number of shares of Common Stock outstanding as of March 30, 2022 totaled 15,368,498 as follows:
Title of Each Class
Class A common stock, $.0001 par value per share
Class B common stock, $.0001 par value per share*
7,713,992
7,654,506
*Each share convertible into one share of Class A common stock at the direction of the holder at any time.
Documents Incorporated by Reference
Portions of the registrant’s Proxy Statement for Registrant’s 2022 Annual Meeting of Stockholders to be filed at a later date are incorporated by reference into
Part III of this Annual Report on Form 10-K.
Table of Contents
TABLE OF CONTENTS
Page
PART I
PART II
ITEM 1. Business
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Mine Safety Disclosures
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
ITEM 6. Selected Financial Data
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
ITEM 11 Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. Principal Accountant Fees and Services
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
ITEM 16. Form 10-K Summary
SIGNATURES
1
4
10
30
30
30
30
31
31
32
43
F-1
45
45
46
46
46
46
46
46
47
48
49
Table of Contents
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements
regarding: our core strategy; operating income and margin; seasonality; liquidity, including cash flows from operations,
available funds and access to financing sources; free cash flows; revenues; net income; profitability; stock price volatility;
future regulatory changes; pricing changes; the impact of, and the company's response to new accounting standards; action
by competitors; user growth; partnerships; user viewing patterns; payment of future dividends; obtaining additional capital,
including use of the debt market; future obligations; our content and marketing investments, including investments in original
programming; amortization; significance and timing of contractual obligations; tax expense; recognition of unrecognized tax
benefits; and realization of deferred tax assets. These forward-looking statements are subject to risks and uncertainties that
could cause actual results and events to differ. A detailed discussion of these and other risks and uncertainties that could
cause actual results and events to differ materially from such forward-looking statements is included throughout this filing and
particularly in Item 1A: "Risk Factors" section set forth in this Annual Report. All forward-looking statements included in this
document are based on information available to us on the date hereof, and we assume no obligation to revise or publicly
release any revision to any such forward-looking statement, except as may otherwise be required by law.
In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking statements. The words “target,” “anticipate,” “believe,”
“continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,”
“project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these
words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this Annual Report are based on current expectations and beliefs concerning
future developments and their potential effects on our company and its subsidiaries. There can be no assurance that future
developments will be those that have been anticipated. We may not actually achieve the plans, intentions or expectations
disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. You
should read this Annual Report and the documents we have filed as exhibits to this Annual Report completely and with the
understanding our actual future results may be materially different from what we expect, or events could differ materially from
the plans, intentions and expectations disclosed in the forward-looking statements we make. Our forward-looking statements
do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may
make.
2
Table of Contents
SUMMARY RISK FACTORS
Our business involves various risks. Many of these risks are discussed in this Report under the heading “Item 1A. Risk
Factors.” If any of these risks occur, our business, financial condition, liquidity, results of operations, prospects and ability to
make interest payments to our noteholders and distributions to our shareholders could be materially and adversely affected. In
that case, the trading price of our securities could decline, and you may lose a portion or your investment. These risks include:
● We have and may continue to incur losses in the operation of our business.
● We may not be able to generate sufficient cash to service our debt, preferred stock dividend and other obligations or
our ability to pay our preferred stock dividends could be adversely affected or prohibited upon default under our
current or future indebtedness.
● Difficult conditions in the economy generally and our industry specifically resulting from the COVID 19 pandemic
may cause interruptions in our operations, a slow-down in the production or acquisition of new content, and changes
in demand for our products and services, which may have a material adverse effect on our business operations and
financial condition.
● Competition could have a material adverse effect on our business, financial condition and results of operations.
● Interruptions in our ability to provide our video on demand products and our service to our customers could damage
our reputation, which could have a material adverse effect on us.
● The occurrence of cyber-incidents, or a deficiency in our cybersecurity or in those of any of our third party service
providers, could negatively impact our business by causing a disruption to our operations, a compromise or
corruption of our confidential information or damage to our business relationships or reputation, all of which could
negatively impact our business and results of operations.
● The loss of key personnel, including our executive officers, could have a material adverse effect on us.
● Our inability to recruit or retain qualified personnel or maintain access to key third-party service providers, could
have a material adverse effect on us.
● The market price and trading volume of our securities may be volatile.
● We are required to make continuing payments to our affiliates, which may reduce our cash flow and profits.
Additionally, conflicts of interest may arise between us and our affiliated companies and we have waived rights for
monetary damages in the event of such conflicts.
3
Table of Contents
PART I
Our company, Chicken Soup for the Soul Entertainment, Inc., is referred to in this Annual Report on Form 10-K as “CSSE,”
the Company,” or “we” or similar pronouns. References to:
● “CSS Productions” means Chicken Soup for the Soul Productions, LLC, our immediate parent;
● “CSS” means Chicken Soup for the Soul, LLC, our intermediate parent company;
● “CSS Holdings” means Chicken Soup for the Soul Holdings, LLC, the parent company of CSS and our ultimate
parent company;
● “Screen Media” means Screen Media Ventures, LLC, a wholly owned subsidiary of CSSE;
● “A Plus” means A Sharp Inc. (d/b/a A Plus), a wholly owned subsidiary of CSSE;
● “Pivotshare” means Pivotshare, Inc., a wholly owned subsidiary of CSSE;
● “Crackle Plus” means Crackle Plus, LLC, a wholly owned subsidiary of CSSE which was originally formed by CSSE
and CPE Holdings, Inc. (an affiliate of Sony Pictures Television Inc.);
● “Landmark Studio Group” means Landmark Studio Group, a majority owned subsidiary of CSSE;
● “Halcyon Television” means Halcyon Television, LLC, a wholly owned subsidiarity of CSSE;
● “CSS AVOD” means CSS AVOD Inc., a majority owned subsidiary of CSSE; and
● “1091 Pictures” means TOFG, LLC, a wholly owned subsidiary of Screen Media Ventures, LLC.
ITEM 1. Business
Overview of our Business
Chicken Soup for the Soul Entertainment, Inc. is a leading streaming video-on-demand (VOD) company. We operate Crackle
Plus, a portfolio of ad-supported VOD streaming services (AVOD) and free ad-supported television linear channels (FAST), 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.
Crackle Plus is comprised of unique curated streaming services, each delivering popular and original premium content focused
on specific themes such as drama, comedy, horror, paranormal, documentaries, and sports. Through our recently launched
Chicken Soup for the Soul streaming service, we offer lifestyle, family and kids content. Our Crackle Plus portfolio of
streaming services are branded and includes Crackle (among the most watched ad-supported independent VOD streaming
services), Chicken Soup for the Soul, Popcornflix, Popcornflix Kids, Truli, Españolflix and FrightPix. As of December 31,
2021, Crackle Plus served more than 40 million monthly active visitors through many distribution platforms including Roku,
Amazon Fire, Vizio and others. These visitors viewed content produced through our various television production affiliates,
acquired by Screen Media, or licensed from Sony Pictures Television (SPT), Lionsgate, Paramount Global, Fox, Warner
Media and more than 100 other production and distribution companies, as well as through our media partners. Crackle Plus
networks have access to approximately 14,500 films and 24,000 television episodes of licensed or company-owned original or
exclusive programming. The acquisition of 1091 Pictures in March of 2022, added approximately 4,000 films and episodes of
licensed content as well as established FAST and AVOD channels in genre specific verticals with approximately 1 billion
yearly ad-impressions.
4
Table of Contents
Screen Media manages one of the industry’s largest independently owned television and film libraries consisting of
approximately 20,000 films and television episodes. Screen Media also acquires between approximately 10 and 20 new
feature films each year and a few hundred genre titles. Screen Media provides content for the Crackle Plus portfolio and also
distributes its library to other exhibitors and third-party networks to generate additional revenue and operating cash flow. Our
Halcyon Television subsidiary manages the extensive film and television library we acquired from Sonar Entertainment in
2021. This library is distributed by Screen Media and contains more than 1,000 titles, and 4,000 hours of programming,
ranging from classics, including The Little Rascals, Laurel & Hardy and Blondie (produced by Hal Roach Studios), to
acclaimed epic event mini-series such as Lonesome Dove and Dinotopia. Our Halcyon library titles have received 446 Emmy
Award nominations, 105 Emmy Awards and 15 Golden Globe Awards. In March of 2022, Screen Media acquired 1091
Pictures that provides a diverse library of approximately 4,000 movies and television series.
Chicken Soup for the Soul Television Group, which was formed in the fourth quarter of 2021, houses our film and television
production activities and produces or co-produces original content for Crackle Plus as well as content for other third-party
networks. This group’s production efforts are conducted through a number of affiliates, including Landmark Studio Group,
Chicken Soup for the Soul Studios, APLUS.com, the recently acquired Locomotive Global Inc., and Halcyon Studios, which
was formed in connection with our acquisition of the assets of Sonar Entertainment. Halcyon Studios develops, produces,
finances and distributes high-caliber content for our company for all platforms across a broad spectrum in the U.S. and
internationally, including shows such as Hunters (Amazon Prime) and Mysterious Benedict Society (Disney+).
Collectively, Screen Media and Chicken Soup for the Soul Television Group enable us to acquire, produce, co-produce and
distribute content, including our original and exclusive content, in support of our streaming services. We believe that we are
the only independent, AVOD business with the proven capability to acquire, create and distribute original programming, and
that we have one of the largest libraries of company-owned and third-party content in the AVOD industry. We believe this
differentiation is important as consumers materially shift their viewing habits from network-scheduled viewing to individual,
personal on-demand viewing in response to the ever-growing availability of high-speed content delivery across devices.
According to industry projections, the U.S. market for AVOD network revenue is expected to increase from $26.6 billion in
2020 to $53.5 billion in 2025. At the same time, advertising spending on traditional linear television networks is expected to
decline as more viewers transition from pay television subscriptions to online video viewing. For these reasons, interest in the
AVOD business model is increasing, evidenced by traditional linear network operators increasingly seeking to acquire or
launch AVOD networks to maintain access to viewers making this transition. We believe AVOD networks will continue to
grow rapidly, particularly as consumers seek affordable programming alternatives to multiple SVOD offerings.
Since our inception in January 2015, our business has grown rapidly. For the full year 2021, our net revenue was $110.4
million, as compared to the full year 2020 net revenue of $66.4 million. Our 2021 Adjusted EBITDA was approximately,
$21.8 million, as compared to 2020 Adjusted EBITDA of $11.8 million. We had net losses of approximately $59.4 million in
2021, as compared to net losses of $44.6 million in 2020. As described below in “Use of Non-GAAP Financial Measure”, we
use Adjusted EBITDA as an important metric for management. See “Item 7. Management’s Discussion and Analysis of
Financial Condition” and “Item 8. Financial Statements” for more information.
Our Strategy
We believe our company is in a differentiated position within the growing and evolving AVOD industry. We identified the
trends favoring growth of AVOD streaming services in 2015 and began building our offering in 2017, including the
development of our original content production strategy. Since then, we have built a premier ad-supported streaming service
that delivers utility and value to viewers and advertisers. We believe our company has the advantage of being unencumbered
by the often conflicting strategic choices and priorities faced by diversified media companies that own both legacy linear
television networks and VOD streaming services intended to compete with legacy networks. We are singularly focused on
building leading VOD streaming services that feature a range of mass-appeal and thematic content,
5
Table of Contents
with a focus on original and exclusive content, and which employ innovative user platforms and data analytics to deliver more
personalized viewing experiences and more engaging advertising. We are executing on our strategy in three ways:
● Content: Cost-effectively grow our production business, our content library asset and our ownership of
content rights.
o Original & Exclusive programming. Our focus on “originals and exclusives” content, supported by our
distribution and production business, is designed to distinguish our network brands among viewers. We are
able to add to our existing broad base of content without the significant capital outlay of a traditional
television or film studio by producing new originals at low cost through creative partnerships, such as our
award-winning 2019 series Going from Broke, which will begin production of its third season in 2022.
o Expanding production capacity. We believe we can continue to build an attractive and cost-effective content
development pipeline by expanding our production capacity through acquisitions and partnerships. In May
2021, we acquired the assets of Sonar Entertainment and in October 2021, we acquired a majority stake in
Locomotive Global, a content development and production services business based in India. We continue to
partner with proven industry talent who, we believe, often prefer to work outside of the consolidated major
studio industry, where it is increasingly difficult for this talent to control the creative process for and
ownership rights in their intellectual property.
o Content acquisition and rights ownership. Through Screen Media, we continue to acquire the rights to
additional exclusive content. This strategy reduces our reliance on content licensing, which leads to lower
costs of revenue and increased gross margin and provide us with wider distribution opportunities to generate
additional revenue. When economically attractive, we often, from time to time, choose to sell all or a subset
of rights of an individual title in our content library to generate funds to keep our overall investment in
content cost effective and maximize returns to our investors.
● Advertising: Utilize technology and data to deliver innovative advertising formats and relevant ads that
engage viewers.
o Advertiser-desired audience profile. We believe we enjoy strong relationships with leading advertisers based
on our demographic reach, our sales approach and our commitment to premium content and innovative,
engaging ad formats. Our networks offer advertisers a desirable target audience. The average age of our
Crackle viewers is 33, compared to 58 for traditional broadcast networks, and 54 for advertising-supported
cable networks. We estimate that 32% of our viewers fall in the 18-34 age demographic.
o Diverse sales channels. We employ a diverse and targeted advertising sales strategy, using direct, local
reseller and programmatic sales channels to provide us with optionality based on market conditions. Most of
our advertising revenues are derived from direct sales and local reseller agreements, which we believe give
us greater margin contribution and control over our advertising avails than is possible with traditional
programmatic advertising. The majority of our programmatic advertising sales are sold by our direct sales
force and executed programmatically, providing greater insights and data to our customers, resulting in,
higher than normal programmatic CPMs.
o
Technology investment. As we grow our portfolio of streaming services, we are upgrading substantially all
of our streaming applications during the first half of 2022 to enhance the user experience, including intuitive
navigation, a new video player, seamless ad insertion and a content recommendation engine. These features
are just the beginning of achieving our goal of building the best AVOD streaming services. We are also
testing new advertising formats and technologies that drive user engagement and offer increased value to
advertisers. For example, our “Jumbotron” format engages viewers immediately upon their entry to the
Crackle app through video and sound, with premium ad placement on our “Spotlight Channel”. Our
“FreeView” format offers viewers who select a title the option to watch one
6
Table of Contents
30 to 60 second advertisement before starting the program, in exchange for an extended advertisement-free
experience. “FreeView” has been demonstrated to drive higher user engagement with the placed
advertisement and higher brand recall. As we execute on all of these initiatives, we believe we will be
positioned to increase both overall advertising sales and ad insertion rates, firmly establishing our AVOD
streaming services as a compelling option for advertisers compared to traditional linear broadcast or cable
networks.
● Viewership: Grow distribution to gain new viewers and employ sophisticated data analytics to deliver more
compelling experiences.
o Content and Distribution. We exploit our growing libraries of quality content to grow and retain viewers on
our streaming services. To augment audience acquisition, we have engaged in distribution arrangements
with an increasing number of media platforms including Roku, Amazon Fire, Vizio, Samsung, LG and
others, as well as, increased advertising and branding on and off media platforms. In spring 2021, for
example, our new distribution partnership with Vizio started featuring a “Crackle button” on a large number
of new Vizio television remote controls, which increases consumer awareness of Crackle and guides them
directly to our leading AVOD service.
o New Genre-specific Networks. As we grow our content libraries, we are also continuously evaluating
opportunities to create new thematic networks that focus on certain genres and types of programming, and
we expect these networks to deliver more targeted advertising opportunities to marketers. These efforts are
exemplified by our acquisition of 1091 Pictures in March 2022. We are also actively evaluating
opportunities to acquire additional AVOD networks that can accelerate our path to even greater scale.
o Personalized Viewer Experiences. As we grow viewership, we are creating a large, valuable data base that
we use to better understand what our viewers watch and how they engage with advertising. We are
increasingly investing in capabilities to manage and analyze our data with the goal of better personalizing
viewer experiences and enabling targeted advertising.
7
Table of Contents
Competition
We are in a highly competitive business. The market for streaming entertainment is rapidly changing. We face competition
from companies within the entertainment business and from alternative forms of leisure entertainment, such as travel, sporting
events, outdoor recreation, video games, the internet and other cultural and computer-related activities. We compete for
viewers and programming with companies such as Netflix, HBO Max, Hulu, Amazon Prime Video, Disney Plus, Paramount
Plus, Fox, and major film and television studios. We also compete with numerous independent motion picture and television
distribution and production companies, television networks, pay television systems and online media platforms for viewers,
subscribers, and the services of performing artists, producers and other creative and technical personnel and production
financing, all of which are essential to the success of our businesses.
In addition, our video content competes for media outlet and audience acceptance with video content produced and distributed
by other companies. As a result, the success of any of our video content is dependent not only on the quality and acceptance of
a particular production, but also on the quality and acceptance of other competing video content available in the marketplace at
or near the same time.
Given such competition, and our stage of development, we emphasize a lower cost structure, risk mitigation, reliance on
financial partnerships and innovative financial strategies. We rely on our flexibility and agility as well as the entrepreneurial
spirit of our employees, partners and affiliates, in order to provide creative, desirable video content.
Intellectual Property
We are party to the “CSS License Agreement,” (as defined) through which we have been granted the perpetual, exclusive,
worldwide license by CSS to exclusively exhibit, produce and distribute video content using the Chicken Soup for the Soul
brand and related content, such as stories published in the Chicken Soup for the Soul books. Chicken Soup for the Soul and
related names are trademarks owned by CSS. We have the proprietary rights (including copyrights) in all company-produced
content and believe the Brand provides a competitive advantage in attracting advertisers and entertainment talent. As a result
of the acquisitions of Screen Media, Crackle, the assets of Sonar Entertainment, 1091 Pictures and the licensing of other
libraries we now own copyrights or long-term distribution rights and AVOD rights to approximately 110,000 programming
assets totaling over 94,000 programming hours.
We rely on a combination of copyright, trademark, trade secret laws, confidentiality procedures, contractual provisions and
other similar measures to protect our proprietary information and intellectual property rights. Our ability to protect and enforce
our intellectual property rights is subject to certain risks and from time to time we encounter disputes over rights and
obligations concerning intellectual property, which are described more fully in the section titled “Risk Factors”.
Human Capital Management
At Chicken Soup for the Soul Entertainment, we aim to bring out the best of our employees and consultants. We are
committed to developing our employees and encourage and facilitate the development of our employees through our People
Operations department. We depend on a highly educated and skilled workforce. We seek to advance a diverse, equitable and
inclusive work environment for all employees. Our ability to attract, develop and retain the best talent, is critical for us to
execute our strategy and grow our businesses.
As of December 31, 2021, we had 151 direct employees. The services of certain personnel, including our chairman and chief
executive officer, vice chairman and chief strategy officer, our senior brand advisor and director, and chief financial officer,
among others, are provided to us under the Management Services Agreement dated May 12, 2016, between us and CSS (“CSS
Management Agreement”). We also utilize consultants in the ordinary course of our business and hire additional personnel on
a project-by-project basis. We believe that our employee and labor relations are good, and we are committed to inclusion and
strict policies and procedures to maintain a safe work environment. We have taken measures to protect our workforce in
response to the COVID-19 pandemic, including allowing employees to work from home when possible and implementing
safety protocols to support our employees required to work onsite.
8
Table of Contents
We value our employees and invest in them and their communities. Recently, we joined a growing group of companies
working with Good Today to enable our employees to participate in supporting non-profit organizations to support initiatives
that have a positive global impact.
9
Table of Contents
ITEM 1A. Risk Factors
Unless the context otherwise requires, references herein to VOD include both our AVOD and FAST streaming services.
Risks Relating to COVID-19
Our business, results of operations, and financial condition may be impacted by the evolution of the coronavirus (COVID-
19).
The global spread of the coronavirus (COVID-19) and the various attempts to contain it created significant volatility,
uncertainty and economic disruption in 2021. In response to government mandates, health care advisories, and employee and
vendor concerns, we altered certain aspects of our operations during the pandemic, including implementing a work from home
policy for all our employees. We are now engaged in a “return to office” program under which our employees are returning to
our offices for most work days. It is possible, however, that currently improving Covid-related conditions reverse course,
including as result of the emergence of new strains of the virus, which could force us to return to remote operations in whole
or part. Although we believe we transitioned our operations to handle remote working conditions efficiently, requirements to
implement remote working policies in the future could adversely impact our productivity and the internal controls over our
operations.
Although our operations have been returning to normal conditions, our business and results were affected in 2021 by COVID-
19 and our financial results and metrics may not be indicative of results for future periods. In addition to production delays
experienced by our company and third-party producers, we also saw material decreases, for a time, in advertising expenditures
as a result of general economic conditions. At the same time, we experienced increases in our user base during the height of
the pandemic. Our increase in user additions may reflect the acceleration of our growth that we would have seen in subsequent
periods or it may have resulted, in part, from more people remaining indoors during the pandemic. Although we continually
seek to build and retain our user base through the introduction of new content and improved user experiences, user growth
could slow or reverse as government and other restrictions are relaxed.
Any resurgence of COVID-19, including variants thereof, or an outbreak of other highly contagious viruses, could disrupt our
business in material ways, including disruptions similar to those experienced during the pandemic as well as additional
disruptions. During the pandemic, from time to time, the production of our content by our company and third-party producers
was halted or slowed, limiting our ability to introduce new content as previously scheduled. To the extent any future economic
disruption resulting from COVID-19 or similar pandemics is severe, we could see some vendors go out of business, resulting
in supply constraints and increased costs or delays to our productions. Such production pauses may cause us temporarily to
have less new content available on our service in subsequent quarters, which could negatively impact consumer demand for
and user retention to our service. Temporary production pauses or permanent shutdowns in production could result in content
asset impairments or other charges and will change the timing and amount of cash outflows associated with production
activity.
The full extent to which any future or continued outbreaks of COVID-19 or other viruses impact our business, operations and
financial results will depend on numerous factors that we may not be able to accurately predict, including: the duration and
scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to
the pandemic; the availability and cost to access the capital markets; the effect on our customers and customer demand for our
services; disruptions or restrictions on our employees’ ability to work and travel; our ability to hire and retain qualified
personnel as a result of increased competition for such personnel; our ability to access resources, including technology related
resources needed for maintenance, modification, and improvement of our platforms, in the face of supply scarcity and supply
pipeline delays; interruptions or restrictions related to the provision of streaming services over the internet, including impacts
on content delivery networks and streaming quality; and any stoppages, disruptions or increased costs associated with our
development, production, post-production, marketing and distribution of original programming.
10
Table of Contents
Risks Relating to Our Business
We have incurred operating losses in the past, may incur operating losses in the future, and may never achieve or maintain
profitability.
As of December 31, 2021 and 2020, we had an deficit of approximately $136.5 and $77.2 million, respectively, and for the
years ended December 31, 2021 and 2020, we had a net loss of approximately $59.4 and $44.6 million, respectively. We
expect our operating expenses to increase in the future as we continue to expand our operations. If our revenue and gross
profit do not grow at a greater rate than our operating expenses, we will not be able to achieve and maintain profitability.
Although we believe we have adequate sources of liquidity to meet our anticipated requirements for working capital, capital
expenditures, cash dividend payments on our 9.75% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A
Preferred Stock”), and cash interest payments on our outstanding publicly traded notes (“Notes”), credit facilities, and other
debt obligations, there can be no assurance that our cash flow from operations will be sufficient to service our debt, which may
require us to borrow additional funds for that purpose, restructure or otherwise refinance our debt. Additionally, we may
encounter unforeseen operating or legal expenses, difficulties, complications, delays and other factors that may result in losses
in future periods. If our expenses exceed our revenue, we may never achieve or maintain profitability and some or all aspects
of our business operations may need to be modified or curtailed.
We may not be able to generate sufficient cash to service our debt and other obligations.
Our ability to make payments on our debt, including our cash dividend payments on our Series A Preferred Stock, and interest
payments on our outstanding Notes, our credit facilities, and our other debt obligations, will depend on our financial and
operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business
and other factors beyond our control. We may be unable to attain a level of cash flows from operating activities sufficient to
permit us to pay all of our obligations as and when due.
If we are unable to service our debt and other obligations from cash flows, we may need to refinance or restructure all or a
portion of such obligations prior to maturity. Our ability to refinance or restructure our debt and other obligations will depend
upon the condition of the capital markets and our financial condition at such time. Any refinancing or restructuring could be at
higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business
operations. If our cash flows are insufficient to service our debt and other obligations, we may not be able to refinance or
restructure any of these obligations on commercially reasonable terms or at all and any refinancing or restructuring could have
a material adverse effect on our business, results of operations, or financial condition.
If our cash flows are insufficient to fund our debt and other obligations, and we are unable to refinance or restructure these
obligations, we may be forced to reduce or delay investments or to sell material assets or operations to meet our debt and other
obligations. We cannot assure you that we would be able to implement any of these alternative measures on satisfactory terms
or at all or that the proceeds from such alternatives would be adequate to meet any debt or other obligations then due. If it
becomes necessary to implement any of these alternative measures, our business, results of operations, or financial condition
could be materially and adversely affected.
We may not realize the advantages we expect from our acquisitions.
Part of our growth strategy has been and will continue to be the acquisition of scalable assets to build our business. Our
relatively recent acquisitions of the assets of Crackle, Sonar, 1091 Pictures and others, require time-consuming and costly
integration efforts. We may not be successful in the efficient integration of assets into our operations as we acquire them, and
may not realize the anticipated benefits of such acquisitions. As we grow as a result of acquisitions, we will need to hire
additional qualified personnel and may need to secure additional debt or equity financing to fund all or a portion of the cost of
acquisitions or the post-closing integration and operation of these assets. The incurrence of additional debt or issuance of
additional equity would result in additional leverage of our company and dilution of ownership interests therein. Our operating
results may fluctuate form period to period due to the costs and expenses of acquiring and managing our acquisitions.
11
Table of Contents
We are subject to numerous other risks associated with acquisitions, business combinations, or joint ventures.
As part of our growth strategy, we regularly engage in discussions with respect to possible acquisitions, sale of assets, business
combinations, and joint ventures intended to complement or expand our business, some of which may be significant
transactions for us. Regardless of whether we consummate any such transaction, the negotiation of a potential transaction
could require us to incur significant costs and cause diversion of management’s time and resources.
Integrating any business that we acquire may be distracting to our management and disruptive to our business and may result
in significant costs to us. We could face several challenges in the consolidation and integration of information technology,
accounting systems, personnel and operations. Any such transaction could also result in impairment of goodwill and other
intangibles, development write-offs and other related expenses. Any of the foregoing could have a material adverse effect on
our business, financial condition, operating results, liquidity and prospects.
If our efforts to attract and retain VOD viewers are not successful, our business may be adversely affected.
Our success depends in part on attracting viewers, retaining them on our VOD services, and ultimately monetizing our VOD
services and content offerings. As such, we are seeking to expand our viewer base and increase the number of hours that are
streamed across our platforms to create additional revenue opportunities. To attract and retain viewers, we need to be able to
respond efficiently to changes in consumer tastes and preferences and to offer our viewers access to the content they enjoy on
terms that they accept. Effective monetization may require us to continue to update the features and functionality of our VOD
offerings for viewers and advertisers.
Our ability to attract viewers will depend in part on our ability to effectively market our services, as well as provide a quality
experience for selecting and viewing TV series and movies. Furthermore, the relative service levels, content offerings, pricing
and related features of competitors as compared to our service will determine our ability to attract and retain viewers.
Competitors include other streaming entertainment providers, including those that provide AVOD and SVOD offerings, and
other direct-to-consumer video distributors and more broadly other sources of entertainment that our viewers could choose in
their moments of free time. If consumers do not perceive our service offerings to be of value, including if we introduce new or
adjust existing features or service offerings, or change the mix of content in a manner that is not favorably received by them,
we may not be able to attract and retain consumers. In addition, many of our consumers originate from word-of-mouth
advertising from existing viewers. If we do not grow as expected, we may not be able to adjust our expenditures or increase
our revenues commensurate with the lowered growth rate such that our margins, liquidity and results of operation may be
adversely impacted. If we are unable to successfully compete with current and new competitors in both retaining our existing
viewers and attracting new viewers, our business may be adversely affected.
Changes in competitive offerings for entertainment video could adversely impact our business.
The market for entertainment video is subject to rapid change. Through new and existing distribution channels, consumers
have increasing options to access entertainment video. The various economic models underlying these channels include
subscription, transactional, and ad-supported models. All of these have the potential to capture meaningful segments of the
entertainment video market. Traditional providers of entertainment video, including broadcasters and cable network operators,
as well as internet-based e-commerce or entertainment video providers are increasing their streaming video offerings. Several
of these competitors have long operating histories, large customer bases, strong brand recognition, exclusive rights to certain
content and significant financial, marketing and other resources. Competitors may secure better terms from content suppliers
and devote more resources to product development, technology, infrastructure, content acquisitions and marketing. New
entrants may enter the market or existing providers may adjust their services with unique offerings or approaches to providing
entertainment video. Our competitors also may enter into business combinations or alliances that strengthen their competitive
positions. If we are unable to successfully or profitably compete with current and new competitors, our business may be
adversely affected, and we may not be able to increase or maintain market share, revenues or profitability.
12
Table of Contents
Our long-term results of operations are difficult to predict and depend on the commercial success of our VOD platforms as
well as successful monetization of our video content in other ways and the continued strength of the Chicken Soup for the
Soul Brand.
Video streaming is a rapidly evolving industry, making our business and prospects difficult to evaluate. The growth and
profitability of this industry and the level of demand and market acceptance for our VOD platforms and content offerings are
subject to a high degree of uncertainty. We believe that the continued growth of streaming as an entertainment alternative will
depend on the availability and growth of cost-effective broadband internet access, the quality of broadband content delivery,
the quality and reliability of new devices and technology, the cost for viewers relative to other sources of content, as well as
the quality and breadth of content that is delivered across streaming platforms. These technologies, products and content
offerings continue to emerge and evolve. In addition, many advertisers continue to devote a substantial portion of their
advertising budgets to traditional advertising, such as linear TV, radio and print. The future growth of our business depends on
the growth of digital advertising, and on advertisers increasing their spend on such advertising. We cannot be certain that they
will do so. If advertisers do not perceive meaningful benefits of digital advertising, the market may develop more slowly than
we expect, which could adversely impact our operating results and our ability to grow our business.
In addition, monetization of content that we produce and acquire from sources other than our AVOD network is an essential
element of our strategy. Our ability in the long-term to obtain sponsorships, licensing arrangements, co-productions and tax
credits and to distribute our original programming and acquired video content will depend, in part, upon the commercial
success of the content that we initially produce and distribute and, in part, on the continued strength of the Chicken Soup for
the Soul brand (the “Brand”). We cannot ensure that we will produce, acquire, and distribute successful content. The continued
strength of the Brand will be affected in large part by the operations of our parent company, Chicken Soup for the Soul, LLC
(“CSS”), the owner of the Brand, and its other business operations, none of which we control. CSS utilizes the Brand through
its other subsidiaries for various commercial purposes, including the sale of books (including educational curriculum
products), pet foods and other consumer products. Negative publicity relating to CSS or its other subsidiaries or the brand, or
any diminution in the perception of the Brand could have a material adverse effect on our business, financial condition,
operating results, liquidity and prospects. We cannot assure you that we will manage the production and distribution of all of
our video content successfully, that all or any portion of our video content will be met with critical acclaim or will be
embraced by audiences on a one-time or repeated basis, or that the strength of the Brand will not diminish over time.
We may not be successful in our efforts to further monetize our VOD services
Our AVOD platforms generate revenue primarily from digital advertising and audience development campaigns that run
across our streaming platform and from content distribution services. Our ability to deliver more relevant advertisements to
our viewers and to increase our platform’s value to advertisers and content publishers depends on the collection of user
engagement data, which may be restricted or prevented by a number of factors. Viewers may decide to opt out or restrict our
ability to collect personal viewing data or to provide them with more relevant advertisements. While we have experienced, and
expect to continue to experience, growth in our revenue from advertising, our efforts to monetize our streaming platform
through the distribution of AVOD content are still developing and our advertising revenue may not grow as we expect.
Accordingly, there can be no assurance that we will be successful in monetizing our streaming platform through the
distribution of ad-supported content.
In addition, with the recent spread of the coronavirus throughout the United States and the rest of the world, companies
advertising plans and amounts available for advertising may be significantly restricted or discontinued which could also
impact our ability to monetize our AVOD platform.
Our reliance on third parties for content, production and distribution could limit our control over the quality of the
finished video content.
We currently have limited production capabilities and rely on relationships with third parties for much of these capabilities.
Working with third parties is an integral part of our strategy to produce video content on a cost-efficient basis, and our reliance
on such third parties could lessen the control we have over the projects. Should the third-party producers we rely
13
Table of Contents
upon not produce completed projects to the standards we expect and desire, critical and audience acceptance of such projects
could suffer, which could have an adverse effect on our ability to produce and distribute future projects. In particular, due to
the global spread of COVID-19, and in response to government mandates and healthcare advisories, we experienced delays in
new content delivery as certain of our vendors and partners halted or diminished their operations. Further, during any
continuation of the COVID-19 pandemic or after it fully subsides, we cannot be assured of entering into favorable agreements
with third-party content producers on economically favorable terms or on terms that provide us with satisfactory intellectual
property rights in the completed projects.
An integral part of our strategy is to initially minimize our production, content acquisition and distribution costs by
utilizing funding sources provided by others, however, such sources may not be readily available.
The production acquisition and distribution of video content can require a significant amount of capital. As part of our
strategy, we seek to fund the production, content acquisition, and distribution of our video content through co-productions, tax
credits, film acquisition advances, upfront fees from sponsors, licensors, broadcasters, cable and satellite outlets and other
producers and distributors, as well as through other initiatives. Such funding from the aforementioned sources or other sources
may not be available on attractive terms or at all, as and when we need such funding. To the extent we are not able to secure
agreements of this sort, we may need to curtail the amount of video content being produced or acquired by us or use our
operating or other funds to pay for such video content, which could have a material adverse effect on our business, financial
condition, operating results, liquidity and prospects. Due to the effect of the coronavirus, sponsors may not have the interest or
ability to enter into and invest in co-production agreements on terms that are attractive to the Company or at all.
As we grow, we may seek to fund and produce more of our video content directly, subjecting us to significant additional
risks.
Our current strategy of funding the production, acquisition, and distribution of our video content through the payment of
upfront fees by third parties may limit the backend return to us. If we should determine to use our own funds to produce,
acquire, and distribute more of our video content in order to capture greater backend returns, we would face significant
additional risks, such as the need to internally advance funds ahead of revenue generation and cost recoupment and the need to
divert some of our resources and efforts away from other operations. In order to reduce these risks, we may determine to raise
additional equity or incur additional indebtedness. In such event, our stockholders and our Company will be subjected to the
risks associated with issuing more equity or increasing our debt obligations.
If studios, content providers or other rights holders are unable or refuse to license content or other rights upon terms
acceptable to us, our business could be adversely affected.
Our ability to provide content depends on studios, content providers and other rights holders licensing rights to distribute such
content and certain related elements thereof, such as the public performance of music contained within the content we
distribute. If studios, content providers and other rights holders are not or are no longer willing or able to license us content
upon terms acceptable to us, our ability to provide content will be adversely affected and/or our costs could increase.
Increasingly, studios and other content providers have been developing their own streaming services, and may be unwilling to
provide us with access to certain content so that they can give exclusive access to their own streaming services. Under a
limited number of our license agreements, content owners can withdraw content from us relatively quickly and with short
notice. If we do not maintain content that our viewers are interested in, our viewership may decrease and our business could be
adversely effected.
Certain conflicts of interest may arise between us and our affiliated companies and we have waived certain rights with
respect thereto.
Our certificate of incorporation includes a provision stating that we renounce any interest or expectancy in any business
opportunities that are presented to us or our officers, directors or stockholders or affiliates thereof, except as may be set forth
in any written agreement between us and any of the CSS Companies (such as the CSS License Agreement under which CSS
has agreed that all video content operations shall be conducted only through our company). This provision also states that, to
the fullest extent permitted by Delaware law, our officers, directors and employees shall not be liable to us
14
Table of Contents
or our stockholders for monetary damages for breach of any fiduciary duty by reason of any of our activities or any activities
of any of the CSS Companies. As a result of these provisions, there may be conflicts of interest among us and our officers,
directors, stockholders or their affiliates, including the CSS Companies, relating to business opportunities, and we have
waived our right to monetary damages in the event of any such conflict.
We are required to make continuing payments to our affiliates, which may reduce our cash flow and profits.
In consideration for use of the Brand, and the provisions of key operational resources to our company, we are required to make
significant payments to our affiliates as described under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Related Party Resources and Obligations” in this Form 10-K. Accordingly, in the aggregate, 10% of
our net revenue is paid to our affiliates on a continuous basis and will not be otherwise available to us. As we grow our
revenues, these payments could become materially more costly than building and acquiring the same resources directly within
our company. Similarly, as we build our business and operations in areas outside of the Brand, the value received from
licensing the Brand could diminish on absolute and relative terms.
If a project we are producing incurs substantial budget overruns, we may have to seek additional financing from outside
sources to complete production or fund the overrun ourselves.
If a production we are funding incurs substantial budget overruns, we may have to seek additional financing from outside
sources to complete production or fund the overrun ourselves. We cannot be certain that any required financing will be
available to us on commercially reasonable terms or at all, or that we will be able to recoup the costs of overruns. Increased
costs incurred with respect to a project may result in the production not being ready for release at the intended time, which
could cause a decline in the commercial performance of the project. Budget overruns could also prevent a project from being
completed or released at all and adversely affect our operating results.
Our operating results may fluctuate.
Our operating results are dependent, in part, on management’s estimates of revenue to be earned over the life of a project. We
will regularly review and revise our revenue estimates. This review may result in a change in the rate of amortization and/or a
write-down of the video content asset to its estimated realizable value. Results of operations in future years depend upon our
amortization of our video content costs. Periodic adjustments in amortization rates may significantly affect these results.
Further, as many of our third-party relationships will be on a project-by-project basis, the profits, if any, generated from
various projects will fluctuate based on the terms of the agreements between us and our third-party producers and distributors.
Variations in our quarterly and year-end operating results are difficult to predict and our income and cash flows may fluctuate
significantly from period to period, which may impact our board of directors’ willingness or legal ability to declare and pay
the dividends on our preferred stock. Specific factors that may cause fluctuations in our operating results include:
● demand and pricing for our products and services;
● introduction of competing products;
● our operating expenses which fluctuate due to growth of our business;
● timing and popularity of new video content offerings and changes in viewing habits or the emergence of new content
distribution platforms;
● variable sales cycle and implementation periods for content and services; and
● the continuing effects of the COVID-19 pandemic and governmental responses thereto.
15
Table of Contents
As a result of the foregoing and other factors, our results of operations may fluctuate significantly from period to period, and
the results of any one period may not be indicative of the results for any future period.
Distributors’ failure to promote our video content could adversely affect our revenue and could adversely affect our
business results.
We will not always control the timing and way in which the distributors to which we license our content will distribute our
video content offerings. However, their decisions regarding the timing of release and promotional support are important in
determining our success. Any decision by those distributors not to distribute or promote our video content or to promote our
competitors’ video content to a greater extent than they promote our content could adversely affect our business, financial
condition, operating results, liquidity and prospects.
We are smaller and less diversified than many of our competitors.
Some of the AVOD services, and many of the producers and studios, with which we compete are part of large diversified
corporate groups with a variety of other operations, including television networks, cable channels and other diversified
companies, such as Amazon or Apple, which can provide both the means of distributing their products, content flow, and
stable sources of earnings that may allow them to better offset fluctuations in the financial performance of their operations. In
addition, the major studios have more resources with which to compete for ideas, storylines and scripts created by third parties
as well as for actors, and other personnel required for production. The resources of the major producers and studios may also
give them an advantage in acquiring other businesses or assets, including video content libraries, that we might also be
interested in acquiring.
We face risks from doing business internationally.
We intend to increase the distribution of our video content outside the U.S. and thereby derive significant revenue in foreign
jurisdictions. As a result, our business is subject to certain risks inherent in international business, many of which are beyond
our control. These risks include:
● laws and policies affecting trade, investment and taxes, including laws and policies relating to the repatriation of
funds and withholding taxes, and changes in these laws;
● the Foreign Corrupt Practices Act and similar laws regulating interactions and dealings with foreign government
officials;
● changes in local regulatory requirements, including restrictions on video content;
● differing and more stringent user protection, data protection, privacy and other laws;
● differing degrees of protection for intellectual property;
● financial instability and increased market concentration of buyers in foreign television markets;
● the instability of foreign economies and governments;
● fluctuating currencies and foreign exchange rates;
● the spread of communicable diseases, including COVID-19, in such jurisdictions, and government responses to
contain the spread of such diseases, including border closures, stay-at-home orders and quarantines, which may
impact business in such jurisdictions; and
● war and acts of terrorism.
16
Table of Contents
Events or developments related to these and other risks associated with international trade could adversely affect our revenue
from non-U.S. sources, which could have a material adverse effect on our business, financial condition, operating results,
liquidity and prospects.
The effects on our business of the war in Ukraine, or the direct military involvement of the United States in such conflict,
or any similar conflicts anywhere in the world, and the ramifications of sanctions against Russia or other counties, are
unknown and could be material.
Our business could be materially affected by hostilities in other countries. Adverse effects could arise from reduced
viewership in our international content offerings, disruptions in Internet availability, heightened risks of cyberattacks
perpetrated by government actors, or slow downs or halts in the production of content being created in other countries. The
effects on our business of any specific conflicts, including the current war in Ukraine and any escalation of such war to
neighboring countries, or the direct military involvement of the United States in such conflict, or any similar conflicts
anywhere in the world, cannot be predicted, but could be material and adverse. Direct US military involvement could heighten
international and other risks we already face. Similarly the ramifications of sanctions put in place by the United States against
Russia or other counties on our business are unknown and could be material. Our business could be harmed by retaliatory
sanctions or actions taken by a country in response to US sanctions, and significant as a result of numerous circumstances
arising from same, including prohibitions on the dissemination of US-based video services in certain countries, military
actions, cyber-attack initiatives, and other measures that cannot be predicted.
Protecting and defending against intellectual property claims may have a material adverse effect on our business.
Our ability to compete depends, in part, upon successful protection of our intellectual property relating to our video content,
including our copyrighted content, and the protection of the Chicken Soup for the Soul brand. We protect proprietary and
intellectual property rights to our productions through available copyright and trademark laws and licensing and distribution
arrangements with reputable international companies in specific territories and media. Under the terms of the CSS License
Agreement, CSS has the primary right to take actions to protect the Brand, and, if it does not, and we reasonably deem any
infringement thereof is materially harmful to our business, we may elect to seek action to protect the Brand ourselves.
Although in the former case, we would equitably share in any recovery, and in the latter case, we would retain the entirety of
any recovery, should CSS determine not to prosecute infringement of the Brand, we could be materially harmed and could
incur substantial cost in prosecuting an infringement of the Chicken Soup for the Soul brand.
Others may assert intellectual property infringement claims against us.
It is possible that others may claim from time to time that our productions and production techniques misappropriate or
infringe the intellectual property rights of third parties with respect to their previously developed content, stories, characters
and other entertainment or intellectual property. Additionally, although CSS is obligated to indemnify us for claims related to
our use of the Chicken Soup for the Soul brand in accordance with the CSS License Agreement, we could face lawsuits with
respect to claims relating thereto. Irrespective of the validity or the successful assertion of any such claims, we could incur
significant costs and diversion of resources in defending against them, which could have a material adverse effect on our
business, financial condition, operating results, liquidity and prospects.
Our business involves risks of liability claims for video content, which could adversely affect our results of operations and
financial condition.
As a producer and distributor of video content, we may face potential liability for defamation, invasion of privacy, negligence
and other claims based on the nature and content of the materials distributed. These types of claims have been brought,
sometimes successfully, against producers and distributors of video content. Any imposition of liability that is not covered by
insurance or is in excess of insurance coverage could have a material adverse effect on our business, financial condition,
operating results, liquidity and prospects.
17
Table of Contents
Piracy of video content may harm our business.
Video content piracy is extensive in many parts of the world, including South America, Asia, and certain Eastern European
countries, and is made easier by technological advances and the conversion of video content into digital formats. This trend
facilitates the creation, transmission and sharing of high-quality unauthorized copies of video content on DVDs, Blu-ray discs,
from pay-per-view through set-top boxes and other devices and through unlicensed broadcasts on free television and the
internet. The proliferation of unauthorized copies of our video content could have an adverse effect on our business.
Any significant disruption in our technology backbone or the computer and data systems of third parties that we utilize in
our operations could result in a loss or degradation of service and could adversely impact our business.
Our business involves 24-hour per day availability and delivery of video content. We utilize proprietary and third-party
computer and data systems for the storage and delivery of our content, placement and delivery of our advertising inventory,
and the creation of the user experience. Our reputation and ability to attract, retain and serve our viewers is dependent upon
the reliable performance of these computer and data systems. These systems may be subject to damage or interruption from
earthquakes, adverse weather conditions, other natural disasters, terrorist attacks, power loss, telecommunications failures,
computer viruses, computer denial of service attacks or other attempts to harm these systems. Interruptions in these systems or
to the internet in general, could make our content unavailable or impair our ability to deliver such content.
Our online activities are subject to a variety of laws and regulations relating to privacy, which, if violated, could limit our
ability to collect and use customer data and subject us to an increased risk of litigation and regulatory actions.
In addition to our websites, we use third-party applications, websites, and social media platforms to promote our video content
offerings and engage consumers, as well as monitor and collect certain information about consumers. There are a variety of
laws and regulations governing individual privacy and the protection and use of information collected from such individuals,
particularly in relation to an individual’s personally identifiable information. Laws relating to data privacy and security
continue to proliferate, often with little harmonization between jurisdictions and limited guidance. A number of existing bills
are pending in the U.S. Congress and other government bodies that contain provisions that would regulate, how companies can
use cookies and other tracking technologies to collect, use and share user information. The United States is seeing the adoption
of state-level laws governing individual privacy. This includes the California Consumer Protection Act, Massachusetts General
Law 93H and regulations adopted thereunder, and the New York SHIELD Act. Many foreign countries and supranational
organizations have adopted similar laws governing individual privacy, such as the EU’s General Data Protection Regulation
(“GDPR”), some of which are more restrictive than similar United States laws. If our online activities or the activities of the
third parties that we work with were to violate any applicable current or future laws and regulations that limit our ability to
collect, transfer, and use data, we could be subject to litigation from both private rights of action, class action lawsuits, and
regulatory actions, including fines and other penalties. Internationally, we may become subject to evolving, additional and/or
more stringent legal obligations concerning our treatment of customer and other personal information, such as laws regarding
data localization and/or restrictions on data export. Failure to comply with these obligations could subject us to liability and/or
reputational damage, and to the extent that we need to alter our business model or practices to adapt to these obligations, we
could incur additional expenses.
If government regulations relating to the internet or other areas of our business change, we may need to alter the way we
conduct our business or incur greater operating expenses.
The adoption or modification of laws or regulations relating to the internet or other areas of our business could limit or
otherwise adversely affect the way we currently conduct our business. In addition, the continued growth and development of
the market for online commerce may lead to more stringent consumer protection laws, which may impose additional burdens
on us such as the EU’s GDPR. If we are required to comply with new regulations or legislation or new interpretations of
existing regulations or legislation, this compliance could cause us to incur additional expenses or alter our operations.
18
Table of Contents
If we experience rapid growth, we may not manage our growth effectively, execute our business plan as proposed or
adequately address competitive challenges.
We anticipate continuing to grow our business and operations rapidly. Our growth strategy includes organic initiatives and
acquisitions. Such growth could place a significant strain on the management, administrative, operational and
financial infrastructure we utilize, a portion of which is made available to us by our affiliates under the Management
Agreement. Our long-term success will depend, in part, on our ability to manage this growth effectively, obtain the necessary
support and resources under the CSS Management Agreement, and grow our own internal resources as required, including
internal management and staff personnel. To manage the continued growth of our operations and personnel, we also will need
to increase our internal operational, financial and management controls, and our reporting systems and procedures. Failure to
effectively manage growth could result in difficulty or delays in producing our video content, declines in overall project
quality and increases in costs. Any of these difficulties could adversely impact our business financial condition, operating
results, liquidity and prospects.
Our exclusive license to use the Chicken Soup for the Soul Brand could be terminated in certain circumstances.
We do not own the Chicken Soup for the Soul Brand. The Brand is licensed to us by CSS under the terms of the CSS License
Agreement. CSS controls the Brand, and the continued integrity and strength of the Chicken Soup for the Soul Brand will
depend in large part on the efforts and businesses of CSS and how the Brand is used, promoted and protected by CSS, which
will be outside of the immediate control of our Company. Although the license granted to us under the CSS License
Agreement is perpetual, it may be terminated by CSS upon the cessation of our business, our bankruptcy, liquidation, or
insolvency, or if we fail to pay any sums due or otherwise fail to perform under the License Agreement within 30 days
following delivery of a second written notice by CSS.
We may not be able to realize the entire book value of goodwill and other intangible assets from our acquisitions.
As of December 31, 2021 and 2020, we had net intangible assets of $30.2 million and $31.5 million, respectively, and
goodwill of $40.0 million and $21.4 million for the years ended December 31, 2021 and 2020, respectively, primarily related
to the formation of Crackle Plus, the acquisition of the Crackle assets, Sonar assets and other acquisitions. We assess goodwill
and other intangible assets for impairment at least annually and more frequently if certain events or circumstances warrant. If
the book value of goodwill or other intangible assets is impaired, any such impairment would be charged to earnings in the
period of impairment. If we determine that goodwill and other intangible assets are impaired in the future, it could have a
material adverse effect on our business, financial condition and results of operations.
Claims against us relating to any acquisition or business combination may necessitate our seeking claims against the seller
for which the seller may not indemnify us or that may exceed the seller’s indemnification obligations.
There may be liabilities assumed in any acquisition or business combination that we did not discover or that we
underestimated in the course of performing our due diligence. Although a seller generally may have indemnification
obligations to us under an acquisition or merger agreement, these obligations usually will be subject to financial limitations,
such as general deductibles and maximum recovery amounts, as well as time limitations. In certain circumstances we obtain
representation and warranties insurance related to our acquisitions, but these too have limitations and conditions that could
prevent recovery in certain circumstances. We cannot assure you that our right to indemnification from any seller will be
enforceable, collectible or sufficient in amount, scope or duration to fully offset the amount of any unknown or underestimated
liabilities that we may incur. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our
business, financial condition, operating results, liquidity and prospects.
We may require and not be able to obtain additional funding and may be unable to raise such funding when needed, which
could force us to delay, reduce, eliminate, or abandon growth initiatives.
We intend to continue making investments to support the growth of our business, including organic growth and growth
through acquisitions. Our ability to grow through acquisitions, business combinations and joint ventures, and our ability to
fund our operating expenses after one or more acquisitions may depend upon our ability to obtain funds through equity
financing, debt financing (including credit facilities), or the sale or syndication of some or all of our interests in certain
19
Table of Contents
projects or other assets or businesses. Our issuance of additional debt instruments or the sale of preferred stock could result in
the imposition of operational limitations and other covenants and payment obligations (in addition to those we already have in
place), any of which may be burdensome to us and may have a material adverse impact on our ability to implement our
business plan as currently formulated. The sale of equity securities, including common or preferred stock, may result in
dilution to the current stockholders’ ownership and may be limited by the number of shares we have authorized and available
for issuance. If we do not have access to financing arrangements, and if funds do not become available on terms acceptable to
us, or at all, we may have to delay, reduce, eliminate, or abandon certain aspects of our business plan, including planned
acquisitions. We may also have to reduce our licensing, marketing, customer support or other core business services. Such
actions could result in a material adverse effect on our business, financial condition, operating results, liquidity and prospects.
Our success depends on our management and relationships with our affiliated companies.
Our success depends to a significant extent on the performance of our management personnel and key employees, including
production and creative personnel, made available to us through the CSS Management Agreement. The loss of the services of
such persons or the resources supplied to us by our affiliated companies could have a material adverse effect on our business,
financial condition, operating results, liquidity and prospects.
To be successful, we need to attract and retain qualified personnel.
Our success will depend to a significant extent on our ability to identify, attract, hire, train and retain qualified professional,
creative, technical and managerial personnel. Competition for the caliber of talent required to produce and distribute our video
content continues to increase, and for certain personnel has become extremely difficult during the COVID-19 pandemic. We
cannot assure you that we will be successful in identifying, attracting, hiring, training and retaining such personnel in the
future. If we were unable to hire, assimilate and retain qualified personnel in the future, such inability could have a material
adverse effect on our business, financial condition, operating results, liquidity and prospects.
Since our content is digitally stored and distributed online, and we accept online payments for various subscription
services, we face numerous cybersecurity risks.
We utilize information technology systems, including third-party hosted servers and cloud-based servers, to host our digital
content, as well as to keep business, financial, and corporate records, communicate internally and externally, and operate other
critical functions. If any of our internal systems or the systems of our third-party providers are compromised due to computer
virus, unauthorized access, malware, and the like, then sensitive documents could be exposed or deleted, and our ability to
conduct business could be impaired.
Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to,
unauthorized access to our systems, computer viruses or other malicious code, denial of service attacks, malware, ransomware,
phishing, SQL injection attacks, human error, or other events that result in security breaches or give rise to the manipulation or
loss of sensitive information or assets. Cyber incidents can be caused by various persons or groups, including disgruntled
employees and vendors, activists, organized crime groups, and state-sponsored and individual hackers. Cyber incidents can
also be caused or aggravated by natural events, such as earthquakes, floods, fires, power loss, and telecommunications
failures.
To date, we have not experienced any material losses relating to cyber-attacks, computer viruses, or other systems failures.
Although we have taken steps to protect the security of data maintained in our information systems, it is possible that our
security measures will not be able to prevent the systems’ improper functioning or the improper disclosure of personally
identifiable information, such as in the event of cyber-attacks. In addition to operational and business consequences, if our
cybersecurity is breached, we could be held liable to our customers or other parties in regulatory or other actions, and we may
be exposed to reputation damages and loss of trust and business. This could result in costly investigations and litigation, civil
or criminal penalties, fines, and negative publicity.
Certain information relating to our customers, including personally identifiable information and credit card numbers, is
collected and maintained by us, or by third parties that do business with us or facilitate our business activities. This
20
Table of Contents
information is maintained for a period of time for various business purposes, including maintaining records of customer
preferences to enhance our customer service and for billing, marketing, and promotional purposes. We also maintain
personally identifiable information about our employees. The integrity and protection of our customer, employee and company
data is critical to our business. Our customers and our employees expect that we will adequately protect their personal
information, and the regulations applicable to security and privacy are increasingly demanding. Privacy regulation is an
evolving area and compliance with applicable privacy regulations may increase our operating costs or adversely impact our
ability to service our customers and market our properties and services.
The occurrence of natural or man-made disasters could result in declines in business that could adversely affect our
financial condition, results of operations and cash flows.
We are exposed to various risks arising out of natural disasters, including earthquakes, hurricanes, fires, floods, landslides,
tornadoes, typhoons, tsunamis, hailstorms, explosions, climate events or weather patterns and pandemic health events (such as
the recent pandemic spread of the novel corona virus known as COVID-19 virus, duration and full effects of which are still
uncertain), as well as man-made disasters, including acts of terrorism, military actions, cyber-terrorism, explosions and
biological, chemical or radiological events. The continued threat of terrorism and ongoing military actions may cause
significant volatility in global financial markets, and a natural or man-made disaster could trigger an economic downturn in
the areas directly or indirectly affected by the disaster. These consequences could, among other things, result in a decline in
business. Disasters also could disrupt public and private infrastructure, including communications and financial services,
which could disrupt our normal business operations. A natural or man-made disaster also could disrupt the operations of our
partners and counterparties or result in increased prices for the products and services they provide to us.
We are an “emerging growth company” under the JOBS Act and we cannot be certain if the reduced disclosure
requirements applicable to emerging growth companies will make our securities less attractive to investors.
We are an “emerging growth company”, as defined in the JOBS Act, and we take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and
shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our
securities less attractive because we may rely on these exemptions. If some investors find our securities less attractive as a
result, there may be a less active trading market for our Class A common stock, Series A Preferred Stock, and publicly traded
notes and the trading price of such securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the
extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those
standards would otherwise apply to private companies. We take advantage of the extended transition period for complying
with new or revised accounting standards. This may make comparison of our financial statements with another public
company which is not an emerging growth company difficult or impossible because of the potential differences in accounting
standards used.
We will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenue
exceeds $1.07 billion, if we issue more than $1 billion in non-convertible debt in a three-year period, or if the market value of
our common stock that is held by non-affiliates exceeds $700 million as of June 30 of any year.
Our certificate of incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware
is the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to
obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name,
actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought
21
Table of Contents
only in the Court of Chancery in the State of Delaware (or if the Court of Chancery does not have jurisdiction, another state
court located within the State of Delaware, or if no state court located within the State of Delaware has jurisdiction, the federal
district court for the District of Delaware) and, if brought outside of Delaware, the stockholder bringing the suit will be
deemed to have consented to the personal jurisdiction of the state and federal courts located within the State of Delaware and
to service of process on such stockholder’s counsel. Any person or entity purchasing or otherwise acquiring any interest in
shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our certificate of
incorporation.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or any of our directors, officers or employees, which may discourage lawsuits with respect to such claims. We
cannot be certain that a court will decide that this provision is either applicable or enforceable, and if a court were to find the
choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we
may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business,
operating results and financial condition.
Our certificate of incorporation provides that the exclusive forum provision is applicable to the fullest extent permitted by
applicable law. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty
or liability created by the Exchange Act or the rules and regulations thereunder. As a result, we anticipate that the exclusive
forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act, the Securities Act
or any other claim for which the federal courts have exclusive jurisdiction and the exclusive forum provision is not intended to
waive our compliance with federal securities laws and the rules and regulations thereunder or bar claims properly brought
thereunder.
Risks Related to Our Securities
Our Common Stock
Our chairman and chief executive officer effectively controls our Company.
We have two classes of common stock — Class A Common Stock, each share of which entitles the holder thereof to one vote
on any matter submitted to our stockholders, and Class B Common Stock, each share of which entitles the holder thereof to
ten votes on any matter submitted to our stockholders. Our chairman and chief executive officer, William J. Rouhana, Jr., has
control over the vast majority of all the outstanding voting power as represented by our outstanding Class B and Class A
Common Stock and effectively controls CSS Holdings and CSS, which controls CSS Productions, and, in turn, our Company.
Further, our bylaws provide that any member of our board may be removed with or without cause by the majority of our
outstanding voting power, thus Mr. Rouhana exerts significant control over our board. This concentration of ownership and
decision making may make it more difficult for other stockholders to effect substantial changes in our Company and may also
have the effect of delaying, preventing or expediting, as the case may be, a change in control of our Company.
A substantial number of shares of our Class A Common Stock may be issued upon exercise of outstanding warrants, which
could adversely affect the price of our publicly traded securities.
A substantial number of shares of Class A Common Stock may be issued upon the exercise of outstanding warrants, including
the following:
● Class W Warrants, exercisable for up to an aggregate of 526,362 shares of Class A Common Stock at an exercise
price of $7.50 per share;
● Class Z Warrants, exercisable for up to an aggregate of 123,109 shares of Class A Common Stock at a price of
$12.00 per share;
● Class I Warrants, exercisable for up to an aggregate of 800,000 shares of our Class A Common Stock at an exercise
price of $8.13 per share;
22
Table of Contents
● Class II Warrants, exercisable for up to an aggregate of 1,200,000 shares of our Class A Common Stock at an
exercise price of $9.67 per share;
● Class III-A Warrants, exercisable for up to an aggregate of 380,000 shares of our Class A Common Stock at an
exercise price of $11.61 per share;
·
Class III-B Warrants, exercisable for up to an aggregate of 1,620,000 shares of our Class A Common Stock at an
exercise price of $11.61 per share.
If all of the outstanding warrants are exercised for cash we will be required to issue an aggregate of 4,649,471 shares of Class
A Common Stock, or approximately 60% of our Class A Common Stock outstanding as of March 30, 2022. The warrant
holders will likely exercise the warrants only at a time when it is economically beneficial to do so. Accordingly, the exercise
of these warrants will significantly dilute our other equity holders and may adversely affect the market price of our publicly
traded securities.
We utilize At the Market Issuance Sales Agreements, pursuant to which we may offer and sell, from time to time, shares of
Class A Common Stock and shares of Series A Preferred Stock, which may adversely affect the price of our Class A
Common Stock and series A Preferred Stock .
We utilize At the Market Issuance Sales Agreement (“ATM Agreements”) pursuant to which we may issue shares of Class A
Common Stock and Series A Preferred Stock having an aggregate offering price of up to $1,000,000,000. The sale of Class A
Common Stock will dilute our other equity holders and may adversely affect the market price of the Class A Common Stock.
Issuance of shares of our Series A Preferred Stock will increase our dividend payment obligations and increase the liquidation
preference. Under our currently existing ATM Agreement with Virtu Americas and B. Riley, as of March 30, 2022, we have
sold an aggregate of 50,404 shares of Series A Preferred Stock, generating net proceeds to us of $1.2 million.
Only a limited market exists for our Class A Common Stock, Series A Preferred Stock and Notes, which could lead to price
volatility.
Our Class A Common Stock, Series A Preferred Stock and Notes trade on the Nasdaq Global Market under the symbols
“CSSE,” “CSSEP” and CSSEN,” respectively. However, trading volume for our Class A Common Stock has historically been
relatively limited. The limited trading market for our securities may cause fluctuations in the market value of these securities
to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading market for our
securities.
We currently do not plan to pay any dividends on our Class A Common Stock.
The payment of cash dividends on our Class A Common Stock in the future will be dependent upon our revenue and earnings,
if any, capital requirements and general financial condition, our obligation to pay dividends on our Series A Preferred Stock
and make quarterly interest payments on the Notes, the laws and regulations of the State of Delaware and will be within the
discretion of our board of directors. As a result, any gain you may realize on our Class A Common Stock may result solely
from the appreciation of such shares. If our securities become subject to the SEC’s penny stock rules, broker-dealers may have
trouble in completing customer transactions and trading activity in our securities may be adversely affected.
If at any time our securities become subject to the “penny stock” rules promulgated under the Exchange Act our securities
could be adversely affected. Typically, securities trading under a market price of $5.00 per share and that do not meet certain
exceptions, such as national market listing or annual revenue criteria, are subject to the penny stock rules. Under these rules,
broker-dealers who recommend such securities to persons other than institutional accredited investors must:
● make a special written suitability determination for the purchaser;
● receive the purchaser’s written agreement to the transaction prior to sale;
23
Table of Contents
● provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny
stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and
● obtain a signed and dated acknowledgement from the purchaser demonstrating that the purchaser has received the
required risk disclosure documents before a transaction in a “penny stock” can be completed.
If our securities become subject to these rules, broker-dealers may find it difficult to effectuate customer transactions and
trading activity in our securities may be adversely affected. As a result, the market price of our securities may be depressed,
and you may find it more difficult to sell our securities. Nasdaq could delist our Class A Common Stock from quotation on its
exchange, which could limit investors’ ability to sell and purchase our shares and subject us to additional trading restrictions.
Our Class A Common Stock is currently listed on Nasdaq, a national securities exchange. If our Class A Common Stock is not
listed on Nasdaq or another national securities exchange at any time after the date hereof, we could face significant material
adverse consequences, including:
● a limited availability of market quotations for our Class A Common Stock;
● reduced liquidity with respect to our Class A Common Stock;
● a determination that our Class A Common Stock is “penny stock” which will require brokers trading in our shares to
adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading
market for our Class A Common Stock;
● a limited amount of news and analyst coverage for our company; and
● a decreased ability to issue additional securities or obtain additional financing in the future.
Our Series A Preferred Stock
We may redeem the Series A Preferred Stock.
On or after June 27, 2023, we may, at our option, redeem the Series A Preferred Stock, in whole or in part, at any time or from
time to time. Also, upon the occurrence of a Change of Control prior to June 27, 2023, we may, at our option, redeem the
Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of Control occurred.
We may have an incentive to redeem the Series A Preferred Stock voluntarily if market conditions allow us to issue other
preferred stock or debt securities at a rate that is lower than the dividend rate on the Series A Preferred Stock. If we redeem the
Series A Preferred Stock, then from and after the redemption date, dividends will cease to accrue on shares of Series A
Preferred Stock, the shares of Series A Preferred Stock shall no longer be deemed outstanding and all rights as a holder of
those shares will terminate, except the right to receive the redemption price plus accumulated and unpaid dividends, if any,
payable upon redemption.
We must adhere to prescribed legal requirements and have sufficient cash in order to be able to pay dividends on our Series
A Preferred Stock.
In accordance with Section 170 of the Delaware General Corporation Law, we may only declare and pay cash dividends on the
Series A Preferred Stock if we have either net profits during the fiscal year in which the dividend is declared and/or the
preceding fiscal year, or a “surplus”, meaning the excess, if any, of our net assets (total assets less total liabilities) over our
capital. We can provide no assurance that we will satisfy such requirements in any given year. Further, even if we have the
legal ability to declare a dividend, we may not have sufficient cash to pay dividends on the Series A Preferred Stock. Our
ability to pay dividends may be impaired if any of the risks described herein actually occur. Also, payment of our dividends
depends upon our financial condition and other factors as our board of directors may deem relevant from time
24
Table of Contents
to time. We cannot assure you that our businesses will generate sufficient cash flow from operations or that future borrowings
will be available to us in an amount sufficient to enable us to pay dividends on the Series A Preferred Stock.
A holder of Series A Preferred Stock has extremely limited voting rights.
The voting rights for a holder of Series A Preferred Stock are limited. Our shares of Class A Common Stock and Class B
Common Stock vote together as a single class and are the only class of our securities that carry full voting rights. Mr.
Rouhana, our chairman of the board and chief executive officer, beneficially owns the vast majority of the voting power of our
outstanding common stock. As a result, Mr. Rouhana exercises a significant level of control over all matters requiring
stockholder approval, including the election of directors, amendment of our certificate of incorporation, and approval of
significant corporate transactions. This control could have the effect of delaying or preventing a change of control of the
Company or changes in management and will make the approval of certain transactions difficult or impossible without his
support, which in turn could reduce the price of our Series A Preferred Stock.
Voting rights for holders of the Series A Preferred Stock exist primarily with respect to the ability to elect, voting together with
the holders of any other series of our preferred stock having similar voting rights, two additional directors to our board of
directors in the event that eighteen monthly dividends (whether or not consecutive) payable on the Series A Preferred Stock
are in arrears, and with respect to voting on amendments to our certificate of incorporation, including the certificate of
designations relating to the Series A Preferred Stock, that materially and adversely affect the rights of the holders of Series A
Preferred Stock or authorize, increase or create additional classes or series of our capital stock that are senior to the Series A
Preferred Stock.
The market price of the Series A Preferred Stock could be substantially affected by various factors.
The market price of the Series A Preferred Stock depends on many factors, some of which are beyond our control and may not
be directly related to our operating performance. These factors include, but are not limited to, the following:
● prevailing interest rates, increases in which may have an adverse effect on the market price of the Series A Preferred
Stock;
● trading prices of similar securities;
● our history of timely dividend payments;
● the annual yield from dividends on the Series A Preferred Stock as compared to yields on other financial instruments;
● general economic and financial market conditions;
● government action or regulation;
● the financial condition, performance and prospects of us and our competitors;
● changes in financial estimates or recommendations by securities analysts with respect to us or our competitors in our
industry;
● our issuance of additional preferred equity or debt securities; and
● actual or anticipated variations in quarterly operating results of us and our competitors.
25
Table of Contents
The Series A Preferred Stock ranks junior to all our indebtedness and other liabilities.
In the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay
obligations on the Series A Preferred Stock only after all our indebtedness and other liabilities have been paid. The rights of
holders of the Series A Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our
current and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series A
Preferred Stock. Also, the Series A Preferred Stock effectively ranks junior to all existing and future indebtedness and to the
indebtedness and other liabilities of our existing subsidiaries and any future subsidiaries. Our existing subsidiaries are, and
future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to us in respect of
dividends due on the Series A Preferred Stock.
We have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the
Series A Preferred Stock. As of the date of this filing, our total liabilities (excluding contingent consideration) equaled
approximately $144.1 million. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to
pay amounts due on any or all the Series A Preferred Stock then outstanding.
Market interest rates may materially and adversely affect the value of the Series A Preferred Stock.
One of the factors that will influence the price of the Series A Preferred Stock is the dividend yield on the Series A Preferred
Stock (as a percentage of the market price of the Series A Preferred Stock) relative to market interest rates. Increases in market
interest rates may lead prospective purchasers of the Series A Preferred Stock to expect a higher dividend yield (and higher
interest rates would likely increase our borrowing costs and potentially decrease funds available for dividend payments). Thus,
higher market interest rates could cause the market price of the Series A Preferred Stock to materially decrease.
Holders of the Series A Preferred Stock may be unable to use the dividends-received deduction and may not be eligible for
the preferential tax rates applicable to “qualified dividend income.”
Distributions paid to corporate U.S. holders of the Series A Preferred Stock may be eligible for the dividends-received
deduction, and distributions paid to non-corporate U.S. holders of the Series A Preferred Stock may be subject to tax at the
preferential tax rates applicable to “qualified dividend income,” only if we have current or accumulated earnings and profits,
as determined for U.S. federal income tax purposes. Additionally, we may not have sufficient current earnings and profits
during future fiscal years for the distributions on the Series A Preferred Stock to qualify as dividends for U.S. federal income
tax purposes. If the distributions fail to qualify as dividends, U.S. holders would be unable to use the dividends-received
deduction and may not be eligible for the preferential tax rates applicable to “qualified dividend income.” If any distributions
on the Series A Preferred Stock with respect to any fiscal year are not eligible for the dividends-received deduction or
preferential tax rates applicable to “qualified dividend income” because of insufficient current or accumulated earnings and
profits, it is possible that the market value of the Series A Preferred Stock might decline.
A reduction in the credit rating of our Series A Preferred Stock could adversely affect the pricing and liquidity of such
stock.
Any downward revision or withdrawal of the credit rating on our Series A Preferred Stock could materially adversely affect
market confidence in such stock and could cause material decreases in the market price of such stock and could diminish
market liquidity. Egan-Jones has initially rated our Series A Preferred Stock as BBB(-). Neither Egan-Jones nor any other
agency is under any obligation to maintain any rating assigned to our Series A Preferred Stock and such rating could be
revised downward or withdrawn at any time for reasons of general market changes or changes in our financial condition or for
no reason at all.
26
Table of Contents
The Series A Preferred Stock is not convertible into Class A Common Stock, including in the event of a change of control,
and investors will not realize a corresponding upside if the price of the Class A Common Stock increases.
The Series A Preferred Stock is not convertible into shares of Class A Common Stock and earns dividends at a fixed rate.
Accordingly, an increase in market price of our Class A Common Stock will not necessarily result in an increase in the market
price of our Series A Preferred Stock. The market value of the Series A Preferred Stock may depend more on dividend and
interest rates for other preferred stock, commercial paper and other investment alternatives and our actual and perceived ability
to pay dividends on, and in the event of dissolution satisfy the liquidation preference with respect to, the Series A Preferred
Stock.
Our Notes
The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have incurred or may
incur in the future.
The Notes are not secured by any of our assets. As a result, the Notes are effectively subordinated to all of our existing and
future secured indebtedness, such as any new loan facility or other indebtedness to which we grant a security interest,
including our $10,210,000 film acquisition advance from Great Point Media Limited which is secured by territorial licenses
and distribution rights in certain films and productions owned or to be acquired by Screen Media, but only to the extent of the
value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the
holders of any of our existing or future secured indebtedness may assert rights against the assets pledged to secure that
indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors,
including the holders of the Notes.
The Notes are structurally subordinated to the existing and future indebtedness and other liabilities of our subsidiaries.
The Notes are obligations exclusively of Chicken Soup for the Soul Entertainment, Inc., and not any of our subsidiaries. In
addition, the Notes are not guaranteed by any third-party, whether an affiliate or unrelated to us. None of the assets of our
subsidiaries will be directly available to satisfy the claims of holders of the Notes. Except to the extent we are a creditor with
recognized claims against our subsidiaries, all claims of creditors of our subsidiaries will have priority over our equity
interests in such entities (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of
such entities. Even if we are recognized as a creditor of one or more of these entities, our claims would still be effectively
subordinated to any security interests in the assets of any such entity and to any indebtedness or other liabilities of any such
entity senior to our claims. Consequently, the Notes are structurally subordinated to all indebtedness and other liabilities of any
of our subsidiaries.
The indenture under which the Notes are issued contains limited protection for holders of the Notes.
The indenture under which the Notes are issued offers limited protection to holders of the Notes. The terms of the indenture
and the Notes do not restrict our ability to engage in, or otherwise be a party to, a variety of corporate transactions,
circumstances or events that could have a material adverse impact on your investment in the Notes. In particular, except in
limited circumstances, the terms of the indenture and the Notes do not restrict our ability to:
● issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or
other obligations that would be equal or senior in right of payment to the Notes, (2) any indebtedness or other
obligations that would be secured and therefore rank effectively senior in right of payment to the Notes to the extent
of the values of the assets securing such debt, (3) indebtedness that we incur that is guaranteed by one or more of our
subsidiaries and which therefore is structurally senior to the Notes and (4) securities, indebtedness or obligations
issued or incurred by our subsidiaries that would be senior to our equity interests in those entities and therefore rank
structurally senior to the Notes with respect to the assets of these entities;
● pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking
junior in right of payment to the Notes, including our Series A Preferred Stock or any subordinated indebtedness;
27
Table of Contents
● sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of
our assets);
● enter into transactions with affiliates;
● create liens or enter into sale and leaseback transactions;
● make investments; or
● create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
In addition, the indenture does not require us to offer to purchase the Notes in connection with a change of control or any other
event (but does afford us the right to redeem the Notes prior to the prescribed redemption date upon the consummation of
certain transactions).
Similarly, the terms of the indenture and the Notes do not protect holders of the Notes in the event that we experience changes
(including significant adverse changes) in our financial condition, results of operations or credit ratings, if any.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the
Notes may have important consequences for holders of the Notes, including making it more difficult for us to satisfy our
obligations with respect to the Notes or negatively affecting the trading value of the Notes.
Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes,
including additional covenants and events of default. For example, the indenture under which the Notes are issued does not
contain cross-default provisions. The issuance or incurrence of any indebtedness with incremental protections could affect the
market for and trading levels and prices of the Notes. Additionally, even if we issue indebtedness that ranks equally with the
Notes, the holders of such indebtedness will be entitled to share ratably with the noteholders in any proceeds distributed in
connection with any insolvency, liquidation, reorganization, or dissolution, which may have the effect of reducing the amount
of proceeds paid to our noteholders. Incurrence of additional debt would also further reduce the cash available to invest in
operations, as a result of increased debt service obligations, and may cause a cross-default on our other obligations, as
described elsewhere in these Risk Factors. If new debt is added to our current indebtedness, the related risks that we now face
could be compounded.
An increase in market interest rates could result in a decrease in the value of the Notes.
In general, as market interest rates rise, notes bearing interest at a fixed rate decline in value. Consequently, if you purchase
the Notes, and the market interest rates subsequently increase, the market value of your Notes may decline. We cannot predict
the future level of market interest rates.
An active trading market for the Notes may not be sustained, which could limit your ability to sell the Notes or the market
price of the Notes.
Although the Notes are listed on the Nasdaq Global Market under the trading symbol “CSSEN,” we cannot provide any
assurances that an active trading market will develop or be maintained for the Notes or that you will be able to sell your Notes.
The Notes may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar
securities, our credit ratings, if any, general economic conditions, our financial condition, performance and prospects and other
factors. Accordingly, we cannot assure you that a liquid trading market for the Notes will be sustained, that you will be able to
sell your Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading
market is not sustained, the liquidity and trading price for the Notes may be harmed. Accordingly, you may be required to bear
the financial risk of an investment in the Notes for an indefinite period of time.
We may choose to redeem the Notes when prevailing interest rates are relatively low.
On or after July 31, 2022, we may choose to redeem the Notes from time to time, especially when prevailing interest rates are
lower than the rate borne by the Notes. If prevailing rates are lower at the time of redemption, you would not be able
28
Table of Contents
to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the interest rate on the
Notes being redeemed. Our redemption right also may adversely impact your ability to sell the Notes as the optional
redemption date or period approaches.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
Any default under the agreements governing our existing or future indebtedness that is not waived by the required lenders, and
the remedies sought by the holders of such indebtedness, could make us unable to pay principal and interest on the Notes and
substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable
to obtain funds necessary to meet required payments of principal and interest on our indebtedness, or if we otherwise fail to
comply with the various covenants, including financial and operating covenants, in the instruments governing our
indebtedness, we could be in default under the terms of the agreements governing such indebtedness, including the Notes. In
the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due
and payable, together with accrued and unpaid interest. In addition, the lenders under any loan facility or other financing that
we may obtain in the future could elect to terminate their commitment, cease making further loans and institute foreclosure
proceedings against our assets, and we could be forced into bankruptcy or liquidation. Any such default may constitute a
default under the Notes, which could further limit our ability to repay our indebtedness, including the Notes. If our operating
performance declines, we may in the future need to seek to obtain waivers from our existing lenders at the time to avoid being
in default. If we breach any loan covenants, we may not be able to obtain such a waiver from the lenders. If this occurs, we
would be in default under the credit arrangement that we have, the lender could exercise its rights as described above, and we
could be forced into bankruptcy or liquidation. If we are unable to repay indebtedness, lenders having secured obligations
could proceed against the collateral securing their debt. Because any future credit facilities will likely have, customary cross-
default provisions, if the indebtedness under the Notes, or under any future credit facility is accelerated, we may be unable to
repay or finance the amounts due.
We are not obligated to contribute to a sinking fund to retire the Notes and the Notes are not guaranteed by a third-party.
We are not obligated to contribute funds to a sinking fund to repay principal or interest on the Notes upon maturity or default.
The Notes are not certificates of deposit or similar obligations of, or guaranteed by, any depositary institution. Further, no
private party or governmental entity insures or guarantees payment on the Notes if we do not have enough funds to make
principal or interest payments.
A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us, the July 2025 Notes, or the
Notes, if any, could cause the liquidity or market value of the Notes to decline significantly.
Our credit rating is an assessment by third parties of our ability to pay our obligations. Consequently, real or anticipated
changes in our credit rating will generally affect the market value of the Notes. Our credit rating, however, may not reflect the
potential impact of risks related to market conditions generally or other factors discussed above on the market value of or
trading market for the Notes. Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or
withdrawn at any time by the issuing organization in its sole discretion.
The Notes have received a rating of BBB from Egan-Jones Ratings Company. An explanation of the significance of ratings
may be obtained from the rating agency. Generally, rating agencies base their ratings on such material and information, and
such of their own investigations, studies and assumptions, as they deem appropriate. Neither we nor any underwriter
undertakes any obligation to maintain our credit rating or to advise holders of the Notes of any changes in our credit rating.
There can be no assurance that our credit rating will remain for any given period of time or that such credit rating will not be
lowered or withdrawn entirely by the rating agency if in their judgment future circumstances relating to the basis of the credit
rating, such as adverse changes in our company, so warrant.
29
Table of Contents
Our Class W and Class Z Warrants
No public market exists for our Class W Warrants or Class Z Warrants.
We intend to apply for quotation of the Class W Warrants on the OTCQB Market and the Class Z Warrants on the OTC Pink
Market under the proposed symbols “CSSEW” and “CSSEZ”, respectively, but we cannot guarantee that our Class W
Warrants or Class Z Warrants will be approved for quotation or listing on any market. Further, even if listed or quoted, an
active trading market may never develop or, if developed, may not be sustained. The over-the-counter market is a significantly
more limited market than Nasdaq, due to factors such as the reduced number of investors that will consider investing in
securities traded over the counter, the reduced number of market makers in the securities, and the reduced number of securities
analysts that follow such securities. As a result, holders of our Class W Warrants and Class Z Warrants may find it difficult to
resell their warrants at prices quoted in the market or at all. You may be unable to sell Class W Warrants or Class Z Warrants
unless a market for such securities can be established or sustained.
Holders of our Class W Warrants and Class Z Warrants will have no rights as a common stockholder until such warrants
are exercised.
Until holders of our Class W Warrants and Class Z Warrants acquire shares of our Class A Common Stock upon exercise of
the Class W Warrants or Class Z Warrants, as applicable, holders of Class W Warrants and Class Z Warrants will have no
rights with respect to the shares of Class A Common Stock underlying such warrants.
The market price of our Class A Common Stock may fall below the exercise price of the Class W Warrants and Class Z
Warrants.
The Class W Warrants have an exercise price of $7.50 per share, subject to adjustment as described therein, and may be
exercised at any time through June 30, 2023. The Class Z Warrants have an exercise price of $12.00 per share, subject to
adjustment as described therein, and may be exercised at any time through June 30, 2024. The market price of our Class A
Common Stock may fall below the exercise price of such warrants and remain below such exercise price through their date of
expiration. Any Class W Warrants or Class Z Warrants not exercised by their date of expiration will expire worthless and we
will be under no further obligation to the warrant holder.
ITEM 1B. Unresolved Staff Comments
Not applicable.
ITEM 2. Properties
Our corporate headquarters is located at 132 East Putnam Avenue – Floor 2W, Cos Cob, Connecticut. Use of this space is
provided to us under the terms of the CSS Management Agreement. We also lease facilities in California and New York.
ITEM 3. Legal Proceedings
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
30
Table of Contents
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our Class A common stock is listed on the Nasdaq Global Market (“Nasdaq”) under the symbol “CSSE,” our Series A
Preferred Stock is listed on Nasdaq under the symbol “CSSEP,” and our 9.50% Notes due 2025 are listed on Nasdaq under the
symbol “CSSEN.”
Holders
As of March 31, 2022, we have 27 holders of record of our Class A Common Stock and 1 holder of record of our Class B
Common Stock. We believe we have in excess of 300 beneficial holders of our Class A Common Stock.
Dividend Policy
Series A Preferred Stock Dividends
Since July 2018, we have declared monthly cash dividends of $0.2031 per share on our Series A Preferred Stock to holders of
record as of each month end. The monthly dividends for each month were paid on approximately the 15th day subsequent to
each respective month end. The total amount of dividends declared were $9.0 and $4.1 million as of December 31, 2021 and
2020, respectively.
Common Stock Dividends
We did not pay any dividends on our common stock during the years ended December 31, 2021 and 2020. Any payment of
dividends in the future is within the discretion of our board of directors (subject to our obligation to pay dividends on our
Series A Preferred Stock and to make quarterly interest payments on our 9.50% Notes due 2025) and will depend on our
earnings, if any, our capital requirements and financial condition and other relevant factors.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Code of Ethics
We have adopted a code of ethics which applies to all our directors, officers, and employees, including our chief executive
officer, chief financial officer, and principal accounting officer. The code of ethics is designed to deter wrongdoing and
promote honest and ethical conduct, full, fair, accurate, timely, and understandable disclosure in reports that we file or furnish
to the SEC and in our other public communications, compliance with applicable government laws, rules, and regulations, and
prompt internal reporting of violations of the code. A copy of the code of ethics may be found on our website at
ir.cssentertainment.com.
ITEM 6. Selected Financial Data
Not applicable.
31
Table of Contents
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our consolidated financial condition and results of operations should be read
together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. Some of the
information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with
respect to our plans and strategy for our business and related financing, includes forward-looking statements involving risks
and uncertainties and should be read together with the "Risk Factors" section of this Annual Report. Such risks and
uncertainties could cause actual results to differ materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.
Recent Developments
Acquisition of Sonar Entertainment Assets
In April 2021, we entered into an asset purchase agreement (“Asset Purchase Agreement”) by and among our company,
Halcyon Television, and with respect to certain provisions, Parkside Entertainment Inc., a Canadian company (“Parkside” and,
collectively with us and Halcyon Television, the “CSSE Buyer”), on the one hand, and Sonar Entertainment Inc. (“SEI”) and
the direct and indirect subsidiaries of SEI identified in the Asset Purchase Agreement (collectively, “Sonar”), on the other
hand. On May 21, 2021, pursuant to the Asset Purchase Agreement, the CSSE Buyer purchased the principal assets of Sonar
for $18.9 million in cash and additional consideration of $34.9 million, that will be funded through the seller’s participation in
the underlying acquired assets future cash flows. Parkside separately purchased the outstanding equity of Sonar Canada Inc.
We believe that our acquisition of the Sonar assets accelerates our strategy to build the leading independent AVOD streaming
service in four key ways:
•
•
•
•
expanding our original television content development pipeline;
improving margins by increasing our IP rights ownership;
accelerating our ability to launch the Chicken Soup for the Soul branded AVOD network; and
providing a faster path to growing our international television production and distribution activities.
Stock Repurchase Program
In November 2021, believing that our current stock price does not reflect the enterprise value of our company or our recent or
planned growth, we announced a share repurchase program under which we may purchase from time to time in market or
private transactions of our publicly traded Class A common stock. Of the $30.0 million authorized under the stock repurchase
program through March 30, 2022, there is approximately $8.9 million of capacity remaining. We believe that the ability to
make such repurchases enables us to enhance stockholder value as and when market prices dictate and that the use of any of
our capital resources for any such repurchase would have no effect on our ability to adhere to our growth strategies and our
on-going operations. Under the program, we have repurchased 1.6 million shares at an average price of $12.88 per share.
Acquisition of 1091 Pictures
On March 4, 2022, the Company acquired the assets of 1091 Media, LLC (“1091 Media”) for approximately $15.6 million.
The purchase price is comprised of $8.0 million in cash, $2.0 million in the form of newly issued shares of the Company’s
Series A perpetual preferred stock valued at $25 per share, and 375,000 shares of Class A common stock valued at $14.80 per
share. 1091 Picture’s provides a diverse library of approximately 4,000 movies and television series and established FAST and
AVOD channels in specific verticals, with approximately 1 billion yearly ad impressions.
32
Table of Contents
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent
to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected
to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will not be subject to the same
new or revised accounting standards as public companies that are not emerging growth companies.
Reporting Segment
We operate in one reportable segment, the production, distribution and exhibition of TV and film content for sale to others and
for use on our owned and operated video on demand platforms. We distribute films in over 56 countries and territories
worldwide and intend to continue to license our video content internationally.
Seasonality
Our operating results are not materially affected by seasonal factors; however, we may distribute rights to certain films which
result in increased revenues and expenses during the period of distribution and revenues from our AVOD networks vary from
period to period and will generally be higher in the second half of each year.
Financial Results of Operations:
Revenue
The following table presents net revenue line items for the years ended December 31, 2021 and 2020 and the year-over-year
dollar and percentage changes for those line items:
Revenue:
VOD and streaming
Licensing and other
Net revenue
Year Ended December 31,
2021
% of
revenue
2020
% of
revenue
Change
Period over Period
$ 62,630,109
47,765,357
$ 110,395,466
57 % $ 53,761,636
43 %
12,595,320
100 % $ 66,356,956
81 % $ 8,868,473
19 %
35,170,037
100 % $ 44,038,510
16 %
279 %
66 %
Our net revenue increased by $44.0 million for the year ended December 31, 2021 compared to 2020. On May 21, 2021, we
completed the acquisition of the principal assets of Sonar Entertainment, Inc. (“Sonar”). The Sonar acquisition contributed
$19.2 million or 44% of the revenue increase in the year ended December 31, 2021 compared to 2020.
VOD and streaming revenue increased $8.9 million for the year ended December 31, 2021, compared to 2020. The increase
includes a $6.0 million increase in TVOD revenues driven by strong performances and sales of various library titles, including
$3.6 million from Sonar titles and a $2.1 million increase in advertising revenues related to an increase in viewership,
particularly from new Crackle Plus distribution platforms partners, sponsorship revenues and ad representation revenues.
Licensing and other revenue increased $35.2 million for the year ended December 31, 2021, compared to 2020. The increase
is related to $26.6 million in international licensing sales, including $12.7 million from Sonar titles, a $8.2 million increase in
content production primarily driven by production services revenue related to Rana Naidu and executive producer fee revenue
related to Hunters Season 2 and Mysterious Benedict Society Season 2. International licensing agreements generally are for a
fixed fee for all rights in a territory and therefore, the ultimate composition of the licensee’s revenue generated (e.g., TVOD,
SVOD, AVOD, etc.) is not known at the inception of the license when our revenue is recognized. Management believes the
majority of the sub-licensee’s revenues generated under these licenses will relate to VOD and streaming.
33
Table of Contents
Cost of Revenue
The following table presents cost of revenue line items for the years ended December 31, 2021 and 2020 and the year-over-
year dollar and percentage changes for those line items:
Cost of revenue:
Content amortization and other costs
Revenue share and partner fees
Distribution and platform costs
Total cost of revenue
Gross profit
Gross profit margin
Year Ended December 31,
% of
2021
revenue
2020
% of
revenue
Change
Period over Period
$ 43,533,433
13,728,694
21,876,757
$ 79,138,884
$ 31,256,582
39 % $ 23,966,453
9,559,234
13 %
20 %
18,614,132
72 % $ 52,139,819
$ 14,217,137
28 %
21 %
36 % $ 19,566,980
4,169,460
15 %
28 %
3,262,625
79 % $ 26,999,065
82 %
44 %
18 %
52 %
Our cost of revenue increased by $27.0 million for the year ended December 31, 2021 compared to 2020. This increase was
primarily due to a $19.6 million increase in content amortization and other costs as a result of the $42.3 million increase in
film licensing and sponsorship revenue, a $4.2 million increase in revenue share and partner fees primarily related to higher ad
representation sales and increased revenues from new Crackle Plus distribution platforms, and a $3.3 million increase in
distribution and platform costs primarily related to various technology costs to maintain and enhance our growing Crackle
Plus Platform.
For the year ended December 31, 2021, the Sonar acquisition accounted for $5.6 million or 13% of content amortization and
other costs and $1.8 million or 8% of distribution costs included in distribution and platform costs.
Operating Expenses
The following table presents operating expense line items for the years ended December 31, 2021 and 2020, and the year-over-
year dollar and percentage changes for those line items:
Operating expenses:
Selling, general and administrative
Amortization and depreciation
Impairment of content assets
Impairment of intangible asset & goodwill
Management and license fees
Total operating expenses
* Not meaningful
Year Ended December 31,
% of
2021
revenue
2020
% of
revenue
Change
Period over Period
$ 48,611,101
5,728,051
9,794,854
2,044,647
11,039,547
$ 77,218,200
44 % $ 31,573,368
16,291,327
3,973,878
—
5 %
9 %
2 %
10 %
6,635,696
70 % $ 58,474,269
48 % $ 17,037,733
(10,563,276)
25 %
5,820,976
6 %
— %
—
10 %
4,403,851
89 % $ 18,743,931
54 %
(65)%
146 %
* %
66 %
32 %
Our total operating expenses were 70% of net revenue for the year ended December 31, 2021 compared to 89% in the same
period in 2020 and increased in absolute dollars by $18.7 million. Excluding amortization, depreciation expense and
impairment charges, total operating expenses were 54% and 58% of net revenue for the years ended December 31, 2021 and
2020, respectively.
Selling, general and administrative expenses increased by $17.0 million for the year ended December 31, 2021 compared to
2020. The increase is further discussed below in the Selling, General and Administrative section.
34
Table of Contents
Amortization and depreciation expense decreased by $10.6 million for the year ended December 31, 2021 compared to 2020.
The decrease is primarily due to the Crackle Plus customer user base intangible asset being fully amortized during the third
quarter of 2020.
In fourth quarter of 2021, we reorganized our production operations due to the acquisition of Sonar Entertainment and formed
Chicken Soup for the Soul Television Group. In connection with this change, we performed an evaluation of shows in
development and monetization strategies across our content portfolio, that resulted in the identification of content not
consistent with management’s strategy and accelerated amortization associated with changes in the expected monetization of
certain programs. As a result, the Company recorded an impairment of $9.8 million and $4.0 million for the years ended
December 31, 2021 and 2020, respectively.
As a result of our principal focus on AVOD services, management determined that our sole SVOD service’s acquired customer
intangible base and reporting unit goodwill was impaired during the fourth quarter of 2021.
We incur fees to CSS equal to 10% of total net revenue related to management services, a brand license and marketing as
further described in the Related Party Resources and Obligations section below. The $4.4 million increase is due to increased
revenues year over year.
Selling, General and Administrative Expenses
The following table presents selling, general and administrative expense line items for the years ended December 31, 2021 and
2020 and the year-over-year dollar and percentage changes for those line items:
Compensation expense
Share-based compensation
Professional fees
Public company expenses
Bad debt expense
Other operating expenses
Year Ended
December 31,
2021
$ 23,937,425
5,247,807
6,686,611
1,031,198
691,406
11,016,654
$ 48,611,101
2020
$ 18,408,546
1,131,515
3,583,702
520,118
1,571,518
6,357,969
$ 31,573,368
Change
Period over Period
$ 5,528,879
30 %
4,116,292 364 %
87 %
3,102,909
511,080
98 %
(880,112) (56)%
73 %
4,658,685
$ 17,037,733
54 %
Our compensation expense increased by $5.5 million for the year ended December 31, 2021 compared to 2020. This increase
is primarily due to a 53% increase in headcount as a result of the continued growth of the Company, including the acquisition
of Sonar.
Share-based compensation expense increased $4.1 million for the year ended December 31, 2021 compared to 2020. This
increase is related to a broader issuance of stock options granted under the 2017 Long Term Incentive Plan across our
increased employee base, as well as, common stock grants issued to consultants and directors during 2021.
Professional fees increased by $3.1 million for the year ended December 31, 2021 compared to 2020. This increase is
primarily related to an increase in consulting, advisory and legal expense for on-going litigation, capital raising activities and
the acquisition of Sonar.
Public company expenses increased $0.5 million for the year ended December 31, 2021 compared to 2020. This increase is
primarily related to various fees in connection with our recent financing activities.
Bad debt expense decreased $0.9 million for the year ended December 31, 2021 compared to 2020. This decrease is a result of
increased collection efforts in 2021 and certain aged customer balances being reserved in the prior year.
35
Table of Contents
Other operating expenses increased $4.7 million for the year ended December 31, 2021 compared to 2020. This increase is
primarily related to a $3.3 million increase in marketing expenses related to Crackle Plus and other costs to support the growth
in our business in 2021.
Interest Expense
The following table presents interest expense for the years ended December 31, 2021 and 2020:
9.50% Notes due 2025
Revolving loan
Film acquisition advance
Revolving credit facility
Commercial loan
Amortization of deferred financing costs
$
Year Ended December 31,
2020
2021
982,327
$ 3,093,390
526,488
—
314,433
664,768
316,667
50,555
476,889
—
131,790
495,974
$ 2,222,106
$ 4,831,175
Interest expense increased $2.6 million for the year ended December 31, 2021 compared to 2020. The increase is primarily
related to a higher average outstanding debt balance during 2021 as compared to 2020.
Other Non-Operating Income, net
For the years ended December 31, 2021 and 2020 other non-operating income was $0.4 million and $6.2 million, respectively.
The decrease of $5.8 million was primarily the result of extinguished liabilities as part of a settlement agreement with a
technology platform vendor which discontinued operations prior to the completion of the contractual service period during the
prior year.
Provision for Income Taxes
The provision for income taxes consists of federal and state taxes in amounts necessary to align our tax provision to the
effective tax rate. For the years ended December 31, 2021 and 2020, we reported tax expense of approximately $0.1 million
and $0.1 million, respectively, consisting of state taxes currently payable. The effective tax rate for the years ended December
31, 2021 and 2020 was 0% and is significantly impacted by temporary and permanent differences as described below.
Temporary differences consist primarily of net programming costs and film library acquisition costs that were, for current year
additions, amortized over the straight line basis as permitted under the Internal Revenue Code as well as prior year released
USA produced shows having been deducted for tax purposes in the period incurred (under Internal Revenue Code Sections
168(k) and 181 as contrasted to the capitalization and amortization for financial reporting purposes under the guidance of ASC
926 — Entertainment — Films. We also incurred impairment losses that were charged to operations on the financial
statements on some of those assets but are not currently deductible for tax purposes. Additionally, the Company amortized, for
tax purposes, intangible assets as well as acquisition related costs under Section 197 of the Internal Revenue Code, the
amounts of which differ substantially from charges on related assets that are either not for financial reporting amortized,
charged to operations in the period incurred or amortized at different rates.
Permanent differences consist primarily of: (1) amortization for financial reporting purposes of film library properties that
were acquired in a transaction in 2017 wherein the tax cost basis as well as the method and rate of amortization are, for tax
purposes, governed by the rules of Section 197 of the Internal Revenue Code and (2) option grants under the Company’s Long
Term Incentive Plan that are not deductible until exercised.
36
Table of Contents
Related Party Resources and Obligations
CSS License Agreement
We have a trademark and intellectual property license agreement with CSS, which we refer to as the ‘‘CSS License
Agreement.’’ Under the terms of the CSS License Agreement, we have been granted a perpetual, exclusive, worldwide license
to produce and distribute video content using the Chicken Soup for the Soul brand and related content, such as stories
published in the Chicken Soup for the Soul books.
We pay CSS an incremental recurring license fee equal to 4% of our net revenue for each calendar quarter, and a marketing fee
of 1% of our net revenue
For the years ended December 31, 2021 and 2020, we recorded $5.5 million and $3.3 million, respectively, of license fee
expense under this agreement. We believe that the terms and conditions of the CSS License Agreement, which provides us
with the rights to use the trademark and intellectual property in connection with our video content, are more favorable to us
than any similar agreement we could have negotiated with an independent third party.
CSS Management Agreement
We have a management services agreement, the ‘‘CSS Management Agreement’’, in which we pay CSS a management fee
equal to 5% of our net revenue. Under the terms of the CSS Management Agreement, we are provided with the broad
operational expertise of CSS and its subsidiaries and personnel, including the services of our chairman and chief executive
officer, Mr. Rouhana, our senior brand advisor and director, Ms. Newmark, and our chief financial officer, Mr. Mitchell. The
CSS Management Agreement also provides for services, such as accounting, legal, marketing, management, data access and
back-office systems, and provides us with office space and equipment usage. On August 1, 2019, we entered into an
amendment to the CSS Management Agreement which removed our obligation to pay sales commissions to CSS in connection
with sponsorships for our video content or other revenue generating transactions arranged by CSS or its affiliates. On March
15, 2021, we entered into a further amendment to the CSS Management Agreement which clarified that the term of the CSS
Management Agreement is five years, with automatic one-year renewals unless affirmatively terminated by one of the parties.
For the years ended December 31, 2021 and 2020, we recorded $5.5 million and $3.3 million, respectively, of management fee
expense under this agreement. We believe that the terms and conditions of the CSS Management Agreement, as amended, are
more favorable and cost effective to us than if we hired the full staff to operate the Company.
Use of Non-GAAP Financial Measure
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United
States (“U.S. GAAP”). We use a non-GAAP financial measure to evaluate our results of operations and as a supplemental
indicator of our operating performance. The non-GAAP financial measure that we use is Adjusted EBITDA. Adjusted
EBITDA (as defined below) is considered a non-GAAP financial measure as defined by Regulation G promulgated by the
SEC under the Securities Act of 1933, as amended. Due to the significance of non-cash, non-recurring, and acquisition related
expenses recognized for the year ended December 31, 2021 and 2020, and the likelihood of material non-cash, non-recurring,
and acquisition related expenses to occur in future periods, we believe that this non-GAAP financial measure enhances the
understanding of our historical and current financial results as well as provides investors with measures used by management
for the planning and forecasting of future periods, as well as for measuring performance for compensation of executives and
other members of management. Further, we believe that Adjusted EBITDA enables our board of directors and management to
analyze and evaluate financial and strategic planning decisions that will directly affect operating decisions and investments.
We believe this measure is an important indicator of our operational strength and performance of our business because it
provides a link between operational performance and operating income. It is also a primary measure used by management in
evaluating companies as potential acquisition targets. We believe the presentation of this measure is relevant and useful for
investors because it allows investors to view performance in a manner similar to the method used by management. We believe
it helps improve investors’ ability to understand our operating performance and makes it easier to compare our results with
other companies that have different
37
Table of Contents
capital structures or tax rates. In addition, we believe this measure is also among the primary measures used externally by our
investors, analysts and peers in our industry for purposes of valuation and comparing our operating performance to other
companies in our industry.
The presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by
unusual, infrequent or non-recurring items or by non-cash items. This non-GAAP financial measure should be considered in
addition to, rather than as a substitute for, our actual operating results included in our consolidated financial statements.
We define Adjusted EBITDA as consolidated operating income adjusted to exclude interest, taxes, depreciation, amortization
(including tangible and intangible assets), acquisition-related costs, consulting fees related to acquisitions, dividend payments,
non-cash share-based compensation expense, and adjustments for other unusual and infrequent in nature identified charges.
Adjusted EBITDA is not an earnings measure recognized by US GAAP and does not have a standardized meaning prescribed
by GAAP; accordingly, Adjusted EBITDA may not be comparable to similar measures presented by other companies. We
believe Adjusted EBITDA to be a meaningful indicator of our performance that provides useful information to investors
regarding our financial condition and results of operations. The most comparable GAAP measure is operating income.
Adjusted EBITDA has important limitations as an analytical tool, and you should not consider it in isolation or as a substitute
for analysis of our results as reported under GAAP. Some of these limitations are:
● Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or
contractual commitments;
● Adjusted EBITDA does not reflect changes in, or cash requirements for our working capital needs;
● Adjusted EBITDA does not reflect the effects of preferred dividend payments, or the cash requirements necessary to
fund;
● Although amortization and depreciation is a non-cash charge, the assets being depreciated will often have to be
replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;
● Adjusted EBITDA does not reflect the effects of the amortization of our film library, which include cash and non-
cash amortization of our initial film library investments, participation costs and theatrical release costs;
● Adjusted EBITDA does not reflect the impact of stock-based compensation upon our results of operations;
● Adjusted EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service
interest or principal payments on our debt;
● Adjusted EBITDA does not reflect our income tax (benefit) expense or the cash requirements to pay our income
taxes;
● Adjusted EBITDA does not reflect the impact of acquisition related expenses; and the cash requirements
necessary;
● Adjusted EBITDA does not reflect the impact of other non-recurring, infrequent in nature and unusual expenses; and
● Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a
comparative measure.
In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to those eliminated in
this presentation.
38
Table of Contents
Reconciliation of Historical GAAP Net Income as reported to Adjusted EBITDA
The following table presents a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP
measure, for the periods presented:
Net loss available to common stockholders
Preferred dividends
Provision for income taxes
Other taxes
Interest expense(a)
Film library and program rights amortization(b)
Share-based compensation expense(c)
Expense for bad debt and video returns
Amortization and depreciation(d)
Other non-operating income, net(e)
Loss on extinguishment of debt
Impairment of intangible asset and goodwill(f)
Impairment of content assets(g)
Transitional expenses(h)
All other nonrecurring costs(i)
Adjusted EBITDA
Year Ended December 31,
2020
2021
$ (59,419,724) $ (44,552,353)
4,142,376
99,000
312,600
2,222,106
23,563,772
1,131,515
3,384,584
17,317,247
(6,155,279)
169,219
—
3,973,878
4,353,345
1,789,569
$ 11,751,579
9,013,540
66,000
308,720
4,831,175
35,630,591
5,247,807
2,522,629
7,408,155
(379,151)
—
2,044,647
9,794,854
560,982
4,194,267
$ 21,824,492
(a).
Includes amortization of deferred financing costs of $495,974 and $131,790 for the years ended December 31, 2021 and 2020, respectively.
(b). Represents amortization of our film library, which include cash and non-cash amortization of our initial film library investments, participation costs and theatrical
release costs as well as amortization for our acquired program rights.
(c). Represents expense related to common stock equivalents issued to certain employees and officers under the Long-Term Incentive Plan. In addition to common
stock grants issued to employees, directors and consultants.
(d).
Includes depreciation and amortization of intangibles, property and equipment and amortization of technology expenditures included in cost of revenue.
(e). Other non-operating income is primarily comprised of interest income earned on cash deposits and other income including settlements and contract cancellations
fees.
(f). Represents an impairment related to our SVOD service customer base intangible asset and goodwill during the year ended December 31, 2021.
(g). Represents impairment charges related to our content assets.
(h). Represents transitional related expenses primarily associated with the Crackle Plus business combination and the Company’s strategic shift related to its
production business. Costs include non-recurring payroll, redundant non-recurring technology costs and other transitional costs.
(i).
Includes legal, consulting, accounting and other non-recurring operating expenses.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are our existing cash and cash equivalents, cash inflows from operating activities and
financing activities. As of December 31, 2021, we had cash and cash equivalents of $44.3 million. Our total debt principal
outstanding was $56.7 million as of December 31, 2021, of which $32.9 million is comprised of outstanding principal under
our 9.50% Notes due 2025.
39
Table of Contents
Debt, net of debt issuance costs, increased $13.0 million primarily due to drawing on the Revolving Loan, offset by the
repayment of the outstanding principal under the Revolving Credit Facility and partial repayment of the Film Acquisition
Advance. The amount of principal and interest due in the next twelve months is approximately $10.2 million. See Note 10,
Debt in the accompanying notes to our consolidated financial statements.
As of December 31, 2021, the Company had $38.6 million of content obligations, including film library acquisition
obligations, programming obligations and participation costs, $39.7 million of off balance sheet commitments in 2022 and
contingent consideration related to our acquisition of Sonar. See Note 15, Commitments & Contingencies in the
accompanying notes to our consolidated financial statements
During 2021 the Company raised approximately net proceeds of $95.3 million through the sale of Class A common stock, as
follows:
● On January 20, 2021, the Company completed a private placement sale of 1,022,727 shares of common stock at a
price $22.00 per common share, generating gross proceeds of $22.5 million and net proceeds of $21.4 million.
● On July 7, 2021, the Company completed an underwritten public offering of 1,875,000 shares of common stock at a
price $40.00 per common share, generating gross proceeds of $75.0 million and net proceeds of $70.5 million.
● During the year ended December 31, 2021, the Company completed the sale of an aggregate of 126,000 shares of
Class A Common Stock, for net proceeds of $3.4 million, pursuant to an At the Market Issuance Sales Agreement
with B. Riley FBR, Inc. as sales agent.
Cash Flows
Our cash and cash equivalents balance was $44.3 million and $14.7 million as of December 31, 2021 and 2020, respectively.
Cash flow information for the years ended December 31, 2021 and 2020 is as follows:
Cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Operating Activities
Year Ended December 31,
2020
2021
$ (30,369,619) $ (18,045,482)
(2,792,165)
(15,376,347)
29,122,971
75,297,973
Net cash used in operating activities was $30.4 million and $18.0 million for the years ended December 31, 2021 and 2020,
respectively. The increase of $12.4 million in cash used in operating activities for the year ended December 31, 2021
compared to 2020 was primarily due to a $13.6 million decrease in net loss adjusted for the exclusion of non-cash items, and a
$25.9 million decrease related to the effect of changes in operating assets and liabilities.
The net loss adjusted for the exclusion of non-cash items was approximately $16.0 million for the year ended December 31,
2021 compared to the net loss adjusted for the exclusion of non-cash items of $2.4 million for the year ended December 31,
2020. The decrease in the net loss adjusted for the exclusion of non-cash items was primarily due to a $23.5 million increase
in net non-cash items driven by the amortization and impairment of content assets and amortization of intangible assets, offset
by the $9.9 million increase in net loss.
40
Table of Contents
The effect of changes in operating assets and liabilities was a decrease of $46.4 million for the year ended December 31, 2021
compared to a decrease of $20.5 million for the year ended December 31, 2020. The most significant drivers contributing to
this increase relate to the following:
● Changes in accounts receivable primarily driven by increased revenues and licensing agreements with extended
payment terms including minimum guarantees. Accounts receivable increased $19.6 million during the year ended
December 31, 2021 as compared to a decrease of $5.5 million during the year ended December 31, 2020.
● Changes in content assets primarily due to increased premium content investment in our film library. Content assets
increased $48.4 million during the year ended December 31, 2021 compared to a $30.6 million increase during the
year ended December 31, 2020.
● Changes in film library acquisition and programming obligations primarily due to the timing of payments and
increased content investment in our film library content. Film library acquisition and programming obligations
increased $13.0 million during the year ended December 31, 2021 compared to a $2.4 million increase during the
year ended December 31, 2020.
Investing Activities
For the years ended December 31, 2021, our investing activities required a net use of cash totaling $15.4 million. This increase
was due to $19.4 million of cash used to fund the Sonar and Locomotive Global acquisitions, a $1.6 million in cash used for
capital expenditures primarily related to enhancing our technology infrastructure and Crackle Plus platforms. The cash used in
investing activities was offset by $5.6 million decrease in our due-from affiliated companies’ balance driven by our parent
company’s central cash management system through which from time to time funds are transferred to meet liquidity needs and
are settled on an ongoing basis.
For the years ended December 31, 2020, our investing activities required a net use of cash totaling $2.8 million. This resulted
primarily from a $5.5 million increase in capital expenditures primarily related to our ongoing investments, particularly as it
relates to enhancing our technology infrastructure and platforms to support our growing operations, partially offset by a $2.0
million decrease in our due from affiliated companies balance and a $0.7 million increase from sales of marketable securities.
Financing Activities
For the year ended December 31, 2021, our financing activities provided net cash totaling $75.3 million. This increase was
primarily due to the $70.5 million in net proceeds related to the July 2021 public common stock offering, $21.4 million in net
proceeds related to the January 2021 common stock private placement, $17.8 million in net proceeds related to the revolving
loan with Midcap Financial Trust, $3.4 million in net proceeds from the at-the-market common stock offerings during the
period, $3.3 million in proceeds from the exercise of stock options and warrants, offset by the repurchase of common stock in
the amount of $12.6 million, $8.6 million payment of contingent consideration related to the Sonar acquisition, a $8.7 million
payment of dividends to preferred stockholders, purchasing an additional 25,000 units of common equity in Landmark Studio
Group for $6.0 million, the $2.5 million repayment of the outstanding principal under the revolving credit facility with Cole
Investments VII, LLC, a $2.5 million payment on our film acquisition advance, a $0.7 million payment on our Revolving
Loan and a $0.5 million increase in our due-to affiliated companies balance. These financing activities during the period have
resulted in the Company improving its liquidity position by increasing cash on-hand to scale and fund the operations of the
Company.
For the year ended December 31, 2020, our financing activities provided net cash totaling $29.1 million. This increase was
primarily due to the $31.0 million in net proceeds related to the public offering of the 9.50% notes due 2025, $8.8 million in
proceeds from the film acquisition advance, $5.9 million in proceeds from a private placement and at-the-market sale of
common stock and $6.7 million in net proceeds from the sale of our preferred stock, offset by the $15.2 million repayment of
the Commercial Loan, the $1.6 million repayment of the film acquisition advance, the $4.1 million payment of dividends to
preferred stockholders and a $2.5 million payment on our revolving credit facility. These financing
41
Table of Contents
activities during the period have resulted in the Company improving its liquidity position by increasing cash on hand and
extending future principal payments.
Anticipated Cash Requirements
We believe that cash flow from operations and cash on hand, together with equity and/or debt financings in 2022, will be
adequate to meet our known operational cash needs, minimum programming payments and debt service (i.e., principal and
interest payments) requirements for the foreseeable future. We monitor our cash flow liquidity, availability, capital base,
operational spending and leverage ratios with the long-term goal of maintaining our credit worthiness. If we are required to
access debt or equity financing for our operating needs, we may incur additional debt and/or issue preferred stock or common
equity, which could serve to materially increase our liabilities and/or cause dilution to existing holders. There can be no
assurance that we would be able to access debt or equity financing if required on a timely basis or at all or on terms that are
commercially reasonable to our Company. If we should be required to obtain debt or equity financing and are unable to do so
on the required terms, our operations and financial performance could be materially adversely affected.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our financial statements in conformity with generally accepted accounting principles requires management
to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses
during the reporting period. On an ongoing basis, we evaluate these estimates, which are based on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the
basis for making judgments about the carrying values of assets and liabilities and the reported amount of revenues and
expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different
assumptions.
We consider the following accounting policies to be the most critical as they are important to our financial condition and
results of operations and require significant judgment and estimates on the part of management in their application. The risks
and uncertainties involved in applying our critical accounting policies are provided below. Unless otherwise noted, we applied
our critical accounting policies and estimation methods consistently in all material respects and for all periods presented and
have discussed such policies with our Audit Committee. For a summary of our significant accounting policies, see the
accompanying notes to the consolidated financial statements
Revenue Recognition
Revenue from contracts with customers is recognized as contractual performance obligations are satisfied; generally, this
occurs at the point in time when the customer has the ability to direct the use and obtain substantially all the benefits of that
good or service. Our contractual performance obligations include the licensing or sale of content, production services or
delivery of online advertisements. Revenue is measured at contract inception as the amount of consideration we expect to
receive in exchange for transferring goods or providing services to customers.
Film Ultimates & Content Amortization
Original productions, acquired film rights and acquired film libraries are stated at the lower of amortized cost or estimated fair
value. The valuation of content is reviewed at the individual title level or acquired library level, when an event or change in
circumstances indicates that the fair value may be less than its unamortized cost and the valuation is based on a DCF
methodology with assumptions for cash flows. Key inputs employed in the DCF methodology include estimates of a film
ultimate revenue and costs as well as a discount rate. The discount rate utilized in the DCF is based on the weighted average
cost of capital of the Company plus a risk premium representing the risk associated with acquiring a film. An impairment
charge is recorded in the amount by which the unamortized costs exceed the estimated fair value. Estimates of future revenue
involve measurement uncertainties and it is therefore possible that reductions in the carrying value of costs may be required
because of changes in management’s future revenue estimates.
42
Table of Contents
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, principally finite lived intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset grouping may not be recoverable. If the sum of the expected
future cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is
recognized as the amount by which the carrying amount of the asset exceeds its fair value. The expected cash flows are based
on assumptions regarding our future business outlook and where appropriate, include a residual value based on a revenue
market multiple. While we continue to review and analyze many factors that can impact our business prospects in the future,
our analyses are subjective and are based on conditions existing at and trends leading up to the time the assumptions are made.
Actual results could differ from these assumptions.
Goodwill & Indefinite Lived Intangibles
Goodwill and other intangible assets with indefinite lives are reviewed for impairment on an annual basis or more frequently if
events or circumstances indicate the carrying amount may not be recoverable. If the carrying value of goodwill assigned to a
reporting unit or an indefinite-lived intangible asset exceeds fair value, an impairment charge is recognized. The fair value of
the Company’s reporting units or indefinite lived intangible asset is based on assumptions regarding our future business
outlook. While we continue to review and analyze many factors that can impact our business prospects in the future, our
analyses are subjective and are based on conditions existing at and trends leading up to the time the assumptions are made.
Actual results could differ from these assumptions.
For our annual impairment tests performed at December 31, 2021, we performed a qualitative assessment for our goodwill
reporting units and our indefinite lived intangibles that we estimated have fair values that significantly exceed their carrying
amounts.
For our 2021 assessment, we performed a qualitative assessment of our CSS brand license and our Distribution & Production
reporting unit and determined that they were not impaired. We weighed the relative impact of market-specific and
macroeconomic factors, as well as factors specific to the reporting unit. Based on the qualitative assessments, considering the
aggregation of the relevant factors, we concluded that it is more likely than not that the fair values of the reporting unit and
license are below their carrying values, and therefore, performing a quantitative test was unnecessary.
We performed a quantitative test for our SVOD and our Online Networks reporting units and found that the SVOD reporting
unit’s goodwill was impaired as of December 31, 2021, resulting in a charge of $1,300,319. The Online Networks reporting
unit had a negative equity value as of December 31, 2021, and is therefore not deemed to be impaired, as the reporting unit’s
fair value exceeds the carrying value.
We also performed a quantitative assessment for our Popcornflix brand indefinite lived intangible. We weighed the relative
impact of market-specific and macroeconomic factors for the AVOD market, as well as factors specific to the Popcornflix
AVOD service. Our assessment included expected future revenue estimates for the Popcornflix service and revenue multiples
from publicly traded companies with operations and characteristics similar to Popcornflix. Based on the results of our
quantitative impairment test, we concluded that the estimated fair value exceeded its respective carrying value and therefore
no impairment charge was required.
Recent Accounting Pronouncements
See Item 8, Financial Statements and Supplementary Data - Note 3 “Recent Accounting Pronouncements”.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
43
Table of Contents
ITEM 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm (PCAOB ID: 5905)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020
Page
Number
F-2
F-3
F-4
F-5
F-6
F-7
Notes to Consolidated Financial Statements
F-8 to F-36
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Chicken Soup for the Soul Entertainment, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Chicken Soup for the Soul Entertainment, Inc. and
subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations,
comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2021,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its
operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Rosenfield and Company, PLLC
We have served as the Company’s auditor since 2017.
New York, New York
March 29, 2022
F-2
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Consolidated Balance Sheets
ASSETS
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $786,830, and $1,035,643, respectively
Prepaid expenses and other current assets
Due from affiliated companies
Content assets, net
Intangible assets, net
Indefinite lived intangible assets
Goodwill
Other assets, net
Total assets
LIABILITIES AND EQUITY
Accounts payable and accrued other expenses
Due to affiliated companies
Programming obligations
Film library acquisition obligations
Accrued participation costs
Notes payable under revolving credit facility
Film acquisition advance
Revolving loan
9.50% Notes due 2025, net of deferred issuance costs of $1,402,880 and $1,798,433, respectively
Contingent consideration
Put option obligation
Other liabilities
Total liabilities
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; 3,698,318 and 2,098,318 shares issued and outstanding, respectively;
redemption value of $92,457,950 and $52,457,950, respectively
Class A common stock, $.0001 par value, 70,000,000 shares authorized; 8,964,330 and 5,157,053 shares issued,
8,019,828 and 5,082,818 shares outstanding, respectively
Class B common stock, $.0001 par value, 20,000,000 shares authorized; 7,654,506 shares issued and outstanding,
respectively
Additional paid-in capital
Deficit
Accumulated other comprehensive gain
Class A common stock held in treasury, at cost (944,502 and 74,235 shares, respectively)
Total stockholders’ equity
Subsidiary convertible preferred stock
Noncontrolling interests
Total equity
Total liabilities and equity
December 31, December 31,
2021
2020
$
$
$
44,286,105
60,213,807
1,904,273
—
63,645,396
18,035,091
12,163,943
39,986,530
5,190,954
245,426,099
$
14,732,726
25,996,947
1,382,502
5,648,652
51,020,318
19,370,490
12,163,943
21,448,106
4,517,102
$ 156,280,786
$
34,984,226
489,959
1,641,250
24,673,866
12,323,329
—
6,196,909
17,585,699
31,493,020
9,764,256
11,400,000
3,274,432
153,826,946
21,394,957
—
4,697,316
8,616,562
12,535,651
2,500,000
8,659,136
—
31,097,467
—
—
1,677,906
91,178,995
370
899
210
516
766
240,609,345
(136,462,244)
571
(13,202,407)
90,947,300
—
651,853
91,599,153
245,426,099
766
106,425,548
(77,247,982)
—
(632,729)
28,546,329
36,350,000
205,462
65,101,791
$ 156,280,786
$
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Consolidated Statements of Operations
Net revenue
Cost of revenue
Gross profit
Operating expenses:
Selling, general and administrative
Amortization and depreciation
Impairment of content assets
Impairment of intangible assets and goodwill
Management and license fees
Total operating expenses
Operating loss
Interest expense
Loss on extinguishment of debt
Other non-operating income, net
Loss before income taxes and preferred dividends
Provision for income taxes
Net loss before noncontrolling interests and preferred dividends
Net loss attributable to noncontrolling interests
Net loss attributable to Chicken Soup for the Soul Entertainment, Inc.
Less: preferred dividends
Net loss available to common stockholders
Net loss per common share:
Basic and diluted
Weighted-average common shares outstanding:
Basic and diluted
Year Ended December 31,
2020
2021
$ 66,356,956
$ 110,395,466
52,139,819
79,138,884
14,217,137
31,256,582
48,611,101
5,728,051
9,794,854
2,044,647
11,039,547
77,218,200
(45,961,618)
4,831,175
—
(379,151)
(50,413,642)
66,000
(50,479,642)
(73,458)
(50,406,184)
9,013,540
31,573,368
16,291,327
3,973,878
—
6,635,696
58,474,269
(44,257,132)
2,222,106
169,219
(6,155,279)
(40,493,178)
99,000
(40,592,178)
(182,201)
(40,409,977)
4,142,376
$ (59,419,724) $ (44,552,353)
$
(3.96) $
(3.62)
15,018,421
12,301,185
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Consolidated Statements of Comprehensive Loss
Net loss
Other comprehensive income:
Foreign currency translation adjustments
Comprehensive income attributable to noncontrolling interests
Comprehensive loss
Year Ended December 31,
2020
2021
$ (50,479,642) $ (40,592,178)
1,372
(801)
—
—
$ (50,479,071) $ (40,592,178)
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Consolidated Statements of Stockholders’ Equity
Preferred Stock
Common Stock
Shares Value Shares
Value Shares
Par
Class A
Par
Class B
Additional
Paid-In
Value Capital
Par
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Subsidiary
Convertible
Preferred
Stock
Deficit
Noncontrolling
Interests
Total
to
of
stock
issued
options
499,316
2,098,318
1,599,002
based
-
based
-
Balance,
December 31, 2019
based
Share
compensation
-
stock options
Share
compensation
common stock
Stock
exercised
Shares
directors
Common
grant
Issuance
common stock
Class W warrant
exercise
Conversion of Class
B shares to Class A
shares
Issuance
of
preferred stock, net
Dividends
on
preferred stock
Net loss attributable
to
noncontrolling
interest
Net loss
Balance,
December 31, 2020
based
Share
compensation
-
stock options
Share
compensation
common stock
Stock
exercised
Warrant exercises -
Class W and Z
Issuance
of
common stock, net
to
Shares
directors
Common
grant
Issuance
of
preferred stock, net
Dividends
on
preferred stock
Purchase
treasury stock
Acquisition
subsidiary
noncontrolling
interest
Elimination
noncontrolling
interests
Net loss attributable
to
noncontrolling
interests
Business
combination
Other
comprehensive
gain, net
Comprehensive
income attributable
to
noncontrolling
interests
Net loss
Balance,
December 31, 2021 3,698,318
1,600,000
options
issued
stock
of
of
of
$ 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
10,000
14,275
10,000
673,741
29,685
1
2
1
68
3
921,115
210,400
74,999
(2)
(1)
5,899,555
(3)
159,432
16
(159,432)
(16)
50
11,709,455
(4,142,376)
(40,409,977)
921,115
210,400
75,000
-
-
5,899,623
-
-
11,709,505
(4,142,376
(182,201)
(182,201
(40,409,977
$ 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
522,871
119,988
52
12
3,023,727
303
5,135
135,556
2
14
160
2,684,307
2,563,500
2,989,715
285,941
95,310,510
(2)
(14)
36,349,840
(6,000,000)
(9,013,540)
205,462
1,372
(801)
(50,406,184)
(36,350,000)
(12,569,678)
2,684,307
2,563,500
2,989,767
285,953
95,310,813
—
—
—
(9,013,540
(12,569,678
(6,000,000
(205,462)
—
(73,458)
(73,458
724,510
724,510
1,372
801
—
(50,406,184
$ 370
8,964,330
$ 899
7,654,506
$ 766
$240,609,345
$(136,462,244)
$
571
$ (13,202,407)
$
— $
651,853
$ 91,599,153
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Consolidated Statements of Cash Flows
Cash flows from Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation
Content asset amortization and impairment
Amortization of deferred financing costs
Amortization and depreciation of intangibles, property and equipment
Bad debt and video return expense
Loss on impairment of intangible assets & goodwill
Realized losses on marketable securities
Loss on debt extinguishment
Other non-operating income
Changes in operating assets and liabilities:
Trade accounts receivable
Prepaid expenses and other assets
Content assets
Accounts payable, accrued expenses and other payables
Film library acquisition and programming obligations
Accrued participation costs
Other liabilities
Net cash used in operating activities
Cash flows from Investing Activities:
Expenditures for property and equipment
Sales of marketable securities
Business combination
Decrease in due from affiliated companies
Net cash used in investing activities
Cash flows from Financing Activities:
Principal payments on debt
Repurchase of common stock
Payment of contingent consideration
Acquisition of subsidiary noncontrolling interest
Proceeds from revolving loan, net
Proceeds from 9.50% notes due 2025, net
Proceeds from film acquisition advance
Proceeds from issuance of Class A common stock
Proceeds from issuance of Series A preferred stock, net
Proceeds from exercise of stock options and warrants
Increase in due to affiliated companies
Dividends paid to preferred stockholders
Net cash provided by financing activities
Effect of foreign exchanges on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of the period
Supplemental data:
Cash paid for interest
Non-cash investing activities:
Property and equipment in accounts payable and accrued expenses
Non-cash financing activities:
Preferred stock issued for Crackle Plus acquisition
Preferred stock issued for reimbursable acquisition costs
Non-cash portion of film acquisition advance
See accompanying notes to consolidated financial statements.
F-7
Year ended December 31,
2020
2021
$
(50,479,642)
$
(40,592,178)
5,247,807
48,777,684
495,974
7,408,155
2,522,629
2,044,647
—
—
—
(19,626,535)
(431,249)
(48,402,762)
7,902,826
13,001,238
(212,322)
1,381,931
(30,369,619)
(1,605,795)
—
(19,419,204)
5,648,652
(15,376,347)
(5,649,459)
(12,569,678)
(8,627,284)
(6,000,000)
17,756,482
—
—
95,310,813
—
3,275,720
489,959
(8,688,580)
75,297,973
1,372
29,553,379
14,732,726
44,286,105
4,783,413
383,015
$
$
$
1,131,515
27,940,331
131,790
17,317,247
3,384,584
—
210,453
169,219
(7,278,893)
5,488,150
(1,073,090)
(30,596,926)
(5,637,040)
2,382,417
7,469,139
1,507,800
(18,045,482)
(5,465,407)
679,462
—
1,993,780
(2,792,165)
(19,250,864)
—
—
—
—
30,985,983
8,820,000
5,899,623
6,735,605
75,000
—
(4,142,376)
29,122,971
—
8,285,324
6,447,402
14,732,726
1,585,719
—
40,000,000
$
— $
— $
—
4,973,900
1,390,000
$
$
$
$
Table of Contents
Note 1 – Description of the Business
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
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, 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 Company 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 December 31, 2021, the Company had a deficit of $136,462,244 since inception and for the year ended December 31,
2021, the Company had a net loss attributable to common stockholders of $59,419,724. The Company does not expect to
continue to incur net losses at this level in 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 in 2022 as it continues to invest in and scale its AVOD networks, distributed film
library and original productions. 2021 has been 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 a new ad-supported network Chicken Soup for the Soul AVOD in 2022. This strategic shift, in scale and
capabilities, will support the Company’s future grow both domestically and internationally.
The Company believes that cash flow from operations and cash on hand, together with equity and debt offerings, and film
financings, if necessary, should be adequate to meet the Company’s operational cash, 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 Company credit worthiness.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly and majority owned
subsidiaries in which a controlling financial interest is maintained and variable interest entities (“VIEs”), where we are
considered the primary beneficiary, after the elimination of intercompany transactions. The consolidated financial statements
are prepared in conformity with accounting principles generally accepted in the United States of America (‘‘GAAP’’).
Reclassifications
Certain amounts reported for prior years have been reclassified to conform to the current year’s presentation. The
reclassifications have no effect on the reported net loss.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting periods. The
F-8
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Company’s significant estimates include those related to revenue recognition, ultimate revenues, future cash flows of long-
lived asset groups and the fair value of indefinite lived intangibles and goodwill. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original maturities of three months or less and consist
primarily of money market funds. Such investments are stated at cost, which approximates fair value. Restricted cash is
$1,552,052 at December 31, 2021.
Fair Value
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. To increase the comparability of fair value measurements, a three-tier
fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:
Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that
are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Valuations based on unobservable inputs reflecting our own assumptions. These valuations require significant
judgment and estimates.
At December 31, 2021 and 2020, the fair value of the Company’s financial instruments including cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses, approximated their carrying value due primarily to the relative
short-term nature of these instruments. Certain liabilities, including contingent consideration are measured at fair value on a
recurring basis. Other assets and liabilities, including television and film content costs, goodwill, intangible assets are adjusted
to fair value after initial recognition, only if an impairment charge is recognized. Impairment charges, if applicable, are
generally determined using a discounted cash flows, which is a Level 3 valuation technique.
Foreign Currency Translation
Assets and liabilities of our foreign subsidiaries with a functional currency other than the U.S. Dollar are translated into U.S.
Dollars using applicable exchange rates at the balance sheet date. Revenue and expenses are translated at average exchange
rates effective during the year. The resulting foreign currency translation gains and losses are included as a component of
accumulated other comprehensive gain within Stockholders’ Equity on our Consolidated Balance Sheets.
Assets and liabilities of our foreign subsidiaries for which the functional currency is not the U.S. Dollar are re-measured into
U.S. Dollars using applicable exchange rates at the balance sheet date, except nonmonetary assets and liabilities, which are re-
measured at the historical exchange rates prevailing when acquired. Revenue and expenses are re-measured at average
exchange rates effective during the year.
Foreign currency translation gains and losses from re-measurement are included in Other non-operating (income) expense in
the accompanying Consolidated Statements of Operations. The amounts of net gain (loss) on foreign currency re-measurement
recognized were immaterial for all periods presented.
F-9
Table of Contents
Business Combinations
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
We account for acquisitions of businesses using the acquisition method of accounting. The purchase price is allocated to the
identifiable net assets acquired, including intangible assets, liabilities assumed and contingent liabilities acquired, as well as
amounts attributed to noncontrolling interests, are recorded at fair value. The excess of the purchase price over the amount
allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Any transaction costs are expensed as
incurred.
Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the selection of
valuation methodologies, estimates of future revenue and cash flows and discount rates. See Note 4 for additional information.
Accounts Receivable
Accounts receivable are stated at the amounts management expects to collect and are stated net of allowance for uncollectible
accounts and video returns. An allowance for doubtful accounts is recorded based on a combination of historical experience,
expected economic conditions and industry trends. For the years ended December 31, 2021 and 2020, the provision for
doubtful accounts charged to operating expense was $691,406 and $1,571,518, respectively.
Content Assets
We produce original productions and acquire rights to films and television programming to exhibit on our AVOD Networks
and to distribute to third parties, including sub-distributors. We also develop and produce programming for third parties.
Original Productions
Content assets related to original productions include the unamortized costs of completed, in-process, or in-development long-
form and short-form video content produced by the Company. For video content, the Company’s capitalized costs include all
direct production and financing costs, capitalized interest when applicable, and production overhead. The costs of producing
video content are amortized using the individual-film-forecast method. These costs are amortized in the proportion that current
period’s revenue bears to management’s estimate of ultimate revenue expected to be recognized from each production.
For an episodic television series, the period over which ultimate revenue is estimated cannot exceed ten years following the
date of delivery of the first episode, or, if still in production, five years from the date of delivery of the most recent episode, if
later.
Film Library
The film library includes the cost of acquiring individual title distribution rights or an acquired film library. Films are
amortized using the individual-film-forecast-computation method. The film library is stated at the lower of unamortized cost
or fair value. Amortization is based upon management’s best estimate of total future, or ultimate revenue. Amortization is
adjusted when necessary to reflect increases or decreases in forecasted ultimate revenues. Ultimate revenues for individual
films is no longer than 10 years and for an acquired film library, no longer than 20 years.
Monetization & Recoverability of Content
Content assets (licensed and produced) are predominantly monetized individually and therefore are reviewed at the individual
level when an event or change in circumstance indicates a change in the expected usefulness of the content or the fair value
may be less than the unamortized cost. The determination of the predominant monetization strategy is made
F-10
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
at commencement of the production or license period and the classification of the monetization strategy as individual or group
only changes if there is a significant change to the title’s monetization strategy relative to its initial assessment.
Original productions, films and acquired film libraries are stated at the lower of amortized cost or estimated fair value. The
valuation of content is reviewed at the individual title level or acquired library level, when an event or change in
circumstances indicates that the fair value may be less than its unamortized cost and the valuation is based on a DCF
methodology with assumptions for cash flows. Key inputs employed in the DCF methodology include estimates of a film
ultimate revenue and costs as well as a discount rate. The discount rate utilized in the DCF is based on the weighted average
cost of capital of the Company plus a risk premium representing the risk associated with acquiring a film. An impairment
charge is recorded in the amount by which the unamortized costs exceed the estimated fair value. Estimates of future revenue
involve measurement uncertainties and it is therefore possible that reductions in the carrying value of film library costs may be
required because of changes in management’s future revenue estimates. See Note 8 for additional information.
Licensed Program Rights and Obligations
Programming rights acquired under license agreements are recorded as an asset and a corresponding liability upon
commencement of the license period. The programming rights are amortized over the license period based on the expected
monetization of each show, usually straight-line on a ratable basis. Programming obligations represent the gross commitment
amounts to be paid to program suppliers over the life of the contracts. License fees payable to suppliers based on a percentage
of advertising revenue generated are reflected in Accrued expenses.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, other than goodwill and intangible assets with indefinite lives, for impairment
whenever events or changes in circumstances indicate that the carrying amount of the asset grouping may not be recoverable.
If the sum of the expected future cash flows, undiscounted and without interest, is less than the carrying amount of the asset,
an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. The expected
cash flows are based on assumptions regarding our future business outlook and where appropriate, include a residual value
based on a revenue market multiple. While we continue to review and analyze many factors that can impact our business
prospects in the future, our analyses are subjective and are based on conditions existing at and trends leading up to the time the
assumptions are made. Actual results could differ from these assumptions. See Note 9 for additional information.
Goodwill and Intangible Assets
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination
which are not individually identified and is allocated to our reporting units. We do not amortize goodwill. Intangible assets
with finite lives, which primarily consist of acquired customer bases, non-compete agreements, content rights, brand value,
contractual and partner agreements are generally amortized on a straight-line basis over their estimated lives, which range
from 3 to 7 years. Amortization expense is included in amortization and depreciation in our Consolidated Statements of
Operations.
Goodwill and other intangible assets with indefinite lives are tested for impairment on an annual basis and between annual
tests if events occur or circumstances change that would more likely than not reduce the fair value its carrying amount. If the
carrying value of goodwill or an indefinite-lived intangible asset exceeds fair value, an impairment charge is recognized. The
fair value of the Company’s reporting units or indefinite lived intangible assets are based on assumptions regarding our future
business outlook. While we continue to review and analyze many factors that can impact our business prospects in the future,
our analyses are subjective and are based on conditions existing at and trends leading up to the time the assumptions are made.
Actual results could differ from these assumptions. See Note 9 for additional information.
F-11
Table of Contents
Fixed Assets & Capitalized Software
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Fixed assets and eligible capitalized software are stated at cost. Depreciation is calculated using the straight-line method over
the estimated useful lives of the asset: leasehold improvements – shorter of lease term of useful life, equipment 3 to 5 years
and capitalized software – over 3 years or the useful life of software. Capitalized costs are not significant and are included in
other assets in the Consolidated Balance Sheets.
Income Taxes
The Company records income taxes under the asset and liability method in accordance with FASB ASC Section 740. Deferred
tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred taxes are also recognized for
operating losses that are available to offset future taxable income. A valuation allowance is established, when necessary, to
reduce net deferred tax assets to the amount expected to be realized.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be realized or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment date.
The Company accounts for uncertain tax positions in accordance with the authoritative guidance issued by the Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740: Income Taxes, which
addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return, should be recorded in
the financial statements. Pursuant to the authoritative guidance, the Company may recognize the tax benefit from an uncertain
tax position only if it meets the “more likely than not” threshold that the position will be sustained on examination by the
taxing authority, based on the technical merits of the position or expiration of statutes. The tax benefits recognized in the
financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. In addition, the authoritative guidance addresses de-recognition,
classification, interest and penalties on income taxes, accounting in interim periods, and also requires increased disclosures.
The Company includes interest and penalties related to its uncertain tax positions as part of income tax expense within its
Consolidated statements of operations. At December 31, 2021 and 2020, the Company did not have any unrecognized tax
benefits or liabilities. See Note 13 for additional information.
Film Library Acquisition Obligations
Film library acquisition obligations represent amounts due in connection with acquiring film distribution rights that have been
delivered. Pursuant to the film distribution rights agreements, the Company’s right to distribute films may revert to the
licensor if the Company is unable to satisfy its financial obligations with respect to the acquisition of the related distribution
rights. See Note 15 for additional information.
Accrued Participation Costs
Parties involved in the production of a title may be compensated in part by contingent payments based on the financial results
of a title pursuant to contractual formulas (participations) and by contingent amounts due under provisions of collective
bargaining agreements (residuals). Such costs are collectively referred to as participation costs. Participations may be given to
creative talent, such as actors or writers, or to entities from whom distribution rights are licensed. Such amounts are estimated
based on film ultimate revenues or airings.
F-12
Table of Contents
Related Party Transactions – Due To/Due From Affiliated Companies
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
The Company follows subtopic 850-10 of the FASB ASC for the identification of related parties and disclosure of related
party transactions. Pursuant to Section 850-10-20 the related parties include subsidiaries and affiliates of the Company and
Chicken Soup for the Soul Holdings, LLC (“CSS”), the Company’s parent company. The financial statements and
accompanying notes include disclosures of material related party agreements and transactions, other than compensation
arrangements, expense allowances, and other similar items in the ordinary course of business. See Note 14 for additional
information.
Revenue Recognition
Revenue from contracts with customers is recognized as contractual performance obligations are satisfied; generally, this
occurs at the point in time when the customer has the ability to direct the use and obtain substantially all the benefits of that
good or service. Our contractual performance obligations include the licensing or sale of content, production services or
delivery of online advertisements. Revenue is measured at contract inception as the amount of consideration we expect to
receive in exchange for transferring goods or providing services to customers. See Note 5 for additional information.
Share-Based Compensation
Our policy is to issue new shares for purchases under our Long Term Incentive Plan. Share-based compensation expense is
estimated at the grant date based on a stock option’s fair value. The determination of the share-based compensation expense
related to stock options is calculated using a Black-Scholes-Merton option pricing model and is affected by our stock price,
expected stock price volatility over the term of the awards, expected term, risk free interest rate and expected dividends. We
record forfeitures as they occur. See Note 6 for additional information.
Advertising Costs
Advertising costs are expensed as incurred and included in Selling, general and administrative expenses in our Consolidated
statements of operations. Advertising expense was $4,730,573 and $1,383,718 for the years ended December 31, 2021 and
2020, respectively.
Treasury Stock
Treasury stock is accounted for using the cost method.
Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed based on the weighted average number of shares of all classes of
common stock outstanding during the period. Diluted earnings per common share is computed based on the weighted average
number of common shares outstanding during the period increased, when applicable, by dilutive common stock equivalents,
comprised of Class W warrants, Class Z warrants, Class I warrants, Class II warrants, Class III-A warrants, Class III-B
warrants and stock options outstanding. When the Company has a net loss, dilutive common stock equivalents are not
included as they would be anti-dilutive.
In computing the effect of dilutive common stock equivalents, the Company uses the treasury stock method to calculate the
related incremental shares. See Note 7 for additional information.
F-13
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Note 3 – Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
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 the Company’s consolidated financial statements. We do not expect there to be a material
impact on our financial statements.
In March 2019, FASB issued Accounting Standards Update (“ASU”) No. 2019-02, “Improvements to Accounting for Costs of
Films and License Agreements for Program Materials.” The amendments in this ASU align the accounting for production
costs of an episodic television series with the accounting for production costs of films. In addition, the ASU modifies certain
aspects of the capitalization, impairment, presentation and disclosure requirements under the current film and broadcaster
entertainment industry guidance. As the Company is an emerging growth company, the new guidance is effective for fiscal
years beginning after December 15, 2020 (fiscal year 2021 for the Company). The new guidance was applied on a prospective
basis. The Company adopted ASU 2019-02 in the first quarter of 2021 and the adoption had no material impact to the
Company’s consolidated financial statements.
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-
12, Simplifying the Accounting for Income Taxes (Topic 740). ASU 2019-12 removes certain exceptions for performing intra-
period tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The
guidance also simplifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of goodwill,
and the effect of enacted changes in tax laws or rates in interim periods. The Company adopted ASU 2019-12 in the first
quarter of 2021 and the adoption had no material impact to the Company’s consolidated financial statements.
In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808) – Clarifying the Interaction
between Topic 808 and Topic 606.” The amendments in this ASU clarify that certain transactions between collaborative
arrangement participants should be accounted for as revenue under Topic 606, Revenue from Contracts with Customers, when
the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as
revenue consideration received from a collaborative arrangement participant if the participant is not a customer. As the
Company is an emerging growth company, the new guidance is effective for fiscal years beginning after December 15, 2020
(fiscal year 2021 for the Company). The Company adopted ASU 2018-18 in the first quarter of 2021 and the adoption had no
material impact to the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract.” The new guidance aligns the requirements for capitalizing
implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-
use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected
by the amendments in this update. As the Company is an emerging growth company, the new guidance is effective for fiscal
years beginning after December 15, 2020 (fiscal year 2021 for the Company). The Company adopted ASU 2018-15 in the first
quarter of 2021 and the adoption had no material impact to the Company’s consolidated financial statements.
F-14
Table of Contents
Recently Issued Accounting Pronouncements Not Yet Adopted
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
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.
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,
adoption is not required until fiscal years beginning after December 15, 2021 as recently deferred by FASB. The Company is
currently assessing the potential impact ASU 2016-02 will have on its consolidated financial statements. Based on the
Company’s preliminary assessment, the impact of implementation is expected to have a material impact on its consolidated
financial statements. If adopted, the Company estimates the right-of-use lease asset and corresponding lease liability will each
total approximately $13,500,000, respectively, as of December 31, 2021. The Company does not expect adoption to have any
material impact on its results from operations and financial condition.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would
have a material effect on the consolidated financial statements.
Note 4 – Business Combination
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 assets acquired and liabilities assumed, based on the
F-15
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
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 assumed at the date of the acquisition was as follows:
Accounts receivable, net
Film library
Intangible asset
Total identifiable assets acquired
Goodwill
Net assets acquired
May 21, 2021
17,373,257
13,000,000
3,600,000
33,973,257
19,838,743
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
Fair Value of Additional Purchase Price – Library Account Receivable
Fair Value of Additional Purchase Price – Contracted TV Cash Flow
Fair Value of Additional Purchase Price – % of Film Cash Flow
Fair Value of Additional Purchase Price – % of Non-TV Business Cash Flow
Fair Value of Additional Purchase Price – Development Slate Cash Flow
Fair Value of Additional Purchase Price – CSS AVOD Equity Put
Total Estimated Purchase Price
$
$
18,902,000
1,580,000
13,700,000
630,000
2,300,000
5,200,000
11,500,000
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.
Of the $34,910,000 of contingent consideration, the Company has paid $8,627,284 during 2021. There has not been a
significant change in the fair value of the contingent consideration as of December 31, 2021.
F-16
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
The following table illustrates Sonar’s stand-alone financial performance included in the Company’s condensed consolidated
statement of operations:
Net revenue
Net income
Year Ended
December 31,
2021
19,207,115
9,750,510
$
$
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.
Net revenue
Net loss
Basic and diluted net loss per share
Year Ended December 31,
2021
2020
$ 116,348,860 $ 83,670,714
$ (65,184,716) $ (50,611,076)
(4.11)
$
(4.34) $
On October 21, 2021, the Company acquired a 51% ownership stake in Locomotive Global Inc. for $650,000.
Note 5 – Revenue Recognition
Revenue from contracts with customers is recognized as an unsatisfied performance obligation until the terms of a customer
contract are satisfied; generally, this occurs with the transfer of control or the completion of services as we satisfy contractual
performance obligations at a point in time or over time. Our contractual performance obligations include licensing of content
and delivery of online advertisements on our owned and operated VOD platforms, the distribution of film content, production
of episodic television series and production related services. Revenue is measured at contract inception as the amount of
consideration we expect to receive in exchange for transferring goods or providing services. Our contracts are valued at a fixed
price at inception and can sometimes include variable consideration.
The following tables disaggregate our revenue by source:
Revenue:
VOD and streaming
Licensing and other
Net revenue
Year Ended December 31,
2021
% of revenue
2020
% of
revenue
$
62,630,109
47,765,357
$ 110,395,466
57 % $ 53,761,636
43 % 12,595,320
100 % $ 66,356,956
81 %
19 %
100 %
F-17
Table of Contents
VOD and streaming
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
VOD and streaming revenue included in this revenue source is generated as the Company distributes and exhibits VOD
content through the Crackle Plus network directly to consumers across all digital platforms, such as connected TV’s,
smartphones, tablets, gaming consoles and the web through our owned and operated AVOD or FAST channel networks. In
addition this revenue source includes revenues from third party platforms, including transactional video on demand (TVOD)
sales, AVOD or FAST channel revenue share or performance based revenue, SVOD, cable tv and barter syndication generated
revenues. The Company generates VOD and streaming revenues for our VOD networks in three primary ways, selling
advertisers product and content integrations and sponsorships related to our productions, selling advertisers the ability to
present content to our viewers, often with fewer commercials, and selling advertisers video ad inventory on our VOD
networks; we also generate revenues via direct to consumer sales on TVOD platforms.
Revenue from VOD and streaming is recognized as content with integrations and sponsorships as it is delivered and ready for
exploitation, content with presenters is aired, over time as advertisements are delivered and when monthly activity is reported
by TVOD partners.
Licensing and other
Licensing and other revenue included in this revenue source is generated as the Company licenses movies and television series
worldwide, through Screen Media Ventures, through license agreements across channels, including theatrical and home video.
We own the copyright or long-term distribution rights to over 4,000 television series and feature films, representing one of the
largest independently owned libraries of filmed entertainment in the world.
Revenue from the licensing and production of movies, television series and programs and short-form video content is
recognized when or as the Company transfers control of the contracted asset to the customer. The transfer of control is
represented by the Company’s delivery of the contracted asset (or the Company otherwise makes available unconditionally) to
the customer and the license period during which the customer is able to benefit from its right to access or its right to use the
asset has begun. Cash advances received by the Company are recorded as deferred revenue until all performance obligations
have been satisfied. When payment is due from a customer more than one year before or after revenue is recognized, we
consider whether the contract contains a significant financing component and if the transaction price should be adjusted for the
time value of money. We do not adjust the transaction price for amounts that are due within one year from recognizing
revenue. Given the nature of our business from time to time we engage with distributors and customers for terms that include
fixed license fees or minimum guarantees that are paid over a period of time. Minimum guarantees are based on sales and net
cash collections made by the distributor to third parties. These minimum guarantees are generally collectible via royalty
payments on a monthly or quarterly basis. For the years ended December 31, 2021 and 2020, the Company entered into
licensing deals with significant financing components, of approximately $28,725,250 and $0, respectively.
For all customer contracts, the Company evaluates whether it is the principal (i.e., report revenue on a gross basis) or the agent
(i.e., report revenue on a net basis). Generally, the Company reports revenue for show productions, acquired distribution rights
for films , the sub-licensing of acquired distribution rights and advertising placed on CSSE properties on a gross basis (the
amount billed to our customers is recorded as revenue, and the amount paid to our vendors is recorded as a cost of revenue).
The Company is the principal because we control the asset or contractual distribution right before it is transferred to our
customers. Our control is evidenced by our sole ability to monetize the asset, being primary obligor to our customers, having
discretion in establishing pricing, or a combination of these factors. The Company also generates revenue through agency
relationships in which revenue is reported net of agency commissions and publisher payments in arrangements where we do
not own the asset in the form of content or ad inventory.
F-18
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
In the ordinary course of business and as part of its content acquisition strategy, the Company will acquire a film or the
worldwide rights to distribute a film, to improve its overall film library offering and generate attractive risk adjusted film
returns. The Company will sometimes look to sub-license rights to distributors when it is attractive to do so in order to reduce
the risk associated with the acquisition of rights. During the years ended December 31, 2021 and 2020, the Company
relicensed a subset of acquired film rights for approximately $6,537,000 and $2,200,000, respectively.
No impairment losses have arisen from any Company contracts with customers during the years ended December 31, 2021
and 2020, respectively.
Performance obligations
The unit of measure under ASC 606 is a performance obligation, which is a promise in a contract to transfer a distinct or series
of distinct goods or services to a customer. A contract’s transaction price is allocated to each distinct performance obligation
and recognized as revenue when, or as, the performance obligation is satisfied. Company contracts have either a single
performance obligation as the promise to transfer services is not separately identifiable from other promises in the contracts
and is, therefore, not distinct, or have multiple performance obligations, most commonly due to the contract covering multiple
service offerings. For contracts with multiple performance obligations, the contract’s transaction price can generally be readily
allocated to each performance obligation based upon the selling price of each distinct service in the contract. In cases where
estimates are needed to allocate the transaction price, we use historical experience and projections based on currently available
information.
Contract balances
Contract balances include the following:
Accounts receivable, net
Contract assets (included in accounts receivable)
Total accounts receivable, net
Deferred revenue (included in other liabilities)
December 31,
December 31,
2021
$ 25,818,447
34,395,360
$ 60,213,807
2020
$ 14,588,684
11,408,263
$ 25,996,947
$ 1,536,687
$
590,624
Contract assets are primarily comprised of unbilled receivables that are generally paid over time in accordance with the terms
of our contracts with customers and are transferred to accounts receivable when the timing and right to payment becomes
unconditional. Contract liabilities or deferred revenues relate to advance consideration received from customers under the
terms of our contractual arrangements in advance of satisfaction of the contractual performance obligation. We generally
receive payments from customers based upon contractual billing schedules and arrangements.
Contract receivables are recognized in the period the Company performs the agreed upon performance obligations and the
Company’s right to consideration becomes unconditional. Payment terms vary by the type and location of our customer and
the goods or services provided. The term between invoicing and when payment is due not generally significant, but can extend
from 1 - 5 years where a significant financing component exists with a minimum guarantee or a fixed license fee.
A contract asset results when goods or services have been transferred to the customer, but payment is contingent upon a future
event, other than the passage of time (i.e. type of unbilled receivable). Given the nature of our business from time to time we
engage with distributors for terms that include minimum guarantees, that may include a significant financing component,
which are contractually paid over a period of time at a variable rate of payment – based on sales and net cash
F-19
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
collections made by the distributor from third parties. These minimum guarantees are generally collectible via royalty
payments on a monthly or quarterly basis over the term of the contractual arrangement.
The Company records deferred revenue (also referred to as contract liabilities under Topic 606) when cash payments are
received in advance of our satisfying our performance obligations. Our deferred revenue balance primarily relates to advance
payments received related to our content distribution rights agreements and our production sponsorship arrangements. These
contract liabilities are recognized as revenue when the related performance obligations are satisfied. No significant changes in
the timeframe of the satisfaction of contract liabilities have occurred during the year ended December 31, 2021.
Arrangements with multiple performance obligations
In contracts with multiple performance obligations, the Company identifies each performance obligation and evaluates
whether the performance obligations are distinct within the context of the contract at contract inception. When multiple
performance obligations are identified, we identify how control transfers to the customer for each distinct contract obligation
and determine the period when the obligations are satisfied. If obligations are satisfied in the same period, no allocation of
revenue is deemed to be necessary. In the event performance obligations within a bundled contract do not run concurrently, we
allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine
standalone selling prices based on the prices charged to customers or by using expected cost-plus margins. Performance
obligations that are not distinct at contract inception are combined.
Note 6 – Share-Based Compensation
Effective January 1, 2017, the Company adopted the 2017 Long Term Incentive Plan (the “Plan”) to attract and retain certain
employees. The Plan provides for the issuance of up to 2,500,000 common stock equivalents subject to the terms and
conditions of the Plan. The Plan generally provides for quarterly and bi-annual vesting over terms ranging from two to three
years. The Company accounts for the Plan as an equity plan.
The Company recognizes these stock options at fair value determined by applying the Black Scholes options pricing model to
the grant date market value of the underlying common shares of the Company.
The compensation expense associated with these stock options is amortized on a straight-line basis over their respective
vesting periods. For the year ended December 31, 2021 and 2020, the Company recognized $2,684,307 and $921,115,
respectively, of non-cash share-based compensation expense in selling, general and administrative expense in the Consolidated
Statements of Operations.
F-20
Table of Contents
Stock options activity as of December 31, 2021 and 2020 is as follows:
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Outstanding at December 31, 2019
Granted
Forfeited
Exercised
Expired
Outstanding at December 31, 2020
Granted
Forfeited
Exercised (a)
Expired
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contract
Term (Yrs.)
3.33
$
Aggregate
Intrinsic
Value
576,000
Number of
Stock Options
1,032,500
130,000
(21,250)
(10,000)
—
$
1,131,250
847,213
(14,958)
(586,166)
—
$
7.73
11.36
8.73
7.50
—
8.13
20.68
16.20
7.26
—
$ 16.13
2.66
$ 13,417,900
3.67
$
2,579,201
Outstanding at December 31, 2021
1,377,339
Vested and exercisable at December 31, 2020
Vested and exercisable at December 31, 2021
881,253
648,119
7.69
$
$ 11.64
1.91
2.77
$ 10,839,276
2,407,521
$
(a) During the year ended December 31, 2021, 184,550 stock options were exercised and converted to 121,255 shares of Class A Common Stock via the cashless
exercise option.
As of December 31, 2021, the Company had unrecognized pre-tax compensation expense of $8,022,735 related to non-vested
stock options under the Plan of which $3,473,030, $3,101,932 and $1,447,773 will be recognized in 2022, 2023 and 2024,
respectively.
We used the following weighted average assumptions to estimate the fair value of stock options granted for the periods
presented as follows:
Weighted Average Assumptions:
Expected dividend yield
Expected equity volatility
Expected term (years)
Risk-free interest rate
Exercise price per stock option
Market price per share
Weighted average fair value per stock option
Year Ended December 31,
2021
2020
0.0 %
62.0 %
5
1.29 %
16.13
16.13
8.66
$
$
$
$
$
$
0.0 %
56.5 %
5
2.05 %
8.13
7.80
3.76
The risk-free rates are based on the implied yield available on US Treasury constant maturities with remaining terms
equivalent to the respective expected terms of the options. The Company estimates expected terms for stock options awarded
to employees using the simplified method in accordance with FASB ASC 718, Stock Compensation because the Company
does not have sufficient relevant information to develop reasonable expectations about future exercise patterns. The Company
estimates the expected term for stock options using the contractual term. Expected volatility is calculated based on the
Company’s peer group because the Company does not have sufficient historical data and will continue to use peer group
volatility information until historical volatility of the Company is available to measure expected volatility for future grants.
The Company also awards common stock grants to directors, employees and third-party consultants that provide services to
the Company. The value is based on the market price of the stock on the date granted and amortized over the vesting
F-21
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
period. For the year ended December 31, 2021 and 2020, the Company recognized in selling, general and administrative
expense, non-cash share-based compensation expense relating to stock grants of $2,563,500 and $210,400, respectively.
Note 7 – Earnings Per Share
Basic earnings (loss) per share is computed based on the weighted average number of shares of common stock outstanding
during the period. Diluted earnings (loss) per share is computed by dividing the net income (loss) available to common
stockholders by the weighted-average number of common shares outstanding and potentially dilutive common shares
outstanding during the period. Potentially dilutive common shares include stock options and warrants outstanding during the
period, using the treasury stock method. Potentially dilutive common shares are excluded from the computations of diluted
earnings per share if their effect would be antidilutive. A net loss available to common stockholders causes all potentially
dilutive securities to be antidilutive.
Basic and diluted loss per share are computed as follows:
Net loss available to common stockholders
Basic weighted-average common shares outstanding
Dilutive effect of options and warrants
Weighted-average diluted common shares outstanding
Basic and diluted loss per share
Anti-dilutive stock options and warrants
F-22
Year Ended December 31,
2020
2021
$ (59,419,724) $ (44,552,353)
15,018,421
—
15,018,421
12,301,185
—
12,301,185
$
(3.96) $
(3.62)
3,440,866
800,041
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Note 8 – Content Assets
Content assets consists of the following:
Original productions:
Programming costs released
In production
In development
Accumulated amortization (a)
Programming costs, net
Film library:
Film library acquisition costs
Accumulated amortization (b)
Film library costs, net
Licensed program rights:
Programming rights
Accumulated amortization
Programming rights, net
Content assets, net
December 31,
December 31,
2021
2020
$
25,669,921
562,808
6,662,591
(23,268,306)
9,627,014
$ 22,986,486
—
4,639,169
(12,298,648)
15,327,007
134,463,191
(80,847,748)
53,615,443
78,330,094
(43,090,959)
35,239,135
1,209,362
(806,423)
402,939
1,209,362
(755,186)
454,176
$
63,645,396
$ 51,020,318
(a) As of December 31, 2021 and 2020. accumulated amortization includes impairment expense of $6,049,631and $2,213,032, respectively.
(b) As of December 31, 2021 and 2020, accumulated amortization includes impairment expense of $3,745,223 and $1,760,846, respectively.
Programming costs consists primarily of episodic television programs which are available for distribution through a variety of
platforms, including Crackle. Amounts capitalized include development costs, production costs and direct production
overhead costs. Costs to create episodic programming are amortized in the proportion that revenues bear to management’s
estimates of the ultimate revenues expected to be recognized from various forms of exploitation.
Amortization, including impairments of content assets is as follows:
Original productions
Film library
Licensed program rights
Content asset impairment
Total programming amortization expense
December 31,
2021
$
4,920,027
34,011,566
51,237
9,794,854
$ 48,777,684
$
2020
402,681
23,309,647
254,125
3,973,878
$ 27,940,331
In fourth quarter of 2021, we reorganized our production operations due to the acquisition of Sonar Entertainment and formed
Chicken Soup For The Soul Television Group. In connection with this change, we performed an evaluation of shows in
development and monetization strategies across our content portfolio, that resulted in the identification of content not
consistent with management’s strategy and accelerated amortization associated with changes in the expected monetization of
certain programs. For the years ended December 31, 2021 and 2020, the Company recognized content impairment charges of
$9,794,854 in 2021.
F-23
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Note 9 – Intangible Assets and Goodwill
Amortizable intangible assets, consists of the following:
December 31, 2021:
Acquired customer base
Crackle Plus content rights
Crackle Plus brand value
Crackle Plus partner agreements
Distribution network
Locomotive contractual rights
Non-compete agreement
Website development
Total
December 31, 2020:
Acquired customer base
Non-compete agreement
Website development
Crackle Plus content rights
Crackle Plus brand value
Crackle Plus partner agreements
Total
Gross
Carrying
Amount
2,290,241
1,708,270
18,807,004
4,005,714
3,600,000
1,356,868
530,169
389,266
32,687,532
2,290,241
530,169
389,266
1,708,270
18,807,004
4,005,714
27,730,664
$
$
$
$
Accumulated
Amortization
Impairment
$
$
$
$
1,545,913
1,494,736
7,052,626
2,103,000
700,000
92,403
530,169
389,266
13,908,113
1,087,865
419,717
259,510
925,313
4,365,912
1,301,857
8,360,174
$
$
$
$
$
744,328
—
—
—
—
—
—
—
$
744,328
— $
—
—
—
—
—
— $
Net
Carrying
Amount
—
213,534
11,754,378
1,902,714
2,900,000
1,264,465
—
—
18,035,091
1,202,376
110,452
129,756
782,957
14,441,092
2,703,857
19,370,490
Amortization expense was $5,547,939 and $16,081,461 for the years ended December 31, 2021 and 2020, respectively.
As a result of our principal focus on AVOD services, management determined that our sole SVOD service’s acquired customer
intangible base and reporting unit goodwill was impaired during the fourth quarter of 2021. All other long lived intangible
assets groupings were deemed recoverable as of December 31, 2021 and 2020, respectively.
As of December 31, 2021 amortization expense for the next 5 years is expected be:
2022
2023
2024
2025
2026
Total
$
$
F-24
5,353,680
5,140,147
3,847,030
2,686,715
1,007,519
18,035,091
Table of Contents
Indefinite lived Intangible assets, consists of the following:
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Chicken Soup for the Soul Brand
Popcornflix Brand
Total
December 31,
December 31,
2021
$ 5,000,000
7,163,943
$ 12,163,943
2020
$ 5,000,000
7,163,943
$ 12,163,943
Total goodwill on our Consolidated Balance Sheets was $39,986,530 and $21,448,106 as of December 31, 2021 and
December 31, 2020, respectively.
Changes in the carrying amount of goodwill by our reporting units for the years ended December 31, 2021 and 2020 were as
follows:
Beginning balance
Acquisitions
Accumulated impairment losses
Total
Beginning balance
Acquisitions
Accumulated impairment losses
Total
$
$
$
$
Online Networks
December 31, 2021
Distribution & Production
18,911,027
$
—
—
18,911,027
$
1,236,760
19,838,743
—
21,075,503
Online Networks
December 31, 2020
Distribution & Production
18,911,027
—
—
18,911,027
$
$
1,236,760
—
—
1,236,760
$
$
$
$
SVOD
1,300,319
—
(1,300,319)
—
SVOD
1,300,319
—
—
1,300,319
Goodwill and Indefinite Lived Intangible Asset Impairment:
Goodwill relating to our three reporting units and other intangible assets with indefinite lives are reviewed for impairment on
an annual basis at December 31, 2021, or more frequently if events or circumstances indicate the carrying amount may not be
recoverable. For annual impairment tests, we perform qualitative assessments for our reporting units and our indefinite lived
intangibles that we estimate have fair values that significantly exceed their carrying amounts.
For our 2021 assessment, we performed a qualitative assessment of our CSS brand and our Distribution & Production
reporting unit and determined that they were not impaired. We weighed the relative impact of market-specific and
macroeconomic factors, as well as, factors specific to the reporting unit. Based on the qualitative assessments, considering the
aggregation of the relevant factors, we concluded that it is more likely than not that the fair values of the reporting unit and
license are below their carrying values, and therefore, performing a quantitative test was unnecessary.
We performed a quantitative test for our Online Networks and SVOD reporting units and found that the SVOD reporting unit’s
goodwill was impaired as of December 31, 2021, resulting in a charge of $1,300,319. The Online Networks reporting unit had
a negative equity value as of December 31, 2021, and is therefore not deemed to be impaired, as the reporting unit’s fair value
exceeds the carrying value.
F-25
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
We also performed a quantitative assessment for our Popcornflix indefinite lived intangible. We weighed the relative impact of
market-specific and macroeconomic factors for the AVOD market, as well as, factors specific to the Popcornflix AVOD
service. Our assessment included expected future revenue estimates for the Popcornflix service and revenue multiples from
publicly traded companies with operations and characteristics similar to Popcornflix. Based on the results of the 2021
quantitative impairment test, we concluded that the estimated fair value exceeded their respective carrying value and therefore
no impairment charge was required.
Note 10 – Debt
Long-term debt for the periods presented was as follows:
Notes due 2025
Revolving Loan
Film Acquisition Advance
Revolving Credit Facility
Total debt
Less: debt issuance costs
Less: current portion
Total long-term debt
Revolving Loan
December 31,
December 31,
2021
32,895,900
17,585,699
6,196,909
—
56,678,508
1,402,880
6,196,909
49,078,719
$
$
2020
$ 32,895,900
—
8,659,136
2,500,000
44,055,036
1,798,433
2,500,000
$ 39,756,603
On May 21, 2021, the Company entered into a credit agreement with Midcap Financial Trust. The credit agreement provides
the Company with a revolving loan in an aggregate principal amount not to exceed $20,000,000 at any time outstanding. On
the closing date, the Company made an initial draw down on the loan of $18,272,931 in connection with funding the SEI
acquisition. The availability under the loan at any time is subject to the borrowing base, which is equal to 85% of the eligible
accounts receivable minus the sum of all reserves and is adjusted monthly, as necessary.
The loan bears interest at 4% plus the greater of LIBOR or 0.75% per annum. In addition, the loan contains an unused line fee
of 0.5% per annum and a collateral management fee of 0.504% per annum. Interest and fees on the loan are payable in arrears
on the first day of each month and on the maturity of the loan.
The Credit Agreement and other loan documents contain customary representations and warranties and affirmative and
negative covenants. Under the Credit Agreement, the Company is required to maintain minimum liquidity in the form of
borrowing base availability or cash on hand in an aggregate amount of not less than $6,000,000. The Company is in
compliance with all covenants as of December 31, 2021.
9.50% Notes Due 2025
On July 17, 2020, the Company completed a public offering of 9.50% Notes due 2025 (the “July Notes”) in the aggregate
principal amount of $21,000,000. On August 5, 2020, the Company sold an additional $1,100,000 of July Notes pursuant to
the partial exercise of the overallotment option. The Notes bear interest at 9.50% per annum, payable every March 31, June
30, September 30, and December 31, and at maturity, beginning September 30, 2020. The Notes mature on July 31, 2025.
The sale of the July Notes resulted in net proceeds of approximately $20,995,000 after deducting underwriting discounts and
commissions of approximately $1,105,000. The Company used $13,333,333 of the net proceeds to repay the outstanding
principal under the Commercial Loan.
F-26
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
On December 22, 2020, the Company completed a public offering of 9.50% Notes due 2025 (the “December Notes”) the
Notes in the aggregate principal amount of $9,387,750. On December 29, 2020, the Company sold an additional $1,408,150 of
December Notes pursuant to the partial exercise of the overallotment option. The stated principal of $25.00 per note was
discounted 2% to the public offering price of $24.50 per note.
Film Acquisition Advance
On August 27, 2020, the Company entered into a Film Acquisition Advance Agreement with Great Point Media Limited
(“GPM”). GPM advanced to the Company $10,210,000 of acquisition advances on August 28, 2020 (the “Acquisition
Advance”) and may, directly, or through affiliated entities, fund additional acquisition advances in the future. Pursuant to the
agreement, GPM has formed a US-based special purpose vehicle (the “SPV”), which has been assigned the territorial licenses
and distribution rights in certain films and productions owned or to be acquired by Screen Media Ventures Inc., CSSE’s
wholly owned subsidiary. The Company will pay the SPV on a quarterly basis adjusted gross receipts generated on each of the
assigned productions during the two-year term of the agreement, until the SPV has recouped the full Acquisition Advance for
each of the productions together with interest and additional participation amounts on gross receipts generated by the
productions. The Acquisition Advance bears interest at 10% per annum compounded monthly on the amount outstanding. In
the event the SPV has not recouped the full Acquisition Advance from gross receipts generated within the two-year
contractual term, the Company shall pay the remaining balance outstanding, if any, by no later than November 30, 2022.
During the year ended December 31, 2021, the Company repaid $2,616,313 of the principal outstanding under the Film
Acquisition Advance.
Revolving Credit Facility
On October 11, 2019, the Company created a majority owned subsidiary Landmark Studio Group. Through Landmark Studio
Group, the Company entered into a Revolving Credit Facility (“Revolving Credit Facility”) with Cole Investments VII, LLC.
The Revolving Credit Facility consisted of a line of credit in the amount of $5,000,000 and with interest at 8% per annum.
On July 23, 2020, the Company repaid $2,500,000 of the principal outstanding under the Revolving Credit Facility. The
outstanding principal was repayable in full on October 11, 2021.
On March 3, 2021, the Company repaid the remaining outstanding principal of $2,500,000 and terminated the Revolving
Credit Facility.
As of December 31, 2021, the expected aggregate maturities of long-term debt for each of the next four years are as follows:
2022
2023
2024
2025
$
$
6,196,909
—
17,585,699
32,895,900
56,678,508
Note 11 – Put Option Obligation
As part of the additional purchase price for the Sonar acquisition the Company issued a 5% interest in CSS AVOD, Inc. and a
put option that, if exercised, requires the Company to purchase the issued investor shares of CSS AVOD, Inc. from the
investor for $11,500,000 in cash. The Put Option is exercisable, with 60 day’s written notice, by the investor at any
F-27
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
time during a three year period commencing on October 8, 2022 and expiring on October 7, 2025 (“Put Election Period”). As
of December 31, 2021, the 5% interest in CSS AVOD, Inc. consists of the following:
Put Option Obligation
Noncontrolling Interests
Total
December 31,
2021
11,400,000
95,592
11,495,592
$
$
F-28
Table of Contents
Note 12 – Stockholders’ Equity
Treasury Stock
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
At December 31, 2021, we had $7,430,322 of authorization remaining under our $20,000,000 stock repurchase program
approved by the Board of Directors in the fourth quarter of 2021. During fourth quarter of 2021, the Company repurchased
870,267 shares of common stock at an average price of $14.44.
Underwritten Public Common Stock Offering
On July 7, 2021, the Company completed an underwritten public offering of 1,875,000 shares of common stock at a price
$40.00 per common share, generating net proceeds of $70,500,000.
Common Stock Private Placement
On January 20, 2021, the Company completed a private placement of 1,022,727 shares of common stock at a price of $22.00
per common share, generating net proceeds of $21,374,994.
At the Market Offering
During the year ended December 31, 2021, the Company completed the sale of an aggregate of 126,000 shares of Class A
common stock, generating net proceeds of $3,435,819.
Noncontrolling Interests
Noncontrolling interests represent an equity interest in consolidated subsidiaries, including CSS AVOD, Locomotive Global
and Landmark Studio Group. On September 8, 2021, the Company purchased an additional 25,000 units of common equity in
Landmark Studio Group from Cole investments VII, LLC for $6,000,000. The purchase increased the Company’s ownership
in Landmark Studio Group from 53.5% to 78.5%. In October 2021, the Company acquired a 51% stake in Locomotive Global
Inc., a film production services company in India.
Subsidiary Convertible Preferred Stock
The subsidiary convertible preferred stock represented the equity attributable to the noncontrolling interest holder as a part of
the Crackle Plus business combination. Given the terms of the transaction, the noncontrolling interest holder had the right to
convert their Preferred Units in Crackle Plus into Common Units representing common ownership of 49% in Crackle Plus or
into Series A Preferred Stock of the Company.
On January 13, 2021, the Company issued 1,600,000 shares of its Series A Preferred Stock to CPEH pursuant to the Put
Option granted to CPEH under the JV Operating Agreement, as amended. The Put Option was exercised on December 14,
2020. The Company had the option to elect to pay cash in lieu of issuing Series A Preferred Stock. The Company elected to
satisfy the Put Option entirely through the issuance of Series A Preferred Stock. As a result of CPEH’s exercise of the Put
Option, the Company now owns 100% of Crackle Plus.
Voting Rights
Common Stock
Holders of shares of Class A Common Stock and Class B Common Stock have substantially identical rights, except that
holders of shares of Class A Common Stock are entitled to one vote per share and holders of shares of Class B Common Stock
are entitled to ten votes per share. Holders of shares of Class A Common Stock and Class B Common Stock vote
F-29
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
together as a single class on all matters (including the election of directors) submitted to a vote of stockholders, unless
otherwise required by law or our charter.
Preferred Stock
Holders of Series A Preferred Stock generally have no voting rights except for the right to add two members to the board of
directors if dividends payable on the outstanding Series A Preferred Stock are in arrears for eighteen or more consecutive or
non-consecutive monthly dividend periods. The Series A Preferred Stock is not convertible into common stock of the
Company.
Dividend Rights
Common Stock
Shares of Class A Common Stock and Class B Common Stock shall be treated equally, identically and ratably, on a per share
basis, with respect to any dividends or distributions as may be declared and paid from time to time by the Board of Directors
out of any assets legally available thereof.
Preferred Stock
Holders of the Series A Preferred Stock will receive cumulative cash dividends at a rate of 9.75% per annum, as and when
declared by the Board of Directors.
No Preemptive or Similar Rights
Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Subject to the preferential or other rights of any holders of preferred stock then outstanding, including the Series A Preferred
Stock, upon our dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Class A Common Stock
and Class B Common Stock will be entitled to receive ratably all of our assets available for distribution to our stockholders
unless disparate or different treatment of the shares of each such class with respect to distributions upon any such liquidation,
dissolution or winding up is approved in advance by the affirmative vote (or written consent if action by written consent of
stockholders is permitted at such time under our certificate of incorporation) of the holders of a majority of the outstanding
shares of Class A Common Stock and Class B Common Stock, each voting separately as a class.
F-30
Table of Contents
Warrants
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Warrant activity as of December 31, 2021 is as follows:
Warrants
Class W
Class Z
CSSE Class I
CSSE Class II
CSSE Class III-A
CSSE Class III-B
Total
Outstanding
at December 31, 2020
Exercised (a)
Outstanding
at December 31, 2021
622,622
180,618
800,000
1,200,000
380,000
1,620,000
4,803,240
(96,260)
(57,509)
—
—
—
—
(153,769)
526,362
123,109
800,000
1,200,000
380,000
1,620,000
4,649,471
$
$
Weighted
Average
Exercise
Price
7.50
12.00
8.13
9.67
11.61
11.61
10.06
Weighted
Average
Remaining
Contract
Term (Yrs.)
1.50
2.50
2.37
2.37
2.37
2.37
2.27
(a) As of December 31, 2021, 117,244 warrants were exercised and converted to 83,463 shares of Class A Common Stock via the cashless exercise option.
Note 13 – Income Taxes
The Company’s current and deferred income tax provision are as follows:
Current provision:
States
Total current provision
Year Ended December 31,
2021
2020
$
$
66,000
66,000
$
$
99,000
99,000
The provision for income taxes is different from amounts computed by applying the U.S. statutory rates to consolidated loss
before taxes. The significant reason for these differences is as follows:
Federal statutory rate of 21%
Increase (decrease) resulting from:
Crackle amortization
State and local taxes
Programming costs
Share-based compensation - long-term incentive plan
Film library
Allowance for doubtful accounts
Other
Effect of valuation allowance related to prior year net operating loss
Actual tax provision
F-31
Year Ended December 31,
2021
2020
(21.00)%
(21.00)%
0.21 %
0.46 %
10.99 %
1.41 %
8.32 %
(0.24)%
(0.15)%
— %
0.00 %
7.88 %
(0.23)%
1.73 %
0.61 %
10.97 %
(0.31)%
0.02 %
0.33 %
0.00 %
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Deferred income taxes reflect the “temporary differences” between the financial statement carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating losses, adjusted by
the relevant tax rate. The components of the deferred tax assets and liabilities are as follows:
Deferred tax assets:
Net operating loss carry-forwards
Acquisition-related costs
Film library and other intangibles
Other
Less: valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Programming costs
Other assets
Total deferred tax liabilities
Net deferred tax asset
December 31,
2021
December 31,
2020
$ 14,503,000
539,000
16,883,000
337,000
(31,412,000)
850,000
$ 10,428,000
723,000
11,968,000
39,000
(20,003,000)
3,155,000
299,000
551,000
850,000
$
— $
2,715,000
440,000
3,155,000
—
The Company and its subsidiaries have combined net operating losses of approximately $53,951,000, $10,843,000 of which
were incurred before 2018 and expire between 2031 and 2037 with the balance of $43,108,000 having no expiration under
changes made by the Tax Cuts and Jobs Act but may only be utilized generally to offset 80 percent of taxable income. The
ultimate realization of the tax benefit from net operating losses is dependent upon future taxable income, if any, of the
Company.
Internal Revenue Code Section 382 imposes limitations on the use of net operating loss carryovers when the stock ownership
of one or more 5% stockholders (stockholders owning 5% or more of the Company’s outstanding capital stock) has increased
by more than 50 percentage points. Additionally, the separate-return-limitation-year (SRLY) rules that apply to consolidated
returns may limit the utilization of losses in a given year when consolidated tax returns are filed. Management has determined
that because of a recent history of recurring losses, the ultimate realization of the net operating loss carryovers is not assured
and has recorded a full valuation allowance. Public trading of the Company’s stock poses a risk of an ownership change
beyond the control of the Company that could trigger a limitation of the use of the loss carryover.
The deferred tax asset valuation allowance increased by $11,490,000 and $8,760,000 for the years ended December 31, 2021
and 2020, respectively.
F-32
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Note 14 – Related Party Transactions
Chicken Soup For The Soul Productions, LLC
Chicken Soup For The Soul Productions LLC (“CSS”) is the parent and controlling stockholder of the Company. At December
31, 2021, CSS directly owns approximately 100% of the Company Class B common stock. CSS ownership of Class B
common stock represents an ownership interest of 49% of the total outstanding common stock and 91% control of the voting
power of the Company. CSS is controlled by Mr. William J. Rouhana, Jr., the Company’s CEO. The Company has agreements
with CSS and its affiliated companies that provide the Company with access to important assets and resources including key
personnel. The assets and resources provided are included as a part of a management services and a license agreement. A
summary of the relevant ongoing agreements is as follows:
CSS Management Services Agreement
The Company is a party to a Management Services Agreement with CSS (the “Management Agreement”). Under the
terms of the Management Agreement, the Company is provided with the operational expertise of the CSS companies’
personnel, including its chief executive officer, chief financial officer, chief accounting officer, chief strategy officer, and
senior brand advisor, and with other services, including accounting, legal, marketing, management, data access and back
office systems. The Management Agreement also requires CSS to provide headquarter office space and equipment usage.
Under the terms of the Management Agreement, the Company pays a quarterly fee to CSS equal to 5% of the net revenue
as reported under GAAP for each fiscal quarter. For the years ended December 31, 2021 and 2020, the Company recorded
management fee expense of $5,519,774 and $3,317,848, respectively, payable to CSS.
The term of the Management Agreement is five years, with automatic one-year renewals thereafter unless either party
elects to terminate by delivering written notice at least 90 days prior to the end of the then current term. The Management
Agreement is terminable earlier by either party by reason of certain prescribed and uncured defaults by the other party.
The Management Agreement will automatically terminate in the event of the Company’s bankruptcy or a bankruptcy of
CSS or if the Company no longer has licensed rights from CSS under the License Agreement described below.
CSS License Agreement and Marketing Support Fee
The Company is a party to a trademark and intellectual property license agreement with CSS (the “License Agreement”).
Under the terms of the License Agreement, the Company has been granted a perpetual, exclusive license to utilize the
Brand and related content, such as stories published in the Chicken Soup for the Soul books, for visual exploitation
worldwide. Under the License Agreement, the Company pays a license fee to CSS equal to 4% of net revenue for each
fiscal quarter.
In addition, CSS provides marketing support for the Company’s productions through its email distribution, blogs and
other marketing and public relations resources. The Company pays a quarterly fee to CSS for those services equal to 1%
of net revenue as reported under GAAP for each fiscal quarter for such support.
For the years ended December 31, 2021 and 2020, the Company recorded a combined license and marketing support fee
expense of $5,519,773 and $3,317,848, respectively, payable to CSS.
Due To/From Affiliated Companies
The Company is part of CSS’s central cash management system whereby payroll and benefits are administered by CSS
and the related expenses are charged to its subsidiaries and funds are transferred between affiliates to fulfill joint liquidity
needs and business initiatives. Settlements fluctuate period over period due to timing of liquidity needs.
F-33
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
As of December 31, 2021 and 2020, the Company had an intercompany payable and receivable, respectively, with
affiliated companies.
Due to affiliated companies
Due from affiliated companies
Total due to/due from affiliated companies
Other Related Parties
December 31,
December 31,
2021
489,959
—
489,959
$
$
2020
$
—
5,648,652
$ 5,648,652
In the ordinary course of business, the Company is involved in arms-length transactions with certain minority shareholders of
a consolidated subsidiary related to the licensing of television and film programming. During 2021, revenues of $6,070,312
were realized, with $6,363,951 included in Accounts receivable at December 31, 2021.
Note 15 – Commitments and Contingencies
Operating Leases
The Company is obligated under non-cancellable lease agreements for certain facilities and services, which frequently include
renewal options and escalation clauses. For leases that contain predetermined fixed escalations, we recognize the related rent
expense on a straight-line basis and record the difference between the recognized rent expense and amounts payable under the
lease as lease obligations. These leases expire at various points through 2031. Rent expense related to these leases was
$2,005,300 and $1,807,769 for the years ended December 31, 2021 and 2020, respectively.
Content Obligations
Content obligations include amounts related to the acquisition, licensing and production of content. An obligation for the
acquisition and licensing of content is incurred at the time we enter into an agreement to obtain future titles. Once a title is
delivered, accepted and becomes available for exploitation, a content liability is recorded on the consolidated balance sheet.
As of December 31, 2021, the Company had $38,638,445 of content obligations, comprised of $24,673,866 in film library
acquisition obligations, $1,641,250 of programming obligations and $12,323,329 of accrued participation costs. As of
December 31, 2020, the Company had $25,849,529 of content obligations, comprised of $8,616,562 in film library acquisition
obligations, $4,697,316 of programming obligations and $12,535,651 of accrued participation costs.
In the ordinary course of business, the Company from time to time enters into contractual arrangements under which it agrees
to commitments with producers and other content providers for the acquisition of content and distribution rights which are in
production or have not yet been completed, delivered to, and accepted by the Company ready for exploitation. Based on those
contractual arrangements, the Company is committed but is not contractually liable to transfer any financial consideration until
final delivery and acceptance has occurred. These commitments which are expected to be fulfilled in the normal course of
business have been included below. The Company does not include any estimated obligation for these future titles beyond the
known minimum amount.
F-34
Table of Contents
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Future minimum payments under non-cancelable operating leases and off-balance sheet content commitments as of December
31, 2021 were as follows:
2022
2023
2024
2025
2026
2027 - 2031
Total minimum lease and content payments
$ 39,720,118
26,955,403
1,287,430
1,313,178
1,408,407
6,644,546
$ 77,329,082
Sonar Acquisition
The Company owes contingent consideration related to the acquisition of Sonar of $9,764,256 at December 31, 2021. The
liability is an estimate and is payable upon the collection of receipts from defined receivables, noncontracted TV business
receipts and profit participation on a slate of development projects. Additionally, the Company has a Put obligation for
$11,500,000 to acquire 5% of the shares of CSS AVOD Inc., that can be triggered any time during the three-year period
immediately following the 18-month anniversary of the asset purchase agreement. See Notes 4 and 11 for additional
information.
Legal and Other Matters
The Company is not presently a party to any legal proceedings the resolution of which the Company believes would have a
material adverse effect on its business, financial condition, operating results, or cash flows. However, legal proceedings are
subject to inherent uncertainties, and an unfavorable outcome could include monetary damages, and excessive verdicts can
result from litigation, and as such, could result in a material adverse impact on its business, financial position, results of
operations, and /or cash flows. Additionally, although the Company has specific insurance for certain potential risks, the
Company may in the future incur judgments or enter into settlements of claims which may have a material adverse impact on
its business, financial condition, or results of operations.
Note 16 – Segment and Geographic Information
The Company’s reportable segments have been determined based on the distinct nature of its operations, the Company’s
internal management structure, and the financial information that is evaluated regularly by the Company’s chief operating
decision maker. The Company operates in one reportable segment, the production and distribution of video content, and
currently operates in the United States and internationally.
Net revenue generated in the United States accounted for approximately 78% and 99% of total Net revenue for the years ended
December 31, 2021 and 2020, respectively. All of the Company’s long-lived assets are based in the United States.
F-35
Table of Contents
Note 17 – Client Concentration
Chicken Soup for the Soul Entertainment, Inc.
Notes to Consolidated Financial Statements
Customers with concentrations in excess of 10% of Net revenue and Gross accounts receivable are as follows:
Customer A
Accounts Receivable
Customer A
Customer B
Note 18 – Subsequent Events
Revolving Loan
Year Ended December 31,
2020
2021
16 %
— %
Year Ended December 31,
2020
2021
27 %
— %
— %
13 %
On February 8, 2022, the Company amended the credit agreement with Midcap Financial Trust. The amended credit
agreement provides an additional $10,000,000 in aggregate principal available under the revolving loan, increasing the
availability to $30,000,000.
Stock Repurchase Program
On February 28, 2022, the Board of Directors authorized and approved a $10,000,000 increase to the Company’s stock
repurchase program.
1091 Media Acquisition
On March 4, 2022, the Company acquired the assets of 1091 Media, LLC (“1091 Media”) for approximately $15,550,000.
The purchase price is comprised of $8,000,000 in cash, $2,000,000 in the form of newly issued shares of the Company’s
Series A perpetual preferred stock valued at $25 per share, and 375,000 shares of Class A common stock valued at $14.80 per
share.
F-36
Table of Contents
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Management’s Evaluation of our Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act, that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules
and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
such information is accumulated and communicated to a company’s management, including its chief executive and chief
financial officers, as appropriate to allow timely decisions regarding required disclosure. A material weakness is a deficiency,
or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a
material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected
on a timely basis.
In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures as of December 31, 2021, the end of the period covered by our Annual
Report on Form 10-K. Based upon such evaluation, our Chief Executive Officer and our Chief Financial Officer have
concluded that our disclosure controls and procedures were effective as of such date.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for our Company. Internal control over financial reporting is a
process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our
transactions; providing reasonable assurance that transactions and disposition of assets are recorded as necessary for
preparation of our financial statements; providing reasonable assurance that receipts and expenditures are made in accordance
with the authorization of our management and directors; and providing reasonable assurance that unauthorized acquisition, use
or disposition of our assets that could have a material effect on the financial statements would be prevented or detected on a
timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute
assurance that a misstatement of our financial statements would be prevented or detected. Our controls and procedures can be
circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the
control and misstatements due to error or fraud may occur and not be detected on a timely basis. Further, the evaluation of the
effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future
periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of
compliance with the policies and procedures may decline.
Under the supervision and with the participation of management, including our Chief Executive and Chief Financial Officers,
we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021 based
on those portions of the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework (2013 Framework) that we believed to be applicable to us as a smaller reporting
company and emerging growth company. Based on this evaluation, management concluded
45
Table of Contents
that the Company’s internal controls over financial reporting were effective at the reasonable assurance level as of December
31, 2021 and did not identify any material weaknesses.
Because we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm was
not required to attest to the effectiveness of our internal control over financial reporting for so long as we are an emerging
growth company.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) during our fourth fiscal quarter ended December 31, 2021, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
None.
ITEM 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item 10 is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31,
2021.
ITEM 11. Executive Compensation
The information required by this Item 11 is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31,
2021.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31,
2021.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item 13 is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31,
2021.
ITEM 14. Principle Accounting Fees and Services
The information required by this Item 14 is incorporated by reference to our Proxy Statement for the 2022 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission within 120 days of the fiscal year ended December 31,
2021.
46
Table of Contents
ITEM 15. Exhibits, Financial Statement Schedules
PART IV
The information required by subsections (a)(1) and (a)(2) of this item are included in the response to Item 8 of Part II of this
annual report on Form 10-K.
Exhibit
No.
3.1
3.2
4.1
4.2.1
4.2.2
4.2.3
4.2.4
4.3
4.4
4.5.1
4.5.2
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
10.1
Description
Included
Form
Certificate of Incorporation of Chicken Soup for the Soul Entertainment Inc.
Bylaws of Chicken Soup for the Soul Entertainment Inc.
Specimen Class A Common Stock Certificate.
Certificate of Designations, Rights and Preferences of 9.75% Series A
By Reference DOS
By Reference DOS
1-A
By Reference
8-K
By Reference
Filing Date
September 21, 2016
September 21, 2016
June 21, 2017
June 29, 2019
Cumulative Redeemable Perpetual Preferred Stock.
Certificate of Amendment to the Certificate of Designations, Rights and
Preferences of 9.75% Series A Cumulative Redeemable Perpetual Preferred
Stock.
Certificate of Amendment to the Certificate of Designations, Rights and
Preferences of 9.75% Series A Cumulative Redeemable Perpetual Preferred
Stock dated November 14, 2018.
Certificate of Amendment to the Certificate of Designations, Rights and
Preferences of 9.75% Series A Cumulative Redeemable Perpetual Preferred
Stock dated July 31, 2019.
Class I Warrant.
Class II Warrant.
Class III-A Warrant.
Class III-B Warrant.
Class W Warrant Agreement between Chicken Soup for the Soul Entertainment
Inc. and Continental Stock Transfer & Trust Co.
Class Z Warrant Agreement between Chicken Soup for the Soul Entertainment
Inc. and Continental Stock Transfer & Trust Co.
Form of Class W Warrant.
Form of Class Z Warrant.
Indenture, dated as of July 17, 2020, between Chicken Soup for the Soul
Entertainment Inc. and U.S. Bank National Association, as Trustee.
First Supplemental Indenture, dated as of July 17, 2020, between Chicken Soup
for the Soul Entertainment Inc. and U.S. Bank National Association, as Trustee.
Form of 9.50% Notes due 2025 (included as Exhibit A to Exhibit 4.11 hereto).
Description of Securities.
Trademark and Intellectual Property License Agreement between Chicken Soup
for the Soul Entertainment Inc. and Chicken Soup for the Soul, LLC
By Reference
S-3
September 28, 2018
By Reference
8-K November 18, 2019
By Reference
S-1/A
August 1, 2018
By Reference
By Reference
By Reference
By Reference
By Reference
8-K
8-K
8-K
8-K
8-K November 24, 2020
May 15, 2019
May 15, 2019
May 15, 2019
May 15, 2019
By Reference
8-K November 24, 2020
By Reference
By Reference
By Reference
8-K November 24, 2020
8-K November 24, 2020
8-K
July 22, 2020
By Reference
8-K
July 22, 2020
By Reference
Herewith
8-K
--
By Reference DOS
July 22, 2020
--
September 21, 2016
10.2.1 Management Services Agreement between Chicken Soup for the Soul
By Reference DOS
September 21, 2016
Entertainment Inc. and Chicken Soup for the Soul, LLC
Second Amendment to Management Services Agreement.
Form of Indemnification Agreement.
Chicken Soup for the Soul Entertainment Inc. 2017 Long Term Incentive Plan.
10.2.2 Amendment to Management Services Agreement.
10.2.3
10.3
10.4
10.5.1 Amended and Restated Limited Liability Company Operating Agreement by and
among Crackle Plus, LLC, Chicken Soup for the Soul Entertainment, Inc. and
Crackle, Inc.
By Reference
Herewith
By Reference
By Reference
By Reference
8-K
--
1-A
1-A
8-K
June 30,2019
--
June 21, 2017
June 21, 2017
May 15, 2019
10.5.2 Amendment to the Amended and Restated Limited Liability Company
By Reference
8-K November 16, 2020
10.5.3
Operating Agreement of Crackle Plus, LLC.
Put Option Closing Agreement, dated January 13, 2021, between Crackle Plus,
LLC, Chicken Soup for the Soul Entertainment Inc., and CPE Holdings Inc.
Herewith
--
--
47
Table of Contents
10.6
10.7
10.8
21
23.1
31.1
31.2
32.1
32.2
Limited Liability Company Operating Agreement by and among Landmark
Studio Group, Chicken Soup for the Soul Entertainment, Inc., Cole Investments
VII LLC, David Ozer, Legend Capital Management, LLC, and Kevin Duncan.
Securities Purchase Agreement, dated as of January 14, 2021, between Chicken
Soup for the Soul Entertainment Inc. and the Investors party thereto.
Registration Rights Agreement, dated as of January 14, 2021, between Chicken
Soup for the Soul Entertainment Inc. and the Investors party thereto.
Subsidiaries of the Registrant.
Consent of Rosenfield & Company PLC
Certification of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
By Reference
8-K
October 18, 2019
By Reference
8-K
January 20, 2021
By Reference
8-K
January 20, 2021
Herewith
Herewith
Herewith
Herewith
Herewith
Herewith
--
--
--
--
--
--
--
--
--
--
--
--
101.INS XBRL Instance Document*
101.SCH XBRL Taxonomy Extension Schema Document*
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB XBRL Taxonomy Extension Label Linkbase Document*
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*
101.DEF XBRL Taxonomy Extension Definition Linkbase Document*
ITEM 16. Form 10-K Summary
Not applicable.
48
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 31, 2021.
SIGNATURES
CHICKEN SOUP FOR THE SOUL
ENTERTAINMENT, INC.
(Registrant)
/s/ William J. Rouhana, Jr.
William J. Rouhana, Jr.
Chairman and Chief Executive Officer
/s/ Christopher Mitchell
Christopher Mitchell
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
By:
/s/ William J. Rouhana, Jr.
William J. Rouhana, Jr., Chairman and Chief Executive Officer
/s/ Christopher Mitchell
Christopher Mitchell, Chief Financial Officer
/s/ Jason Meier
Jason Meier, Chief Accounting Officer
/s/ Amy L. Newmark
Amy L. Newmark, Director
/s/ Cosmo DeNicola
Cosmo DeNicola, Director
/s/ Fred M. Cohen
Fred M. Cohen, Director
/s/ Christina Weiss Lurie
Christina Weiss Lurie, Director
/s/ Diana Wilkin
Diana Wilkin, Director
/s/ Vikram Somaya
Vikram Somaya, Director
/s/ Martin Pompadur
Martin Pompadur, Director
49
March 31, 2022
March 31, 2022
March 31, 2022
March 31, 2022
March 31, 2022
March 31, 2022
March 31, 2022
March 31, 2022
March 31, 2022
March 31, 2022
DESCRIPTION OF REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.13
The following description of the Company’s securities is based upon the Company’s amended and restated certificate of incorporation
(“Charter”), the Company’s Bylaws (“Bylaws”) and applicable provisions of law. We have summarized certain portions of the Charter and
Bylaws below. The summary is not complete and is subject to, and is qualified in its entirety by express reference to, the provisions of our
Charter and Bylaws, each of which is filed as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.13 is a part.
Authorized Capital Stock
We are authorized to issue 70,000,000 shares of Class A common stock, par value $.0001, 20,000,000 shares of Class B common stock, par
value $.0001, and 10,000,000 shares of preferred stock, par value $.0001, of which 4,300,000 has been designated as 9.75% Series A
Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”).
Common Stock
Voting Rights - Holders of shares of Class A common stock and Class B common stock have substantially identical rights, except that
holders of shares of Class A common stock are entitled to one vote per share and holders of shares of Class B common stock are entitled to
ten votes per share. Holders of shares of Class A common stock and Class B common stock vote together as a single class on all matters
(including the election of directors) submitted to a vote of stockholders, unless otherwise required by law or our charter. There is no
cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the voting power voting for
the election of directors can elect all of the directors.
Dividend Rights - Shares of Class A common stock and Class B common stock shall be treated equally, identically and ratably, on a per
share basis, with respect to any dividends or distributions as may be declared and paid from time to time by the board of directors out of any
assets legally available therefor.
No Preemptive or Similar Rights - Our common stock is not entitled to preemptive rights and is not subject to conversion, redemption or
sinking fund provisions.
Right to Receive Liquidation Distributions - Subject to the preferential or other rights of any holders of preferred stock then outstanding,
including the Series A Preferred Stock, upon our dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Class A
common stock and Class B common stock will be entitled to receive ratably all of our assets available for distribution to our stockholders
unless disparate or different treatment of the shares of each such class with respect to distributions upon any such liquidation, dissolution or
winding up is approved in advance by the affirmative vote (or written consent if action by written consent of stockholders is permitted at
such time under our certificate of incorporation) of the holders of a majority of the outstanding shares of Class A common stock and Class B
common stock, each voting separately as a class.
Merger or Consolidation - In the case of any distribution or payment in respect of the shares of Class A common stock or Class B common
stock upon our consolidation or merger with or into any other entity, or in the case of any other transaction having an effect on stockholders
substantially similar to that resulting from a consolidation or merger, such distribution or payment shall be made ratably on a per share basis
among the holders of the Class A common stock and Class B common stock as a single class, provided, however, that shares of one such
class may receive different or disproportionate distributions or payments in connection with such merger, consolidation or other transaction
if (i) the only difference in the per share distribution to the holders of the Class A common stock and Class B common stock is that any
securities distributed to the holder of a share Class B common stock have ten times the voting power of any securities distributed to the
holder of a share of Class A common stock, or (ii) such merger, consolidation or other transaction is approved by the affirmative vote (or
written consent if action by written
consent of stockholders is permitted at such time under our Certificate of Incorporation) of the holders of a majority of the outstanding
shares of Class A common stock and Class B common stock, each voting separately as a class.
Conversion - The outstanding shares of Class B common stock are convertible at any time as follows: (a) at the option of the holder, a share
of Class B common stock may be converted at any time into one share of Class A common stock or (b) upon the election of the holders of a
majority of the then outstanding shares of Class B common stock, all outstanding shares of Class B common stock may be converted into
shares of Class A common stock. Once converted into Class A common stock, the Class B common stock will not be reissued.
Preferred Stock
General
Our board of directors is authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to
establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of
the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our
stockholders. Our board of directors can also increase (but not above the total number of authorized shares of the class) or decrease (but not
below the number of shares then outstanding) the number of shares of any series of preferred stock, without any further vote or action by our
stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of our common stock or other series of preferred stock. The issuance of preferred stock,
while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change in our control of our company and might adversely affect the market price of
our common stock and the voting and other rights of the holders of our common stock.
Series A Preferred Stock
Listing - Our Series A Preferred Stock is listed on the Nasdaq Global Market under the symbol “CSSEP”.
Credit Rating - Our Series A Preferred Stock has been rated BBB(-) by Egan-Jones Rating Co., a Nationally Recognized Statistical Rating
Organization (“NRSRO”). The Series A Preferred Stock has not been rated by any other NRSRO or other agency. A securities rating reflects
only the view of a rating agency and is not a recommendation to buy, sell, or hold the Series A Preferred Stock. Any rating may be subject to
revision upward or downward or withdrawal at any time by a rating agency if such rating agency decides that circumstances warrant that
change. Each rating should be evaluated independently of any other rating. No report of any rating agency is being incorporated herein by
reference.
The credit ratings assigned by Egan-Jones are based, in varying degrees, on the following considerations:
● Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance
with the terms of the obligation;
● Nature of and provisions of the obligation; and
● Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement
under the laws of bankruptcy and other laws affecting creditors’ rights.
Credit ratings assigned by Egan-Jones are expressed in terms of default risk. The rating scale utilized by Egan-Jones is as follows:
● AAA — An obligation rated “AAA” has the highest rating assigned by Egan-Jones. The obligor’s capacity to meet its financial
commitment on the obligation is extremely strong.
● AA — An obligation rated “AA” differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its
financial commitment on the obligation is very strong.
● A — An obligation rated “A” is somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the
obligation is still strong.
● BBB — An obligation rated “BBB” exhibits adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
● BB, B, CCC, CC, and C — Obligations rated “BB”, “B”, “CCC”, “CC”, and “C” are regarded as having significant speculative
characteristics. “BB” indicates the least degree of speculation and “C” the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
● D — An obligation rated “D” is in payment default. The “D” rating category is used when payments on an obligation are not made
on the date due even if the applicable grace period has not expired, unless Egan-Jones believes that such payments will be made
during such grace period. The “D” rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action
if payments on an obligation are jeopardized.
● Plus (+) or minus (-) — The ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (-) sign to show
relative standing within the major rating categories.
No Maturity, Sinking Fund or Mandatory Redemption - The Series A Preferred Stock has no stated maturity and will not be subject to any
sinking fund or mandatory redemption. Shares of the Series A Preferred Stock will remain outstanding indefinitely unless we decide to
redeem or otherwise repurchase them. We are not required to set aside funds to redeem the Series A Preferred Stock.
Ranking - The Series A Preferred Stock ranks, with respect to rights to the payment of dividends and the distribution of assets upon our
liquidation, dissolution or winding up:
● senior to all classes or series of our common stock and to all other equity securities issued by us other than equity securities referred
to in the next two bullet points below;
● on a parity with all equity securities issued by us with terms specifically providing that those equity securities rank on a parity with
the Series A Preferred Stock with respect to rights to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up;
● junior to all equity securities issued by us with terms specifically providing for ranking senior to the Series A Preferred Stock with
respect to rights to the payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up (please
see the section entitled “Voting Rights” below); and
● effectively junior to all our existing and future indebtedness (including indebtedness convertible to our common stock or preferred
stock) and to any indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing
subsidiaries.
Dividends - Holders of shares of the Series A Preferred Stock are entitled to receive, when, as and if declared by our board of directors, out
of funds of the Company legally available for the payment of dividends, cumulative cash dividends at the rate of 9.75% of the $25.00 per
share liquidation preference per annum (equivalent to $2.4375 per annum per share). Dividends on the Series A Preferred Stock shall be
payable monthly on the 15th day of each month; provided that if any dividend payment date is not a business day, as defined in the
certificate of designations, then the dividend that would otherwise have been payable on that dividend payment date may be paid on the next
succeeding business day and no interest, additional dividends or other sums will accrue on the amount so payable for the period from and
after that dividend payment date to that next succeeding business day. Any dividend payable on the Series A Preferred Stock, including
dividends payable for any partial dividend period, will be computed on the basis of a 360-day year consisting of twelve 30-day months;
however, the shares of Series A Preferred Stock offered hereby will be credited as having accrued dividends since the first day of the
calendar month in which they are issued. Dividends will be payable to holders of record as they appear in our stock records for the Series A
Preferred Stock at the close of business on the applicable record date, which shall be the last day of the calendar month, whether or not a
business day, immediately preceding the month in which the applicable dividend payment date falls. As a result, holders of shares of Series
A Preferred Stock will not be entitled to receive dividends on a dividend payment date if such shares were not issued and outstanding on the
applicable dividend record date.
No dividends on shares of Series A Preferred Stock shall be authorized by our board of directors or paid or set apart for payment by us at any
time when the terms and provisions of any agreement of ours, including any agreement relating to our indebtedness, prohibit the
authorization, payment or setting apart for payment thereof or provide that the authorization, payment or setting apart for payment thereof
would constitute a breach of the agreement or a default under the agreement, or if the authorization, payment or setting apart for payment
shall be restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series A Preferred Stock will accrue whether or not we have earnings, whether or not there
are funds legally available for the payment of those dividends and whether or not those dividends are declared by our board of directors. No
interest, or sum in lieu of interest, will be payable in respect of any dividend payment or payments on the Series A Preferred Stock that may
be in arrears, and holders of the Series A Preferred Stock will not be entitled to any dividends in excess of full cumulative dividends
described above. Any dividend payment made on the Series A Preferred Stock shall first be credited against the earliest accumulated but
unpaid dividend due with respect to those shares.
Future distributions on our common stock and preferred stock, including the Series A Preferred Stock, will be at the discretion of our board
of directors and will depend on, among other things, our results of operations, cash flow from operations, financial condition and capital
requirements, any debt service requirements and any other factors our board of directors deems relevant. Accordingly, we cannot guarantee
that we will be able to make cash distributions on our preferred stock or what the actual distributions will be for any future period.
Unless full cumulative dividends on all shares of Series A Preferred Stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof has been or contemporaneously is set apart for payment for all past dividend periods,
no dividends (other than in shares of common stock or in shares of any series of preferred stock that we may issue ranking junior to the
Series A Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up) shall be
declared or paid or set aside for payment upon shares of our common stock or preferred stock that we may issue ranking junior to, or on a
parity with, the Series A Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding
up. Nor shall any other distribution be declared or made upon shares of our common stock or preferred stock that we may issue ranking
junior to, or on a parity with, the Series A Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up. Also, any shares of our common stock or preferred stock that we may issue ranking junior to or on a parity with
the Series A Preferred Stock as to the payment of dividends or the distribution of assets upon liquidation, dissolution or winding up shall not
be redeemed, purchased or otherwise acquired for any consideration (or any moneys paid to or made available for a sinking fund for the
redemption of any such shares) by us (except by conversion into or exchange for our other capital stock that we may issue ranking junior to
the Series A Preferred Stock as to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up).
When dividends are not paid in full (or a sum sufficient for such full payment is not so set apart) upon the Series A Preferred Stock and the
shares of any other series of preferred stock that we may issue ranking on a parity as to the payment of dividends with the Series A Preferred
Stock, all dividends declared upon the Series A Preferred Stock and any other series of preferred stock that we may issue ranking on a parity
as to the payment of dividends with the Series A Preferred Stock shall be declared pro rata so that the amount of dividends declared per
share of Series A Preferred Stock and such other series of preferred stock that we may issue shall in all cases bear to each other the same
ratio that accrued dividends per share on the Series A Preferred Stock and such other series of preferred stock that we may issue (which shall
not include any accrual in respect of unpaid dividends for prior dividend periods if such preferred stock does not have a cumulative
dividend) bear to each other. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or
payments on the Series A Preferred Stock that may be in arrears.
Liquidation Preference - In the event of our voluntary or involuntary liquidation, dissolution or winding up, the holders of shares of Series A
Preferred Stock will be entitled to be paid out of the assets we have legally available for distribution to our shareholders, subject to the
preferential rights of the holders of any class or series of our capital stock we may issue ranking senior to the Series A Preferred Stock with
respect to the distribution of assets upon liquidation, dissolution or winding up, a liquidation preference of $25.00 per share, plus an amount
equal to any accumulated and unpaid dividends to, but not including, the date of payment, before any distribution of assets is
made to holders of our common stock or any other class or series of our capital stock we may issue that ranks junior to the Series A
Preferred Stock as to liquidation rights.
In the event that, upon any such voluntary or involuntary liquidation, dissolution or winding up, our available assets are insufficient to pay
the amount of the liquidating distributions on all outstanding shares of Series A Preferred Stock and the corresponding amounts payable on
all shares of other classes or series of our capital stock that we may issue ranking on a parity with the Series A Preferred Stock in the
distribution of assets, then the holders of the Series A Preferred Stock and all other such classes or series of capital stock shall share ratably
in any such distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled.
We will use commercially reasonable efforts to provide written notice of any such liquidation, dissolution or winding up no fewer than 10
days prior to the payment date. After payment of the full amount of the liquidating distributions to which they are entitled, the holders of
Series A Preferred Stock will have no right or claim to any of our remaining assets. The consolidation or merger of us with or into any other
corporation, trust or entity or of any other entity with or into us, or the sale, lease, transfer or conveyance of all or substantially all of our
property or business, shall not be deemed a liquidation, dissolution or winding up of us (although such events may give rise to the special
optional redemption to the extent described below).
Optional Redemption - On and after June 27, 2023, we may, at our option, upon not less than 30 nor more than 60 days’ written notice,
redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price equal to $25.00 per
share, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption.
Special Optional Redemption - Upon the occurrence of a Change of Control, we may, at our option, upon not less than 30 nor more than 60
days’ written notice, redeem the Series A Preferred Stock, in whole or in part, within 120 days after the first date on which such Change of
Control occurred, for cash at a redemption price of $25.00 per share, plus any accumulated and unpaid dividends thereon to, but not
including, the redemption date.
A “Change of Control” is deemed to occur when the following have occurred and are continuing:
● the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange
Act (other than Mr. Rouhana, the chairman of our board of directors, our chief executive officer and our principal stockholder, any
member of his immediate family, and any “person” or “group” under Section 13(d)(3) of the Exchange Act, that is controlled by
Mr. Rouhana or any member of his immediate family, any beneficiary of the estate of Mr. Rouhana, or any trust, partnership,
corporate or other entity controlled by any of the foregoing), of beneficial ownership, directly or indirectly, through a purchase,
merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of our stock entitling that
person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in the election of our directors
(except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and
● following the closing of any transaction referred to above, neither we nor the acquiring or surviving entity has a class of common
securities (or American Depositary Receipts representing such securities) listed on the NYSE, the NYSE American, or Nasdaq, or
listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American, or Nasdaq.
Redemption Procedures. In the event we elect to redeem Series A Preferred Stock, the notice of redemption will be mailed to each holder of
record of Series A Preferred Stock called for redemption at such holder’s address as it appears on our stock transfer records, not less than 30
nor more than 60 days prior to the redemption date, and will state the following:
·
·
·
·
the redemption date;
the number of shares of Series A Preferred Stock to be redeemed;
the redemption price;
the place or places where certificates (if any) for the Series A Preferred Stock are to be surrendered for payment of the redemption
price;
● that dividends on the shares to be redeemed will cease to accumulate on the redemption date;
● whether such redemption is being made pursuant to the provisions described above under “—Optional Redemption” or “—Special
Optional Redemption”; and
● if applicable, that such redemption is being made in connection with a Change of Control and, in that case, a brief description of the
transaction or transactions constituting such Change of Control.
If less than all of the Series A Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder shall also specify the
number of shares of Series A Preferred Stock held by such holder to be redeemed. No failure to give such notice or any defect thereto or in
the mailing thereof shall affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the
holder to whom notice was defective or not given.
Holders of Series A Preferred Stock to be redeemed shall surrender the Series A Preferred Stock at the place designated in the notice of
redemption and shall be entitled to the redemption price and any accumulated and unpaid dividends payable upon the redemption following
the surrender. If notice of redemption of any shares of Series A Preferred Stock has been given and if we have irrevocably set aside the funds
necessary for redemption in trust for the benefit of the holders of the shares of Series A Preferred Stock so called for redemption, then from
and after the redemption date (unless default shall be made by us in providing for the payment of the redemption price plus accumulated and
unpaid dividends, if any), dividends will cease to accrue on those shares of Series A Preferred Stock, those shares of Series A Preferred
Stock shall no longer be deemed outstanding and all rights of the holders of those shares will terminate, except the right to receive the
redemption price plus accumulated and unpaid dividends, if any, payable upon redemption. If any redemption date is not a business day, then
the redemption price and accumulated and unpaid dividends, if any, payable upon redemption may be paid on the next business day and no
interest, additional dividends or other sums will accrue on the amount payable for the period from and after that redemption date to that next
business day. If less than all of the outstanding Series A Preferred Stock is to be redeemed, the Series A Preferred Stock to be redeemed shall
be selected pro rata (as nearly as may be practicable without creating fractional shares) or by any other equitable method we determine.
In connection with any redemption of Series A Preferred Stock, we shall pay, in cash, any accumulated and unpaid dividends to, but not
including, the redemption date, unless a redemption date falls after a dividend record date and prior to the corresponding dividend payment
date, in which case each holder of Series A Preferred Stock at the close of business on such dividend record date shall be entitled to the
dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption of such shares before such
dividend payment date. Except as provided above, we will make no payment or allowance for unpaid dividends, whether or not in arrears, on
shares of the Series A Preferred Stock to be redeemed.
No shares of Series A Preferred Stock shall be redeemed unless full cumulative dividends on all shares of Series A Preferred Stock have
been or contemporaneously are declared and paid and all outstanding shares of Series A Preferred Stock are simultaneously redeemed. We
shall not otherwise purchase or acquire directly or indirectly any shares of Series A Preferred Stock (except by exchanging it for our capital
stock ranking junior to the Series A Preferred Stock as to the payment of dividends and distribution of assets upon liquidation, dissolution or
winding up); provided, however, that the foregoing shall not prevent the purchase or acquisition by us of shares of Series A Preferred Stock
pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock.
Subject to applicable law, we may purchase shares of Series A Preferred Stock in the open market, by tender or by private agreement. Any
shares of Series A Preferred Stock that we acquire may be retired and reclassified as authorized but unissued shares of preferred stock,
without designation as to class or series, and may thereafter be reissued as any class or series of preferred stock.
Voting Rights - Holders of the Series A Preferred Stock do not have any voting rights, except as set forth below or as otherwise required by
law.
On each matter on which holders of Series A Preferred Stock are entitled to vote, each share of Series A Preferred Stock will be entitled to
one vote. In instances described below where holders of Series A Preferred Stock vote with
holders of any other class or series of our preferred stock as a single class on any matter, the Series A Preferred Stock and the shares of each
such other class or series will have one vote for each $25.00 of liquidation preference (excluding accumulated dividends) represented by
their respective shares.
Whenever dividends on any shares of Series A Preferred Stock are in arrears for eighteen or more monthly dividend periods, whether or not
consecutive, the number of directors constituting our board of directors will be automatically increased by two (if not already increased by
two by reason of the election of directors by the holders of any other class or series of our preferred stock we may issue upon which like
voting rights have been conferred and are exercisable and with which the Series A Preferred Stock is entitled to vote as a class with respect
to the election of those two directors) and the holders of Series A Preferred Stock (voting separately as a class with all other classes or series
of preferred stock we may issue upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a
class with the Series A Preferred Stock in the election of those two directors) will be entitled to vote for the election of those two additional
directors (the “preferred stock directors”) at a special meeting called by us at the request of the holders of record of at least 25% of the
outstanding shares of Series A Preferred Stock or by the holders of any other class or series of preferred stock upon which like voting rights
have been conferred and are exercisable and which are entitled to vote as a class with the Series A Preferred Stock in the election of those
two preferred stock directors (unless the request is received less than 90 days before the date fixed for the next annual or special meeting of
shareholders, in which case, such vote will be held at the earlier of the next annual or special meeting of shareholders), and at each
subsequent annual meeting until all dividends accumulated on the Series A Preferred Stock for all past dividend periods and the then current
dividend period have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment. In that case, the right of
holders of the Series A Preferred Stock to elect any directors will cease and, unless there are other classes or series of our preferred stock
upon which like voting rights have been conferred and are exercisable, any preferred stock directors elected by holders of the Series A
Preferred Stock shall immediately resign and the number of directors constituting the board of directors shall be reduced accordingly. In no
event shall the holders of Series A Preferred Stock be entitled under these voting rights to elect a preferred stock director that would cause us
to fail to satisfy a requirement relating to director independence of any national securities exchange or quotation system on which any class
or series of our capital stock is listed or quoted. For the avoidance of doubt, in no event shall the total number of preferred stock directors
elected by holders of the Series A Preferred Stock (voting separately as a class with all other classes or series of preferred stock we may
issue upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series A
Preferred Stock in the election of such directors) under these voting rights exceed two. Any person nominated to serve as a director of our
company under the foregoing terms shall be reasonably acceptable to our company.
If a special meeting is not called by us within 30 days after request from the holders of Series A Preferred Stock as described above, then the
holders of record of at least 25% of the outstanding Series A Preferred Stock may designate a holder to call the meeting at our expense.
If, at any time when the voting rights conferred upon the Series A Preferred Stock are exercisable, any vacancy in the office of a preferred
stock director shall occur, then such vacancy may be filled only by a written consent of the remaining preferred stock director, or if none
remains in office, by vote of the holders of record of the outstanding Series A Preferred Stock and any other classes or series of preferred
stock upon which like voting rights have been conferred and are exercisable and which are entitled to vote as a class with the Series A
Preferred Stock in the election of the preferred stock directors. Any preferred stock director elected or appointed may be removed only by
the affirmative vote of holders of the outstanding Series A Preferred Stock and any other classes or series of preferred stock upon which like
voting rights have been conferred and are exercisable and which classes or series of preferred stock are entitled to vote as a class with the
Series A Preferred Stock in the election of the preferred stock directors, such removal to be effected by the affirmative vote of a majority of
the votes entitled to be cast by the holders of the outstanding Series A Preferred Stock and any such other classes or series of preferred stock,
and may not be removed by the holders of the common stock.
So long as any shares of Series A Preferred Stock remain outstanding, we will not, without the affirmative vote or consent of the holders of
at least 66.67% of the votes entitled to be cast by the holders of the Series A Preferred Stock outstanding at the time, given in person or by
proxy, either in writing or at a meeting (voting together as a class with all other series of parity preferred stock that we may issue upon which
like voting rights have been conferred and are exercisable), (a) authorize or create, or increase the authorized or issued amount of, any class
or series of capital stock ranking senior to the Series A Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify any of our authorized capital stock into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the right to purchase any such shares; or (b) unless redeeming all
Series A Preferred Stock in connection with such action, amend, alter, repeal or replace our certificate of incorporation, including by way of
a merger, consolidation or otherwise in which we may or may not be the surviving entity, so as to materially and adversely affect and deprive
holders of Series A Preferred Stock of any right, preference, privilege or voting power of the Series A Preferred Stock (each, an “Event”).
An increase in the amount of the authorized preferred stock, including the Series A Preferred Stock, or the creation or issuance of any
additional Series A Preferred Stock or other series of preferred stock that we may issue, or any increase in the amount of authorized shares of
such series, in each case ranking on a parity with or junior to the Series A Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not be deemed an Event and will not require us to obtain 66.67% of
the votes entitled to be cast by the holders of the Series A Preferred Stock and all such other similarly affected series, outstanding at the time
(voting together as a class).
The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which such vote would otherwise be
required shall be affected, all outstanding shares of Series A Preferred Stock shall have been redeemed or called for redemption upon proper
notice and sufficient funds shall have been deposited in trust to affect such redemption.
Except as expressly stated in the certificate of designations or as may be required by applicable law, the Series A Preferred Stock do not have
any relative, participating, optional or other special voting rights or powers and the consent of the holders thereof shall not be required for
the taking of any corporate action.
No Conversion Rights - The Series A Preferred Stock is not convertible into our common stock or any other security.
No Preemptive Rights - No holders of the Series A Preferred Stock will, as holders of Series A Preferred Stock, have any preemptive rights
to purchase or subscribe for our common stock or any other security.
Warrants
Class W Warrants - Each outstanding Class W warrant entitles the registered holder to purchase one share of our Class A common stock at a
price of $7.50 per share, subject to adjustment as discussed below. Each warrant is exercisable at any time through June 30, 2021 at 5:00
p.m., New York City time.
Class Z Warrants - Each outstanding Class Z warrant entitles the registered holder to purchase one share of our Class A common stock at a
price of $12.00 per share, subject to adjustment as discussed below. Each warrant is exercisable at any time through June 30, 2022 at 5:00
p.m., New York City time.
Cancellation - We may call for cancellation of all or any portion of the Class W warrants or Class Z warrants for which a notice of exercise
has not yet been delivered to us for consideration equal to $.01 per Class W warrant or Class Z warrant, as the case may be, in accordance
with the provisions of such warrants, if (i) our Class A common stock is traded, listed or quoted on any U.S. market or electronic exchange,
and (ii) the closing per-share sales price of the Class A common stock for any twenty (20) trading days during a consecutive thirty (30)
trading days period exceeds $15.00, for Class W warrants, or $18.00, for Class Z warrants, in each case subject to adjustment for forward
and reverse stock splits, recapitalizations, stock dividends and the like.
The right to exercise will be forfeited unless the warrants are exercised prior to the date specified in the call notice. On and after the call date,
a record holder of a warrant will have no further rights except to receive the call price for such holder’s warrant upon surrender of such
warrant.
The criteria for calling our warrants have been established at a price which is intended to provide warrant holders a reasonable premium to
the initial exercise price and provide a sufficient differential between the then-prevailing
share price and the warrant exercise price so that if the share price declines as a result of our call, the call will not cause the share price to
drop below the exercise price of the warrants.
Exercise Rights - Holders of the Class W warrants and Class Z warrants have cashless exercise rights that allow each holder to pay the
exercise price by surrendering the warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the
product of the number of shares of Class A common stock underlying the warrants, multiplied by the difference between the exercise price
of the warrants and the “fair market value” by (y) the fair market value. The “fair market value” for this purpose will mean the average
reported last sale price of the shares of common stock for the ten trading days ending on the trading day prior to the date of exercise.
The exercise price and number of shares of Class A common stock issuable on exercise of the warrants may be adjusted in certain
circumstances including in the event of a share dividend, extraordinary dividend or our recapitalization, reorganization, merger or
consolidation. However, neither the Class W warrants nor the Class Z warrants will be adjusted for issuances of shares of any equity or
equity-based securities at a price below their respective exercise prices.
The Class W warrants and Class Z warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at
the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated,
accompanied by full payment of the exercise price, by certified or official bank check or wire transfer payable to us, for the number of
warrants being exercised. The warrant holders do not have the rights or privileges of holders of shares of common stock and any voting
rights until they exercise their warrants and receive shares of Class A common stock. After the issuance of shares of common stock upon
exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
No fractional shares will be issued upon exercise of the Class W warrants or Class Z warrants. If, upon exercise, a holder would be entitled
to receive a fractional interest in a share, we will, upon exercise, round up to the nearest whole number the number of shares of Class A
common stock to be issued to the warrant holder.
Listing - We have applied for quotation of the Class W Warrants on the OTCQB Market and the Class Z Warrants on the OTC Pink Market
under the proposed symbols “CSSEW” and “CSSEZ”, respectively, but we cannot guarantee that our Class W Warrants or Class Z Warrants
will be approved for quotation or listing on any market.
9.50% Notes Due 2025
Listing: Our 9.50% Notes due 2025 (“Notes”) are listed on the Nasdaq Global Market under the symbol “CSSEN”.
Interest: 9.50% per year, payable every March 31, June 30, September 30, and December 31. The regular record dates for interest payments
will be every March 15, June 15, September 15, and December 15. If an interest payment date falls on a non-business day, the applicable
interest payment will be made on the next business day and no additional interest will accrue as a result of such delayed payment.
Maturity: July 31, 2025.
Trustee: U.S. Bank National Association.
Credit Rating: Our Notes are ranked BBB by Egan-Jones Ratings Company. The Notes have not been rated by any other NRSRO or other
agency. A securities rating reflects only the view of a rating agency and is not a recommendation to buy, sell, or hold the Notes. Any rating
may be subject to revision upward or downward or withdrawal at any time by a rating agency if such rating agency decides that
circumstances warrant that change. Each rating should be evaluated independently of any other rating. No report of any rating agency is
being incorporated herein by reference. More information about credit ratings assigned by Egan-Jones is included under “Series A Preferred
Stock” above.
Ranking: The Notes are our direct unsecured obligations and rank:
● Pari passu with, which means equal to, all of our currently outstanding unsecured unsubordinated indebtedness issued by us. The
Notes will also rank pari passu with our general liabilities, which consist of trade and other payables, including any outstanding
dividends payable on our Series A Preferred Stock, interest and debt fees payable, vendor payables, film acquisition and
programming obligations, and accrued participation costs and other expenses such as auditor fees, legal fees, director fees, etc. We
will have the ability to issue from time to time other debt securities with terms different from the Notes, including terms providing
for seniority of such new debt securities, without the consent of the holders of the Notes.
● Senior to any of our future indebtedness that expressly provides it is subordinated to the Notes. We currently do not have
outstanding debt that is subordinated to the Notes and do not currently intend to issue indebtedness that expressly provides that it is
subordinated to the Notes. Therefore, the Notes, as currently contemplated, will not be senior to any indebtedness or obligations.
● Effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured to
which we subsequently grant a security interest), but only to the extent of the value of the assets securing such indebtedness, as well
as any secured indebtedness that we may incur in the future, such as a new loan facility, or any new indebtedness that is initially
unsecured to which we subsequently grant a security interest, to the extent of the value of the assets securing such indebtedness. In
any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured
indebtedness may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their
indebtedness before the assets may be used to pay other creditors, including the holders of the Notes, and any assets of our
subsidiaries will not be directly available to satisfy the claims of our creditors, including holders of the Notes.
● Structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries and financing
vehicles, since the Notes are obligations exclusively of Chicken Soup for the Soul Entertainment Inc., and not of any of our
subsidiaries. Structural subordination means that creditors of a parent entity are subordinate to creditors of a subsidiary entity with
respect to the subsidiary’s assets.
Optional Redemption: The Notes may be redeemed in whole or in part at any time or from time to time at our option on or after July 31,
2022 upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof. The redemption
price shall include (i) 100% of the outstanding principal amount of the Notes called for redemption on the date fixed for redemption plus
(ii) all accrued and unpaid interest payments otherwise payable thereon through the date fixed for redemption. In addition, in the event of a
merger or sale of the Company or substantially all of its assets or a majority of the Company’s equity (on an after issued basis) in one or a
series of related transactions, we will have the right to redeem the Notes prior to July 31, 2022 in connection with the consummation of such
transactions on the foregoing terms.
Holders may be prevented from exchanging or transferring the Notes when they are subject to redemption. In case any Notes are to be
redeemed in part only, the redemption notice will provide that, upon surrender of such Note, noteholders will receive, without charge, a new
Note or Notes of authorized denominations representing the principal amount of their remaining unredeemed Notes.
If we redeem only some of the Notes, the Trustee will determine the method for selection of the particular Notes to be redeemed, in
accordance with the indenture, and in accordance with the rules of any national securities exchange or quotation system on which the Notes
are listed. Unless we default in payment of the redemption price, on and after the date of redemption, interest will cease to accrue on the
Notes called for redemption.
No Sinking Fund: The Notes will not be subject to any sinking fund (i.e., no amounts will be set aside by us to ensure repayment of the
Notes at maturity). As a result, our ability to repay the Notes at maturity will depend on our financial condition on the date that we are
required to repay the Notes.
No Repayment at Option of Holders: Holders will not have the option to have the Notes repaid prior to the stated maturity date.
Defeasance: The Notes are subject to defeasance by us. “Defeasance” means that, by depositing with a trustee an amount of cash and/or
government securities sufficient to pay all principal and interest, if any, on the Notes when due and satisfying any additional conditions
required under the indenture relating to the Notes, we will be deemed to have been discharged from our obligations under the Notes.
● Covenant Defeasance: The Notes are subject to covenant defeasance by us. In the event of a “covenant defeasance,” upon
depositing such funds and satisfying similar conditions discussed below we would be released from the restrictive covenants under
the indenture relating to the Notes. The consequences to the holders of the Notes is that, while they no longer benefit from the
restrictive covenants under the indenture, and while the Notes may not be accelerated for any reason, the holders of Notes
nonetheless could look to us for repayment of the Notes if there were a shortfall in the funds deposited with the trustee or the trustee
is prevented from making the payment.
● Full Defeasance: We can release ourselves from all payment and other obligations under the Notes (called “full defeasance”) if we
put in place the following other arrangements: (i) we must deposit in trust for the benefit of all holders of the Notes a combination
of money and U.S. government or U.S. government agency notes or bonds that will generate enough cash to make interest,
principal and any other payments on the Notes on their various due dates, (ii) we must deliver to the trustee a legal opinion
confirming that there has been a change in current U.S. federal tax law or an IRS ruling that allows us to make the above deposit
without causing you to be taxed on the Notes any differently than if we did not make the deposit, (iii) we must deliver to the trustee
a legal opinion and officer’s certificate stating that all conditions precedent to defeasance have been complied with, (iv) defeasance
must not result sin a breach or violation of, or constitute a default under, the indenture,
and (v) no other default or event of default with respect to the Notes shall have occurred and be continuing and no defaults or
events of default related to bankruptcy, insolvency or reorganization shall occur during the next 90 days.
Events of Default. Noteholders will have certain rights if an event of default occurs in respect of the Notes, as described in the following
paragraphs. An event of default will occur if:
● We do not pay the principal (or premium, if any) of any Note when due.
● We do not pay interest on any Note when due and such default is not cured within 30 days.
● We remain in breach of a covenant in respect of the Notes for 60 days after we receive a written notice of default stating we are in
breach (the notice must be sent by either the trustee or holders of at least 25% of the principal amount of the Notes).
● We file for bankruptcy or certain other events of bankruptcy, insolvency or reorganization occur and in the case of certain orders or
decrees entered against us under bankruptcy law, such order or decree remains undischarged or unstayed for a period of 60 days.
If an event of default has occurred and is continuing, the Trustee or the holders of not less than 25% in principal amount of the Notes may
declare the entire principal amount of all the Notes to be due and immediately payable. This is called a declaration of acceleration of
maturity. In certain circumstances, a declaration of acceleration of maturity may be canceled by the holders of a majority in principal amount
of the Notes if (1) we have deposited with the Trustee all amounts due and owing with respect to the Notes (other than principal that has
become due solely by reason of such acceleration) and certain other amounts, and (2) any other events of default have been cured or waived.
The holders of a majority in principal amount of the Notes may waive any past defaults, other than defaults in the payment of principal or
interest or defaults in respect of a covenant that cannot be modified or amended without the consent of each noteholder.
Certain Provisions in our Certificate of Incorporation
Article Twelve of our certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the sole
and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of
our company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of our company
to our company or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation
Law or our charter documents, or (iv) any action asserting a claim governed by the internal affairs doctrine shall be the Court of Chancery of
the State of Delaware (or if the Court of Chancery does not have jurisdiction, another state court located within the State of Delaware, or if
no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) in all cases subject
to the court’s having personal jurisdiction over the indispensable parties named as defendants. While this provision is intended to include all
actions, excluding any arising under the Securities Act of 1933, the Exchange Act of 1934 and any other claim for which the federal courts
have exclusive jurisdiction, there is uncertainty as to whether a court would enforce this provision.
AMENDMENT
Exhibit 10.2.3
Amendment, dated as of March 15, 2021, to the Management Services Agreement, dated May 12,
2016, by and among Chicken Soup for the Soul Entertainment , Inc. (“Service Recipient”), and Chicken
Soup for the Soul, LLC (“Parent”), and the subsidiaries of Service Recipients listed on Schedule A to the
Agreement.
1.
follows:
Section 6.1 of the Agreement is hereby amended and restated in its entirety to read as
“6.1 Terms of Service. The term of this Agreement shall be five (5) years beginning on the
Effective Date; provided however that such term shall renew for successive terms of one (1) year
thereafter unless the Parent or the Service Recipient provides written notice to the other that this
Agreement shall not be renewed at least sixty (30) days prior to the expiration of the then current term.
2.
All other terms of the Agreement shall remain in effect as in effect as of the date of this
Amendment.
CHICKEN SOUP FOR THE SOUL ENTERTAINMENT,
INC.
By: /s/ William J. Rouhana, Jr.
Name:William J. Rouhana, Jr.
Title: Chief Executive Officer
CHICKEN SOUP FOR THE SOUL, LLC
By: CHICKEN SOUP FOR THE SOUL
HOLDINGS, LLC, Manager
By: E BRANDS, LLC, Manager
By: TREMA, LLC, Manager
By: /s/ William J. Rouhana, Jr.
Name:William J. Rouhana, Jr.
Title: Chief Executive Officer
Put Option Closing Agreement
Exhibit 10.5.3
This Put Option Closing Agreement (this “Closing Agreement”), dated January 13, 2021, is
entered into by and among Crackle Plus, LLC (“Crackle Plus”), Chicken Soup for the Soul
Entertainment, Inc. (“CSSE”) and CPE Holdings Inc. (“CPEH”), as successor-in-interest to Crackle, Inc.
(“Crackle”).
WHEREAS, pursuant to Section 9.03(a) of that certain Amended and Restated Limited Liability
Company Agreement (the “Agreement”) among Crackle Plus, CSSE and Crackle, Crackle had the right
to elect to require CSSE to purchase from Crackle all of Crackle's Units in Crackle Plus (“Subject
Units”);
WHEREAS, upon such election by Crackle, CSSE is required to purchase the Subject Units
through, at CSSE's election, the issuance of shares of CSSE's Series A 9.75% redeemable perpetual
preferred stock (“Preferred Stock”) or, in lieu thereof, cash, in either case as calculated in accordance
with Schedule C of the Agreement (the “Purchase Price”); and
WHEREAS, on December 14, 2020, CPEH delivered written notice to CSSE of CPEH's election
to exercise its Put Option under the Agreement.
NOW THEREFORE, it is hereby agreed and acknowledged as follows:
1. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the
Agreement.
2. The consummation and closing (the “Closing”) of the purchase of the Subject Units by CSSE is
taking place concurrently with the execution of this Agreement.
3. The Purchase Price is $40,000,000, as determined in accordance with Schedule C of the
Agreement.
4. Pursuant to Section 9.03(a), CSSE hereby elects to pay the entirety of the Purchase Price through
the issuance of Preferred Stock.
5. At Closing, CSSE is causing the instruction letter attached hereto as Exhibit A to be delivered to
its transfer agent, Continental Stock Transfer & Trust Company Inc. (“Continental”), pursuant to
which CSSE instructs Continental to issue to CPEH an aggregate of 1,600,000 shares of Preferred
Stock as payment in full for the Subject Units. A copy of the signed instruction letter, and
evidence of delivery thereof to Continental, shall be delivered by CSSE to CPEH at Closing.
6. At Closing, CSSE is causing the opinion of Graubard Miller, its outside general counsel, attached
hereto as Exhibit B to be delivered to Continental, pursuant to which Graubard Miller opines that
the shares of Preferred Stock to be issued to CPEH in connection with the foregoing may be
issued without registration under the Securities Act of 1933, as amended (the “Act”) and must
bear restrictive legend prohibiting sale or transfer of same
-1-
without subsequent registration under the Act or an exemption therefrom. A copy of the signed
opinion, and evidence of delivery thereof to Continental, shall be delivered by CSSE to CPEH at
Closing.
7. Concurrently herewith, CPEH is delivering to CSSE and Crackle Plus (a) an assignment of the
Units held by CPEH executed by CPEH, in the form attached hereto as Exhibit C and (b) a
certificate meeting the requirements of IRS Notice 2018-29 and Treasury Regulations Section
1.1445-2(b) that CPEH is not a foreign person with the meaning of IRS Codes Section 1446(f) or
1445, in the form attached hereto as Exhibit D.
8. Concurrently herewith, the resignations of each of Jon Hookstratten and Maria Anguelova as
Managers of Crackle Plus as attached hereto as Exhibit E have been delivered to Crackle Plus,
and Crackle Plus hereby accepts each such resignation to be effective immediately upon delivery
of the Preferred Stock to CPEH.
9. Upon issuance of the Preferred Stock to CPEH in accordance with the foregoing (as evidenced by
documentation provide by Continental to CPEH in form and substance reasonably satisfactory to
CPEH), all Units owned by CPEH shall be deemed returned to Crackle Plus and no longer
outstanding, and CPEH shall no longer be deemed a Member of Crackle Plus or entitled to any
rights of a Member under the terms of the Agreement, except with respect to rights or obligations
that expressly survive the termination of the Agreement and/or the termination of any Member's
membership.
10. Each of CSSE and Crackle Plus hereby represents and warrants to CPEH that (a) each of CSSE
and Crackle Plus has all necessary corporate or company authority to consummate the
transactions as contemplated hereby, (b) there are no orders, actions or claims that would be
reasonably deemed to prevent or prohibit either of CSSE or Crackle Plus from consummating
such transactions, (c) the shares of Preferred Stock shall be duly and validly issued, fully paid and
nonassessable, and (d) no consent, approval, order or authorization of, or registration, declaration
or filing with, any governmental authority or any third party is required in connection with the
CSSE or Crackle Plus’ execution and delivery of this Closing Agreement, or the issuance and
delivery of the Preferred Stock.
11. CPEH hereby represents and warrants to each of CSSE and Crackle Plus that (a) it has all
necessary corporate authority to consummate the transactions as contemplated hereby and that
there are no orders, actions or claims that would be reasonably deemed to prevent or prohibit
CPEH from consummating such transactions, (b) there are no liens, mortgages or encumbrances
on the Units (except for restrictions under the Agreement and/or under state and/or federal
securities laws) and that CPEH has record and beneficial ownership interest in and to the Units,
(c) CPEH is an “accredited investor” as that term is defined in Rule 501(a) under the Act, (d)
CPEH is acquiring the Preferred Stock for investment purposes and not with a view to
distribution to any other person or entity, (e) CPEH understands that the Preferred Stock has not
been registered under the Act by reason of a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of CPEH's investment intent as expressed
herein, (f) CPEH understands that CSSE makes no representation as to the credit rating of the
Preferred Shares at any
-2-
time after the date of issuance of same, and (g) CPEH understands that the Preferred Stock cannot
be transferred except pursuant to registration under the Act or pursuant to an available exemption
from registration under the Act.
12. Each of CSSE and Crackle Plus, on behalf of themselves and their subsidiaries, affiliates, parent
companies, officers, directors and employees, hereby waive and release any and all claims,
demands, damages, judgments, causes of action and liabilities of any nature whatsoever, whether
or not known, suspected or claimed, arising directly or indirectly on or prior to the date hereof
against CPEH and/or its Affiliates, or any of them, arising out of CPEH's (or Crackle's) ownership
of the Units and membership in Crackle Plus; provided, however, that in no event shall the
foregoing waive, release affect or impair any claims or rights of CSSE, Crackle Plus, or their
subsidiaries, affiliates, parent companies, officers, directors and employees arising out of that
certain Agreement, dated as of June 30, 2020, by and among Crackle Plus, CSSE, CPEH, Sony
Pictures Television Inc. and Funimation Global Group, LLC (the “Settlement Agreement”).
13. CPEH, on behalf of itself and its subsidiaries, affiliates, parent companies, officers, directors and
employees, hereby waives and releases any and all claims, demands, damages, judgments, causes
of action and liabilities of any nature whatsoever, whether or not known, suspected or claimed,
arising directly or indirectly on or prior to the date hereof against Crackle Plus and CSSE and/or
their respective Affiliates, or any of them, arising out of CPEH’s (or Crackle’s) ownership of the
Units and membership in Crackle Plus; provided, however, that in no event shall the foregoing
waive, release affect or impair any claims or rights of CSSE, Crackle Plus, or their subsidiaries,
affiliates, parent companies, officers, directors and employees arising out of (i) the Settlement
Agreement or (ii) any right to indemnification, reimbursement or advancement of expenses under
the provisions of any member, manager or officer indemnification agreement with CSSE or
Crackle Plus, owed to CPEH or its subsidiaries, affiliates, parent companies, officers, directors or
employees, or any of them, in its or their capacity(ies) as a member, officer or manager of Crackle
Plus, with respect to any third party claim relating to an act, omission, event or transaction
occurring on or prior to the Closing.
14. Each of the parties hereto acknowledges and agrees that such party has read and understands and
has been fully advised by its attorneys as to the contents of Section 1542 of the Civil Code of the
State of California, and that Section 1542 and the benefits thereof are hereby expressly waived.
Section 1542 reads as follows:
1542. General Release; extent.
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR
RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR
AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER,
WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR OR RELEASED PARTY.”
-3-
Each of the parties hereto expressly waives and relinquishes all rights and benefits under Section
1542 and any similar law or common law principle of similar effect of any state or territory of the
United States with respect to the claims released hereby. In connection with such waiver and
release, each of the parties hereto acknowledges that such party is aware that it may hereafter
discover claims or facts in addition to or different from those which it now knows or believes to
be true with respect to the matters released herein, but that it is the intention of such party to fully,
finally and forever, waive, release and relinquish all such matters and all such claims relative
thereto which do exist, may exist or heretofore have existed. In furtherance of such intention, the
releases given herein shall be and remain in effect as full and complete releases of any such
additional or different claims or facts relative thereto.
15. CSSE shall register all of the shares of Preferred Stock for resale under the Act in accordance the
Registration Rights Agreement (as defined in the Contribution Agreement) on or before April 13,
2021.
16. This Closing Agreement may be executed in counterparts, including counterparts by email,
facsimile, portable document format (pdf) or any electronic signature complying with the U.S.
federal ESIGN Act of 2000 (including DocuSign), each of which shall be deemed an original and
all of which shall together constitute one and the same instrument
The parties have executed this Closing Agreement as of the date first set forth above.
CRACKLE PLUS, LLC
By: /s/ William J. Rouhana, Jr.
William J. Rouhana, Jr.
CEO
CHICKEN SOUP FOR THE SOUL
ENTERTAINMENT, INC.
By: /s/ William J. Rouhana, Jr.
William J. Rouhana, Jr.
CEO
CPE HOLDINGS, INC.
By: /s/ Eric Gaynor ss
Eric Gaynor ss
Assistant Secretary
-4-
SUBSIDIARIES OF REGISTRANT
Exhibit 21
Name of Subsidiary
Pivotshare, Inc.
Powerslam, LLC
Screen Media Ventures, LLC
757 Film Acquisition LLC
Digital Media Enterprises LLC
Screen Media Films, LLC
A Sharp, Inc.
BD Productions, LLC
PH2017, LLC
VRP2018, LLC
RSHOOD2017, LLC
The Fixer 2018, LLC
Crackle Plus, LLC
Halcyon Television, LLC
TOFG, LLC
CSS AVOD, Inc.
Landmark Studio Group, LLC
Locomotive Global, Inc.
Proportion of Ownership Interest
100% by the Registrant
100% by Pivotshare, Inc.
100% by the Registrant
100% by Screen Media Ventures, LLC
100% by Screen Media Ventures, LLC
100% by Screen Media Ventures, LLC
100% by the Registrant
100% by the Registrant
100% by the Registrant
100% by the Registrant
100% by the Registrant
100% by the Registrant
100% by the Registrant
100% by the Registrant
100% by the Registrant
95% by the Registrant
78.5% by the Registrant
51% by the Registrant
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration No. 333-
223780) and on Form S-3 (Registration No. 333-228482, 333-238588, and 333-238589) of Chicken Soup for the
Soul Entertainment, Inc. of our report dated March 29, 2022, relating to the consolidated financial statements of
Chicken Soup for the Soul Entertainment, Inc. and subsidiaries as of December 31, 2021 and 2020 and for each of
the years in the two-year period ended December 31, 2021, and appearing in the Registration Statements and to
the reference to us under the heading “Experts” in the Registration Statements.
Exhibit 23.1
/s/ Rosenfield and Company, PLLC
New York, New York
March 29, 2022
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William J. Rouhana, Jr., certify that:
1. I have reviewed this annual report on Form 10-K of Chicken Soup for the Soul Entertainment, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; and
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; and
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 31, 2022
/s/ William J. Rouhana, Jr.
William J. Rouhana, Jr.
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Chris Mitchell, certify that:
1. I have reviewed this annual report on Form 10-K of Chicken Soup for the Soul Entertainment, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities,
particularly during the period in which this report is being prepared; and
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; and
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 31, 2022
/s/ Christopher Mitchell
Christopher Mitchell
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Chicken Soup for the Soul Entertainment, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2021 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and on
the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of
the Company.
Date: March 31, 2022
/s/ William J. Rouhana, Jr.
William J. Rouhana, Jr.
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Chicken Soup for the Soul Entertainment, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2021 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and on
the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of
the Company.
Date: March 31, 2022
/s/ Christopher Mitchell
Christopher Mitchell
Chief Financial Officer
(Principal Financial Officer)