Chicken Soup for the Soul Entertainment(CSSE) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1: Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including the Balance Sheets, Statements of Operations, Statements of Stockholders' Equity, and Statements of Cash Flows, along with detailed notes for the periods ended June 30, 2021 Condensed Consolidated Balance Sheets The balance sheet shows a significant increase in total assets and liabilities from December 31, 2020, to June 30, 2021, primarily driven by increases in accounts receivable, film library, and various liabilities, reflecting business expansion and acquisition activities | Metric | June 30, 2021 (unaudited) | December 31, 2020 | |:---|:---|:---| | Total Assets | $234.2 million | $156.3 million | | Total Liabilities | $161.6 million | $91.2 million | | Total Stockholders' Equity | $72.5 million | $28.5 million | - Accounts receivable, net, increased from $26.0 million at December 31, 2020, to $44.9 million at June 30, 2021[10] - Film library, net, significantly increased from $35.2 million at December 31, 2020, to $72.4 million at June 30, 2021[10] Condensed Consolidated Statements of Operations The company reported increased net revenue and gross profit for both the three and six months ended June 30, 2021, compared to the prior year, but continued to incur net losses, albeit with a reduced operating loss for the six-month period | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |:---|:---|:---| | Net Revenue | $22.1 million | $13.5 million | | Gross Profit | $6.7 million | $0.6 million | | Operating Loss | $(7.8) million | $(13.1) million | | Net Loss Available to Common Stockholders | $(11.1) million | $(10.0) million | | Basic and Diluted EPS | $(0.79) | $(0.83) | | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |:---|:---|:---| | Net Revenue | $45.3 million | $26.8 million | | Gross Profit | $13.7 million | $3.9 million | | Operating Loss | $(13.7) million | $(23.1) million | | Net Loss Available to Common Stockholders | $(20.3) million | $(21.4) million | | Basic and Diluted EPS | $(1.46) | $(1.79) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity significantly increased from December 31, 2020, to June 30, 2021, primarily due to additional paid-in capital from stock issuances and the conversion of subsidiary convertible preferred stock into Series A Preferred Stock, leading to 100% ownership of Crackle Plus | Metric | June 30, 2021 | December 31, 2020 | |:---|:---|:---|\ | Total Stockholders' Equity | $72.6 million | $65.1 million | | Additional Paid-In Capital | $170.4 million | $106.4 million | | Deficit | $(97.3) million | $(77.2) million | - The company issued 1.6 million shares of Series A Preferred Stock on January 13, 2021, as a result of a Put Option exercise, leading to 100% ownership of Crackle Plus[122] Condensed Consolidated Statements of Cash Flows Cash and cash equivalents increased due to significant cash provided by financing activities, including common stock issuances, which offset increased cash used in operating activities, primarily driven by higher investments in film library and programming costs | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |:---|:---|:---|\ | Net cash used in operating activities | $(16.9) million | $(0.8) million | | Net cash provided by investing activities | $3.3 million | $2.6 million | | Net cash provided by (used in) financing activities | $17.3 million | $(3.5) million | | Net increase (decrease) in cash and cash equivalents | $3.7 million | $(1.8) million | | Cash and cash equivalents at end of period | $18.4 million | $4.7 million | - Operating activities used significantly more cash in 2021, primarily due to a $37.9 million increase in film library assets and a $4.1 million increase in programming costs and rights[220][225][226] - Financing activities provided $17.3 million in cash in 2021, largely from $24.8 million in proceeds from common stock issuances and stock option/warrant exercises, partially offset by preferred dividends and debt repayments[21][233] Notes to Condensed Consolidated Financial Statements The notes provide essential details on the company's operations as a video-on-demand and content distribution company, its accounting policies, recent accounting pronouncements, the Sonar Entertainment acquisition, revenue recognition methods, share-based compensation, earnings per share calculations, and specifics regarding programming costs, film library, intangible assets, debt, and commitments Note 1 – Description of the Business Chicken Soup for the Soul Entertainment, Inc. operates video-on-demand networks and is a global independent television and film distribution company with a large library, focusing on streaming networks and deriving most revenue from the U.S. while having a presence in over 56 countries - The Company operates video-on-demand networks and is a leading global independent television and film distribution company[23] - The Company operates in the United States and internationally, with a presence in over 56 countries and territories, primarily deriving revenue from the United States[24] Note 2 – Basis of Presentation and Summary of Significant Accounting Policies The interim condensed consolidated financial statements are unaudited, prepared in conformity with GAAP, and consistent with the prior annual report, with certain disclosures condensed or omitted as permitted by SEC rules. Management's estimates and judgments are crucial, and no material changes to significant accounting policies have occurred since December 31, 2020 - Interim condensed consolidated financial statements are unaudited and prepared in conformity with GAAP, with certain information condensed or omitted as permitted by SEC rules[25] - Preparation of financial statements requires management to make estimates and judgments, including for revenue recognition, film ultimate revenues, intangible assets, and share-based compensation[26] - No material changes in significant accounting policies have occurred compared to the Annual Report on Form 10-K for the year ended December 31, 2020[28] Note 3 – Recent Accounting Pronouncements The company adopted several ASUs in Q1 and Q2 2021, including those related to reference rate reform, film and program material costs, collaborative arrangements, and cloud computing arrangements, none of which had a material impact on its financial statements. However, the adoption of ASU 2016-02 (Leases) in fiscal year 2022 is expected to have a material impact on the balance sheet, with an estimated $14.9 million in right-of-use assets and lease liabilities - Adopted ASU 2020-04 (Reference Rate Reform) in Q2 2021, with no immediate material impact[31] - Adopted ASU 2019-02 (Costs of Films and License Agreements), ASU 2018-18 (Collaborative Arrangements), and ASU 2018-15 (Cloud Computing Arrangement Costs) in Q1 2021, with no material impact[32][33][34] - ASU 2016-02 (Leases) adoption, effective for fiscal years beginning after December 15, 2021, is expected to have a material impact on the balance sheet, with an estimated $14.9 million in right-of-use lease assets and corresponding lease liabilities[38] Note 4 – Business Combination On May 21, 2021, the company acquired Sonar Entertainment, Inc. for an aggregate purchase price of $53.8 million, including an initial cash payment and future performance-based payments. The acquisition was accounted for as a purchase, with $19.8 million allocated to goodwill and significant amounts to accounts receivable, film library, and intangible assets - On May 21, 2021, the Company acquired the principal assets of Sonar Entertainment, Inc. (Sonar)[40] - The aggregate purchase price consideration for Sonar was $53.8 million, allocated to assets acquired and liabilities assumed based on estimated fair values[42] | Acquired Asset | May 21, 2021 | |:---|:---|\ | Accounts receivable, net | $17.4 million | | Film library | $13.0 million | | Intangible asset (distribution network) | $3.6 million | | Goodwill | $19.8 million | | Total Estimated Purchase Price | $53.8 million | Note 5 – Revenue Recognition Revenue is recognized when performance obligations are satisfied, primarily from VOD and streaming services and content licensing. VOD and streaming revenue increased by 56% for the three months and 39% for the six months ended June 30, 2021, while licensing and other revenue saw even higher growth of 84% and 179% respectively, indicating a shift in revenue mix - Revenue is generated from VOD and streaming (through Crackle Plus network, TVOD sales, cable TV, and barter syndication) and licensing of movies and television series worldwide (through Screen Media Ventures)[53][55] | Revenue Source | Three Months Ended June 30, 2021 | % of Revenue 2021 | Three Months Ended June 30, 2020 | % of Revenue 2020 | |:---|:---|:---|:---|:---|\ | VOD and streaming | $15.1 million | 68% | $9.7 million | 72% | | Licensing and other | $7.0 million | 32% | $3.8 million | 28% | | Net Revenue | $22.1 million | 100% | $13.5 million | 100% | | Revenue Source | Six Months Ended June 30, 2021 | % of Revenue 2021 | Six Months Ended June 30, 2020 | % of Revenue 2020 | |:---|:---|:---|:---|:---|\ | VOD and streaming | $29.0 million | 64% | $20.9 million | 78% | | Licensing and other | $16.4 million | 36% | $5.9 million | 22% | | Net Revenue | $45.3 million | 100% | $26.8 million | 100% | Note 6 – Share-Based Compensation The company recognized $0.2 million and $0.5 million in non-cash share-based compensation expense for the three and six months ended June 30, 2021, respectively, related to stock options and common stock grants. Stock option activity showed a decrease in outstanding options but an increase in aggregate intrinsic value, reflecting a higher market price per share - Non-cash share-based compensation expense for stock options was $0.2 million for the three months and $0.4 million for the six months ended June 30, 2021[71] - Non-cash share-based compensation expense for common stock grants was $0.03 million for the three months and $0.06 million for the six months ended June 30, 2021[76] | Stock Option Activity | December 31, 2020 | June 30, 2021 | |:---|:---|:---|\ | Number of Stock Options Outstanding | 1,131,250 | 742,640 | | Weighted Average Exercise Price | $8.13 | $8.57 | | Aggregate Intrinsic Value | $13.4 million | $24.4 million | Note 7 - Earnings Per Share The company reported basic and diluted net losses per common share of $(0.79) and $(1.46) for the three and six months ended June 30, 2021, respectively. Due to net losses, all potentially dilutive securities were anti-dilutive and thus excluded from diluted EPS calculations | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |:---|:---|:---|\ | Net loss available to common stockholders | $(11.1) million | $(10.0) million | | Basic and diluted loss per share | $(0.79) | $(0.83) | | Weighted-average common shares outstanding | 14,059,211 | 12,007,428 | | Anti-dilutive stock options and warrants | 3,892,936 | 83,282 | | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |:---|:---|:---|\ | Net loss available to common stockholders | $(20.3) million | $(21.4) million | | Basic and diluted loss per share | $(1.46) | $(1.79) | | Weighted-average common shares outstanding | 13,848,655 | 12,006,013 | | Anti-dilutive stock options and warrants | 3,658,102 | 91,829 | - A net loss available to common stockholders causes all potentially dilutive securities to be anti-dilutive, meaning they are excluded from diluted EPS calculations[77] Note 8 – Programming Costs Programming costs and rights, net, increased to $16.9 million at June 30, 2021, from $15.8 million at December 31, 2020. Amortization expense for programming costs significantly increased for both the three and six months ended June 30, 2021, reflecting higher content exploitation | Metric | June 30, 2021 | December 31, 2020 | |:---|:---|:---|\ | Programming costs, net | $16.5 million | $15.3 million | | Programming rights, net | $0.4 million | $0.5 million | | Total Programming costs and rights, net | $16.9 million | $15.8 million | | Amortization Expense | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |:---|:---|:---|\ | Programming costs | $0.7 million | $0.01 million | | Programming rights | $0.001 million | $0.05 million | | Total programming amortization expense | $0.7 million | $0.05 million | | Amortization Expense | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |:---|:---|:---|\ | Programming costs | $2.9 million | $0.06 million | | Programming rights | $0.03 million | $0.1 million | | Total programming amortization expense | $2.9 million | $0.2 million | Note 9 – Film Library Net film library costs increased substantially to $72.4 million at June 30, 2021, from $35.2 million at December 31, 2020, reflecting significant acquisitions. Film library amortization expense also rose, indicating increased exploitation of the expanded library | Metric | June 30, 2021 | December 31, 2020 | |:---|:---|:---|\ | Film library acquisition costs | $129.2 million | $78.3 million | | Accumulated amortization | $(56.8) million | $(43.1) million | | Net film library costs | $72.4 million | $35.2 million | | Amortization Expense | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |:---|:---|:---|\ | Film library amortization expense | $6.8 million | $6.4 million | | Amortization Expense | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |:---|:---|:---|\ | Film library amortization expense | $13.7 million | $8.8 million | Note 10 - Intangible Assets Total intangible assets, net, increased to $20.5 million at June 30, 2021, from $19.4 million at December 31, 2020, primarily due to the addition of a distribution network asset from the Sonar acquisition. Goodwill also significantly increased to $41.3 million, reflecting the Sonar acquisition | Intangible Asset Category | June 30, 2021 | December 31, 2020 | |:---|:---|:---|\ | Indefinite lived intangible assets | $12.2 million | $12.2 million | | Intangible assets, net | $20.5 million | $19.4 million | | Total Goodwill | $41.3 million | $21.4 million | - The Distribution Network intangible asset, valued at $3.6 million, was added as of June 30, 2021, with $0.1 million accumulated amortization[86] - Goodwill increased by $19.8 million due to the Halcyon (Sonar) acquisition[89] Note 11 – Debt Total debt increased to $56.6 million at June 30, 2021, from $44.1 million at December 31, 2020, primarily due to a new $20.0 million revolving loan and the 9.50% Notes due 2025, partially offset by the repayment of the revolving credit facility and a film acquisition advance. The company was in compliance with all debt covenants as of June 30, 2021 - Entered into a new revolving loan agreement with Midcap Financial Trust for up to $20.0 million, with an initial draw of $18.3 million[90] - The company completed public offerings of 9.50% Notes due 2025 in July and December 2020, totaling $32.9 million outstanding[93][95][101] | Debt Type | June 30, 2021 | December 31, 2020 | |:---|:---|:---|\ | Notes due 2025 | $32.9 million | $32.9 million | | Revolving Loan | $17.6 million | — | | Film Acquisition Advance | $6.1 million | $8.7 million | | Revolving Credit Facility | — | $2.5 million | | Total Debt | $56.6 million | $44.1 million | Note 12 – Put Option Obligation As part of the Sonar Entertainment acquisition, the company has a Put Option obligation of $11.4 million, exercisable by the investor between October 2022 and October 2025, to purchase a 5% interest in CSS AVOD, Inc - The company has a Put Option obligation of $11.4 million as of June 30, 2021, related to a 5% interest in CSS AVOD, Inc. issued as part of the Sonar acquisition[103][104] - The Put Option is exercisable by the investor during a three-year period from October 8, 2022, to October 7, 2025[103] Note 13 – Income Taxes The company recorded a current provision for income taxes of $0.02 million and $0.03 million for the three and six months ended June 30, 2021, respectively. It maintains a full valuation allowance against its deferred tax assets, which include significant net operating loss carry-forwards, due to a history of recurring losses and uncertainties regarding future taxable income | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |:---|:---|:---|\ | Total current provision for income taxes | $0.02 million | $0.02 million | | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |:---|:---|:---|\ | Total current provision for income taxes | $0.03 million | $0.07 million | - The company has combined net operating losses of approximately $39.0 million and has recorded a full valuation allowance against its deferred tax assets due to a recent history of recurring losses[105][107] Note 14 – Related Party Transactions The company has ongoing financial transactions with affiliated companies, primarily CSS, including amounts owed to the company and management and license fees paid to CSS. The net amount owed to the company by affiliates decreased significantly from December 31, 2020, to June 30, 2021 - The company is owed $0.7 million from affiliated companies at June 30, 2021, a decrease from $5.6 million at December 31, 2020[109] - Management and license fees paid to CSS were $2.2 million for the three months and $4.5 million for the six months ended June 30, 2021[110] Note 15 - Commitments and Contingencies The company has significant content obligations totaling $47.4 million at June 30, 2021, a substantial increase from $25.8 million at December 31, 2020, reflecting increased investment in film library acquisitions, programming, and accrued participation costs. Future minimum payments under non-cancelable operating leases and content agreements amount to $30.0 million through 2031 | Content Obligation | June 30, 2021 | December 31, 2020 | |:---|:---|:---|\ | Film library acquisition obligations | $20.8 million | $8.6 million | | Programming obligations | $1.8 million | $4.7 million | | Accrued participation costs | $24.7 million | $12.5 million | | Total content obligations | $47.4 million | $25.8 million | | Year | Total Minimum Lease and Content Payments | |:---|:---|\ | Remainder of 2021 | $2.4 million | | 2022 | $11.5 million | | 2023 | $5.6 million | | 2024 | $1.3 million | | 2025 | $1.3 million | | 2026 - 2031 | $8.1 million | | Total | $30.0 million | Note 16 – Stockholders' Equity The company gained 100% ownership of Crackle Plus by issuing 1.6 million shares of Series A Preferred Stock in January 2021. Warrant activity as of June 30, 2021, shows a total of 4.7 million warrants outstanding with a weighted average exercise price of $10.06 - On January 13, 2021, the Company issued 1.6 million shares of its Series A Preferred Stock, resulting in 100% ownership of Crackle Plus[122] | Warrant Class | Outstanding at June 30, 2021 | Weighted Average Exercise Price | |:---|:---|:---|\ | Class W | 532,997 | $7.50 | | Class Z | 133,445 | $12.00 | | CSSE Class I | 800,000 | $8.13 | | CSSE Class II | 1,200,000 | $9.67 | | CSSE Class III-A | 380,000 | $11.61 | | CSSE Class III-B | 1,620,000 | $11.61 | | Total | 4,666,442 | $10.06 | Note 17 – Segment Reporting and Geographic Information The company operates as one reportable segment: the distribution and production of video content. The majority of its net revenue (96-98%) is generated in the United States, with all long-lived assets also based in the U.S - The company operates in one reportable segment: the distribution and production of video content for sale to others and for use on its owned and operated video on demand platforms[124] - Net revenue generated in the United States accounted for approximately 98% and 99% of total net revenue for the three months ended June 30, 2021 and 2020, respectively, and 96% and 99% for the six months ended June 30, 2021 and 2020, respectively[125] - All long-lived assets are 100% based in the United States[125] Note 18 – Subsequent Events Subsequent to the reporting period, on July 7, 2021, the company completed an underwritten public offering of 1.9 million shares of common stock at $40.00 per share, generating gross proceeds of $75.0 million - On July 7, 2021, the Company completed an underwritten public offering of 1.9 million shares of common stock at $40.00 per share, generating gross proceeds of $75.0 million[127] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook, highlighting significant revenue growth, the impact of the Sonar acquisition, and the use of non-GAAP financial measures like Adjusted EBITDA. It also details changes in operating results for the three and six months ended June 30, 2021, and discusses liquidity, capital resources, and critical accounting policies Forward-Looking Statements This section cautions readers that the report contains forward-looking statements based on current expectations, which involve risks and uncertainties that could cause actual results to differ materially. Key risk factors include potential business losses, debt servicing challenges, COVID-19 impacts, cybersecurity risks, market acceptance of content, and the ability to manage growth and acquisitions - Forward-looking statements are based on current expectations and beliefs, but actual results may differ due to various risks and uncertainties[130] - Important factors affecting actual results include potential business losses, ability to service debt, impact of the COVID-19 pandemic, cybersecurity incidents, market acceptance of content, and ability to complete strategic acquisitions[131][133] Overview Chicken Soup for the Soul Entertainment is a leading streaming video-on-demand (VOD) company, operating Crackle Plus, Screen Media, and Halcyon Television. It focuses on acquiring, producing, and distributing content for its streaming services, boasting a large library and serving over 32 million monthly active visitors. The company reported significant revenue and Adjusted EBITDA growth for the three and six months ended June 30, 2021 - The company operates Crackle Plus (a portfolio of ad-supported and subscription-based VOD services), Screen Media (content acquisition and distribution), and Halcyon Television (manages acquired Sonar Entertainment library)[134][136][137] - Crackle Plus served over 32 million monthly active visitors as of June 30, 2021, with access to more than 17,392 films and 29,238 episodes[135] | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |:---|:---|:---|\ | Net Revenue | $22.1 million | $13.5 million | | Adjusted EBITDA | $3.2 million | $2.7 million | | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |:---|:---|:---|\ | Net Revenue | $45.3 million | $26.8 million | | Adjusted EBITDA | $7.7 million | $4.7 million | JOBS Act Accounting Election As an "emerging growth company" under the JOBS Act, the company has irrevocably elected to delay adopting new or revised accounting standards until they apply to private companies, differing from other public companies - The Company is an "emerging growth company" under the JOBS Act[143] - The Company has irrevocably elected to avail itself of the exemption to delay adopting new or revised accounting standards until such time as those standards apply to private companies[143] Use of Non-GAAP Financial Measure The company uses Adjusted EBITDA, a non-GAAP financial measure, to evaluate operating performance, believing it enhances understanding of financial results by excluding significant non-cash and non-recurring expenses. However, it acknowledges that Adjusted EBITDA has limitations and should not be considered a substitute for GAAP measures - Adjusted EBITDA is used as a non-GAAP financial measure to evaluate results of operations and as a supplemental indicator of operating performance[144] - Adjusted EBITDA is defined as consolidated operating income (loss) adjusted to exclude interest, taxes, depreciation, amortization, acquisition-related costs, consulting fees, dividend payments, non-cash share-based compensation, and other unusual charges[147] - Adjusted EBITDA has limitations, such as not reflecting cash expenditures for capital, working capital, preferred dividends, or debt service, and should not be considered in isolation from GAAP measures[148] Reconciliation of Historical GAAP Net Income as reported to Adjusted EBITDA The reconciliation shows Adjusted EBITDA of $3.2 million for the three months and $7.7 million for the six months ended June 30, 2021, significantly higher than the GAAP net loss, primarily due to the add-back of preferred dividends, interest expense, film library and program rights amortization, and other non-cash or non-recurring items | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | |:---|:---|:---|\ | Net loss available to common stockholders | $(11.1) million | $(10.0) million | | Preferred dividends | $2.3 million | $1.0 million | | Interest expense | $1.1 million | $0.3 million | | Film library and program rights amortization | $6.8 million | $6.4 million | | Amortization and depreciation | $1.7 million | $5.5 million | | Adjusted EBITDA | $3.2 million | $2.7 million | | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | |:---|:---|:---|\ | Net loss available to common stockholders | $(20.3) million | $(21.4) million | | Preferred dividends | $4.5 million | $1.9 million | | Interest expense | $2.2 million | $0.7 million | | Film library and program rights amortization | $13.8 million | $8.9 million | | Amortization and depreciation | $3.3 million | $10.7 million | | Adjusted EBITDA | $7.7 million | $4.7 million | Results of Operations for the Three Months Ended June 30, 2021 Compared With the Three Months Ended June 30, 2020 Net revenue increased by $8.6 million (64%) to $22.1 million, driven by strong growth in both VOD/streaming (56%) and licensing/other (84%). Gross profit surged by 1,042% to $6.7 million, improving the gross profit margin to 30%. Total operating expenses increased by $0.9 million (6%), but as a percentage of revenue, they decreased significantly from 101% to 66% | Metric | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | Change ($) | Change (%) | |:---|:---|:---|:---|:---|\ | Net Revenue | $22.1 million | $13.5 million | $8.6 million | 64% | | VOD and streaming revenue | $15.1 million | $9.7 million | $5.4 million | 56% | | Licensing and other revenue | $7.0 million | $3.8 million | $3.2 million | 84% | | Gross Profit | $6.7 million | $0.6 million | $6.1 million | 1,042% | | Gross Profit Margin | 30% | 4% | - | - | | Total Operating Expenses | $14.5 million | $13.6 million | $0.9 million | 6% | - VOD and streaming revenue growth was driven by increases in Ad Rep revenue ($1.6 million), TVOD/internet streaming revenue ($1.9 million), product integration revenue ($0.9 million), and Crackle direct revenue ($0.8 million)[170] - Licensing and other revenue growth was primarily due to a $2.9 million increase in international revenues and a $1.8 million increase in content production revenue[171] - Selling, general and administrative expenses increased by $3.9 million, mainly due to a 31% increase in headcount and higher legal and marketing expenses[176][180][181][182] - Amortization and depreciation expense decreased by $3.9 million due to the Crackle Plus customer user base intangible asset being fully amortized[176] - Interest expense increased by $0.8 million, primarily due to the 9.50% Notes due 2025 issued in July and December 2020[185] Results of Operations for the Six Months Ended June 30, 2021 Compared With the Six Months Ended June 30, 2020 Net revenue increased by $18.6 million (69%) to $45.3 million, with VOD/streaming revenue up 39% and licensing/other revenue surging by 179%. Gross profit more than tripled to $13.7 million, improving the gross profit margin to 30%. Total operating expenses increased marginally by $0.3 million (1%), but as a percentage of revenue, they significantly decreased from 101% to 61% | Metric | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | Change ($) | Change (%) | |:---|:---|:---|:---|:---|\ | Net Revenue | $45.3 million | $26.8 million | $18.6 million | 69% | | VOD and streaming revenue | $29.0 million | $20.9 million | $8.1 million | 39% | | Licensing and other revenue | $16.4 million | $5.9 million | $10.5 million | 179% | | Gross Profit | $13.7 million | $3.9 million | - | - | | Gross Profit Margin | 30% | 15% | - | - | | Total Operating Expenses | $27.3 million | $27.0 million | $0.3 million | 1% | - VOD and streaming revenue growth was driven by a $6.3 million increase in TVOD/internet streaming revenue and a $2.0 million increase in Ad Rep revenue[193] - Licensing and other revenue growth was primarily due to a $10.8 million increase in international revenues and a $1.9 million increase in content production revenue[194] - Selling, general and administrative expenses increased by $6.3 million, mainly due to a $3.5 million increase in compensation expense (31% headcount increase) and higher professional fees and marketing expenses[197][202][203][205] - Amortization and depreciation expense decreased by $7.9 million due to the Crackle Plus customer user base intangible asset being fully amortized[199] - Interest expense increased by $1.6 million, primarily due to the 9.50% Notes due 2025 issued in July and December 2020[209] LIQUIDITY AND CAPITAL RESOURCES The company's cash and cash equivalents increased to $18.4 million at June 30, 2021, from $14.7 million at December 31, 2020. This improvement was driven by $17.3 million in net cash provided by financing activities, including common stock issuances, which offset a significant increase in cash used in operating activities ($16.9 million), primarily due to higher investments in film library and programming content - Cash and cash equivalents increased to $18.4 million as of June 30, 2021, from $14.7 million as of December 31, 2020[219] - Net cash used in operating activities increased to $16.9 million for the six months ended June 30, 2021, primarily due to increased investment in film library and programming costs[220][225][226] - Net cash provided by financing activities was $17.3 million, driven by $24.8 million from common stock issuances and stock option/warrant exercises, partially offset by preferred dividends and debt repayments[233] - Total debt principal outstanding was $56.6 million as of June 30, 2021, an increase of $12.8 million from December 31, 2020, primarily due to a new revolving loan[213][214] Critical Accounting Policies and Significant Judgments and Estimates The preparation of financial statements requires significant estimates and assumptions, particularly for revenue recognition, film ultimate revenues, and intangible assets. There have been no significant changes in critical accounting policies since December 31, 2020. The company, as an emerging growth company, utilizes JOBS Act exemptions for accounting standards adoption - Financial statements require estimates and assumptions affecting reported amounts of assets, liabilities, revenue, and expenses[236] - Significant items subject to estimates include revenue recognition, estimated film ultimate revenues, and intangible assets[26] - No significant changes in critical accounting policies, judgments, and estimates have occurred since December 31, 2020[238] JOBS Act As an emerging growth company under the JOBS Act, the company benefits from exemptions from various reporting requirements, including delayed adoption of new accounting standards and reduced disclosure obligations, which it has irrevocably elected to utilize - The company is an emerging growth company, eligible for exemptions under the JOBS Act[239] - The company has irrevocably elected to use the extended transition period for complying with new or revised financial accounting standards[239] Off-Balance Sheet Arrangements As of June 30, 2021, and December 31, 2020, the company had no off-balance sheet arrangements - The company had no off-balance sheet arrangements as of June 30, 2021, and December 31, 2020[240] Effect of Inflation and Changes in Prices This section states that the effect of inflation and changes in prices is not applicable to the company's current reporting - The effect of inflation and changes in prices is not applicable[241] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable to the company - No quantitative and qualitative disclosures about market risk are applicable[242] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, providing reasonable assurance for timely and accurate reporting. No material changes in internal control over financial reporting occurred during the period, despite remote work due to COVID-19, and the company continues to leverage its emerging growth company exemption from auditor attestation requirements - Management, with CEO and CFO participation, evaluated and concluded that disclosure controls and procedures were effective as of June 30, 2021[244][245] - No material changes in internal control over financial reporting occurred during the period, despite remote work due to the COVID-19 pandemic[248] - As an "emerging growth company," the company takes advantage of the exemption from the Sarbanes-Oxley Act's requirement for an independent registered public accounting firm to provide an attestation on the effectiveness of internal control over financial reporting[247] PART II – OTHER INFORMATION Item 1 – Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business, though it acknowledges inherent uncertainties and potential future claims, particularly from third-party content and technology use - The company is not presently a party to any legal proceedings believed to have a material adverse effect on its business, financial condition, operating results, or cash flows[119] - Legal proceedings are subject to inherent uncertainties, and unfavorable outcomes could result in monetary damages or material adverse impacts[119][249] Item 1A – Risk Factors The company refers readers to the "Risk Factors" section of its Annual Report on Form 10-K for the year ended December 31, 2020, for a comprehensive discussion of significant factors that could materially adversely affect its business, financial condition, or operating results - Significant risk factors affecting the company's business, financial condition, or operating results are detailed in the "Risk Factors" section of its Form 10-K for the year ended December 31, 2020[250] Item 2 – Unregistered Sales of Equity Securities This section states that there were no unregistered sales of equity securities during the reporting period - There were no unregistered sales of equity securities[251] Item 3 – Defaults Upon Senior Securities This section indicates that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[252] Item 4 – Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[253] Item 5 – Other Information This section indicates that there is no other information to report - No other information is reported[254] Item 6 – Exhibits This section lists the exhibits filed as part of this Quarterly Report on Form 10-Q, including certifications from the Principal Executive Officer and Principal Financial and Accounting Officer, as well as Inline XBRL documents - The exhibits filed include certifications from the Principal Executive Officer and Principal Financial and Accounting Officer (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[257] SIGNATURES The report is signed by Christopher Mitchell, Chief Financial Officer, and William J. Rouhana, Jr., Chief Executive Officer, on behalf of Chicken Soup for the Soul Entertainment, Inc., dated August 11, 2021 - The report was signed by Christopher Mitchell, Chief Financial Officer, and William J. Rouhana, Jr., Chief Executive Officer, on August 11, 2021[260]