			Page ~~Number~~
			Number

	PART 1 - FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited)		3

	Condensed Consolidated Balance Sheets at June 30, ~~2019 (unaudited)~~2020 and December 31, ~~2018~~2019		3

	~~Unaudited~~ Condensed Consolidated Statements of Operations for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019		4

	~~Unaudited~~Condensed Consolidated Statements of Equity for the ~~three and~~ six months ended June 30, ~~2019~~2020 and ~~2018~~2019		5

	~~Unaudited~~ Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019		6 ~~- 7~~

	Notes to ~~Unaudited~~ Condensed Consolidated Financial Statements	8	7

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29	26

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	52	44

ITEM 4.	Controls and Procedures	52	44

	PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings	53	45

ITEM 1A.	Risk Factors	54	45

ITEM 2.	Unregistered Sales of Equity Securities	54	46

ITEM 3.	Defaults Upon Senior Securities	54	46

ITEM 4.	Mine Safety Disclosures	54	46

ITEM 5.	Other Information	54	46

ITEM 6.	Exhibits	55	47

SIGNATURES		56

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

Chicken Soup for the Soul Entertainment, Inc.

Condensed Consolidated Balance Sheets


	June 30,		December 31,
	2020		2019
	(unaudited)
ASSETS
Cash and cash equivalents	$	4,655,317	$	6,447,402
Accounts receivable, net		22,573,432		34,661,119
Prepaid expenses and other current assets		1,485,557		1,173,223
Goodwill		21,448,106		21,448,106
Indefinite lived intangible assets		12,163,943		12,163,943
Intangible assets, net		25,093,057		35,451,951
Film library, net		41,105,470		33,250,149
Due from affiliated companies		4,996,754		7,642,432
Programming costs and rights, net		16,418,308		15,113,574
Other assets, net		5,303,550		313,585
Total assets	$	155,243,494	$	167,665,484

LIABILITIES AND EQUITY
Current maturities of commercial loan	$	3,200,000	$	3,200,000
Commercial loan, net of unamortized deferred finance cost of $169,219 and $189,525 respectively		10,230,781		11,810,475
Notes payable under revolving credit facility		5,000,000		5,000,000
Accounts payable and accrued expenses		30,041,385		26,646,390
Ad representation fees payable		8,511,033		12,429,838
Film library acquisition obligations		8,335,600		5,020,600
Programming obligations		6,416,012		7,300,861
Accrued participation costs		12,064,073		5,066,512
Other liabilities		1,484,050		170,106
Total liabilities		85,282,934		76,644,782
Commitments and contingencies

Equity
Stockholders' Equity:
Series A cumulative redeemable perpetual preferred stock, $.0001 par value, liquidation preference of $25.00 per share, 10,000,000 shares authorized; 1,599,002 shares issued and outstanding, redemption value of $39,975,050		160		160
Class A common stock, $.0001 par value, 70,000,000 shares authorized; 4,267,725 and 4,259,920 shares issued, 4,193,490 and 4,185,685 shares outstanding, respectively		426		425
Class B common stock, $.0001 par value, 20,000,000 shares authorized; 7,813,938 shares issued and outstanding		782		782
Additional paid-in capital		88,084,137		87,610,030
Deficit		(54,133,136)		(32,695,629)
Class A common stock held in treasury, at cost (74,235 shares)		(632,729)		(632,729)
Total stockholders’ equity		33,319,640		54,283,039
Subsidiary convertible preferred stock		36,350,000		36,350,000
Noncontrolling interests		290,920		387,663
Total equity		69,960,560		91,020,702
Total liabilities and equity	$	155,243,494	$	167,665,484

June 30, December 31,
2019 2018
(unaudited)

ASSETS

Cash and cash equivalents $ 4,455,013 $ 6,451,758
Restricted cash 750,000 750,000
Accounts receivable, net 19,722,755 12,841,099
Prepaid expenses 1,459,473 218,736
Inventory, net 273,623 262,068
Goodwill 12,466,680 2,537,079
Indefinite lived intangible assets 42,651,470 12,163,943
Intangible assets, net 23,039,766 2,971,637
Film library, net 31,179,409 25,338,502
Due from affiliated companies 5,111,923 1,213,436
Programming costs, net 14,015,404 12,790,489
Program rights 981,830 -
Deferred tax asset 1,253,000 452,000
Other assets, net 322,873 356,221
Total assets $ 157,683,219 $ 78,346,968

LIABILITIES AND EQUITY

Current maturities of commercial loan $ 1,000,000 $ 1,000,000
Commercial loan and revolving line of credit, net of
unamortized deferred finance cost of $295,255 and $334,554, respectively 6,121,411 6,582,113
Accounts payable and accrued expenses 18,449,712 5,078,805
Ad Representation fees payable 3,772,084 -
Film library acquisition obligations 5,553,100 2,715,600
Programming Obligations 7,300,862 -
Accrued participation costs 1,114,157 1,539,139
Other liabilities 147,107 414,506
Deferred revenue - 6,469
Total liabilities 43,458,433 17,336,632
Commitments and contingencies (Note 16)

Equity
Stockholder's Equity:
Series A cumulative redeemable perpetual preferred stock, $.0001 par value, liquidation preference of $25.00 per share, 10,000,000 shares authorized; 1,338,002 and 918,497 shares issued and outstanding, respectively, redemption value of $33,450,050 and $22,962,425, respectively 134 92
Class A common stock, $.0001 par value, 70,000,000 shares authorized;
4,247,706 shares issued, 4,173,471 outstanding 423 421
Class B common stock, $.0001 par value, 20,000,000 shares authorized;
7,813,938 shares issued and outstanding 782 782
Additional paid-in capital 84,995,345 59,360,583
Subsidiary convertible preferred stock (Note 17) 36,350,000 -
Retained (deficit) earnings (7,011,627 ) 2,281,187
Class A common stock held in treasury, at cost (74,235 shares) (632,729 ) (632,729 )
Total stockholders' equity 113,702,328 61,010,336
Noncontrolling interests (Note 17) 522,458 -
Total Equity 114,224,786 61,010,336
Total liabilities and equity $ 157,683,219 $ 78,346,968

See accompanying notes to unaudited condensed consolidated financial ~~statements.~~statements.

Table of Contents

Chicken Soup for the Soul Entertainment, Inc.

Condensed Consolidated Statements of Operations

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Revenue:
Online networks	$	5,360,693	$	10,009,078	$	14,386,403	$	10,744,342
Distribution and Production		8,537,956		2,202,451		13,630,745		3,992,685
Total revenue		13,898,649		12,211,529		28,017,148		14,737,027
Less: returns and allowances		(378,109)		(241,047)		(1,252,535)		(573,391)
Net revenue		13,520,540		11,970,482		26,764,613		14,163,636
Cost of revenue		12,933,545		8,321,994		22,843,935		9,954,095
Gross profit		586,995		3,648,488		3,920,678		4,209,541
Operating expenses:
Selling, general and administrative		7,052,776		4,700,424		13,892,673		7,522,481
Amortization and depreciation		5,241,415		729,991		10,446,143		935,614
Management and license fees		1,352,054		1,195,520		2,676,461		1,414,790
Total operating expenses		13,646,245		6,625,935		27,015,277		9,872,885
Operating loss		(13,059,250)		(2,977,447)		(23,094,599)		(5,663,344)
Interest expense		333,903		146,359		663,028		287,482
Acquisition-related costs		—		2,258,801		98,926		2,656,736
Other non-operating income, net		(4,331,409)		(12,024)		(4,337,847)		(25,549)
Loss before income taxes and preferred dividends		(9,061,744)		(5,370,583)		(19,518,706)		(8,582,013)
Provision for (benefit from) income taxes		18,000		(253,000)		67,000		(691,000)
Net loss before noncontrolling interests and preferred dividends		(9,079,744)		(5,117,583)		(19,585,706)		(7,891,013)
Net (loss) income attributable to noncontrolling interests		(43,889)		513		(96,743)		513
Net loss attributable to Chicken Soup for the Soul Entertainment, Inc.		(9,035,855)		(5,118,096)		(19,488,963)		(7,891,526)
Less: preferred dividends		974,272		797,981		1,948,544		1,401,288
Net loss available to common stockholders	$	(10,010,127)	$	(5,916,077)	$	(21,437,507)	$	(9,292,814)
Net loss per common share:
Basic and diluted	$	(0.83)	$	(0.49)	$	(1.79)	$	(0.78)

Three Months Ended Six Months Ended
June 30, June 30,
2019 2018* 2019 2018*

Revenue:
Online networks $ 10,009,078 $ 899,197 $ 10,744,342 $ 1,530,212
Television and film distribution 1,975,711 2,031,818 3,444,990 5,274,965
Television and short-form video production 226,740 229,622 547,695 2,436,161
Total revenue 12,211,529 3,160,637 14,737,027 9,241,338
Less: Television & film distribution returns and allowances (241,047 ) (125,645 ) (573,391 ) (445,994 )
Net revenue 11,970,482 3,034,992 14,163,636 8,795,344
Cost of revenue 8,321,994 1,806,266 9,954,095 4,926,971
Gross profit 3,648,488 1,228,726 4,209,541 3,868,373
Operating expenses:
Selling, general and administrative 4,700,424 2,493,625 7,522,481 5,143,022
Amortization 729,991 24,078 935,614 48,155
Management and license fees 1,195,520 293,689 1,414,790 865,084
Total operating expenses 6,625,935 2,811,392 9,872,885 6,056,261
Operating (loss) (2,977,447 ) (1,582,666 ) (5,663,344 ) (2,187,888 )
Interest income 12,024 3,472 25,549 3,647
Interest expense (146,359 ) (97,263 ) (287,482 ) (118,818 )
Acquisition-related costs (2,258,801 ) - (2,656,736 ) (45,300 )
(Loss) before income taxes and preferred dividends (5,370,583 ) (1,676,457 ) (8,582,013 ) (2,348,359 )
(Benefit from) provision for income taxes (253,000 ) (9,000 ) (691,000 ) 204,000
Net (loss) before noncontrolling interests and preferred dividends (5,117,583 ) (1,667,457 ) (7,891,013 ) (2,552,359 )
Net income attributable to noncontrolling interests 513 - 513 -
Net (loss) attributable to Chicken Soup for the Soul
Entertainment, Inc. (5,118,096 ) (1,667,457 ) (7,891,526 ) (2,552,359 )
Less: Preferred dividends 797,981 - 1,401,288 -
Net (loss) available to common stockholders $ (5,916,077 ) $ (1,667,457 ) (9,292,814 ) (2,552,359 )
Net (loss) per common share:
Basic and diluted $ (0.49 ) $ (0.14 ) $ (0.78 ) $ (0.21 )

* In accordance with ASC Subtopic 805-50 "Transactions between entities under common control", results of operations for the 2018 period have been retrospectively adjusted for the acquisition of A Plus on December 28, 2018 to furnish comparative information as required. The effects of intra-entity transactions have been eliminated as a part of the consolidation, where applicable.

See accompanying notes to unaudited condensed consolidated financial ~~statements.~~statements.

Table of Contents

Chicken Soup for the Soul Entertainment, Inc

Condensed Consolidated Statements of Equity

(unaudited)

Preferred Stock

Common Stock

Subsidiary

Class A

Class B

Additional

convertible

Par

Paid-In

Treasury

Preferred

Noncontrolling

Shares

Value

Shares

Value

Shares

Value

Capital

Deficit

Stock

Interests

Total

Balance, December 31, 2019 (audited)

1,599,002

160

4,259,920

425

7,813,938

782

87,610,030

(32,695,629)

(632,729)

36,350,000

387,663

91,020,702

Share based compensation - stock options

213,585

213,585

Share based compensation - common stock

31,250

31,250

Shares issued to directors

7,805

(1)

—

Dividends

(974,272)

(974,272)

Net loss attributable to noncontrolling interest

(52,854)

(52,854)

Net loss

(10,453,108)

(10,453,108)

Balance, March 31, 2020

1,599,002

160

4,267,725

426

7,813,938

782

87,854,864

(44,123,009)

(632,729)

36,350,000

334,809

79,785,303

Share based compensation - stock options

198,023

Share based compensation - common stock

31,250

Dividends

(974,272)

Net loss attributable to noncontrolling interest

(43,889)

Net loss

(9,035,855)

Balance, June 30, 2020

1,599,002

160

4,267,725

426

7,813,938

782

88,084,137

(54,133,136)

(632,729)

36,350,000

290,920

69,960,560


	Preferred Stock			Common Stock															Subsidiary
				Class A				Class B				Additional		Retained					convertible
		Par				Par				Par		Paid-In		Earnings		Treasury			Preferred		Noncontrolling
	Shares	Value		Shares		Value		Shares		Value		Capital		(Deficit)		Stock			Stock		Interests	Total
Balance, December 31, 2018 (audited)	918,497	$	92		4,227,740	$	421		7,817,238	$	782	$	59,360,583	$	2,281,187	$	(632,729)	$	—	$	—	$	61,010,336
Share based compensation - stock options													190,847										190,847
Share based compensation - common stock													25,000										25,000
Issuance of preferred stock	140,000		14										3,499,986										3,500,000
Preferred stock issuance costs													(288,160)										(288,160)
Dividends															(603,307)								(603,307)
Net loss															(2,773,430)								(2,773,430)
Balance, March 31, 2019	1,058,497		106		4,227,740		421		7,817,238		782		62,788,256		(1,095,550)		(632,729)		—		—		61,061,286
Share based compensation													275,097										275,097
Issuance of preferred stock	279,505		28										6,987,597										6,987,625
Preferred stock issuance costs													(538,295)										(538,295)
Stock options exercised					16,666		2						160,159										160,161
Conversion of class B shares to class A shares					3,300		—		(3,300)		—												—
Dividends															(797,981)								(797,981)
Crackle business combination													15,322,531						36,350,000		521,945		52,194,476
Net income attributable to noncontrolling interest																					513		513
Net loss													—		(5,118,096)								(5,118,096)
Balance, June 30, 2019	1,338,002	$	134		4,247,706	$	423		7,813,938	$	782	$	84,995,345	$	(7,011,627)	$	(632,729)	$	36,350,000	$	522,458	$	114,224,786

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

Chicken Soup for the Soul Entertainment, Inc

Condensed Consolidated Statements of ~~Equity~~Cash Flows

(unaudited)

Preferred Stock Common Stock Subsidiary
Class A Class B Additional Retained convertible
Par Par Par Paid-In (Deficit) Treasury Preferred Noncontrolling
Shares Value Shares Value Shares Value Capital Earnings Stock Stock Interests Total

Balance, December 31, 2018 918,497 $ 92 4,227,740 $ 421 7,817,238 $ 782 $ 59,360,583 $ 2,281,187 $ (632,729 ) $ - $ - 61,010,336
Share based compensation - stock options 215,847 215,847
Issuance of preferred stock 140,000 14 3,499,986 3,500,000
Preferred Stock Issuance Costs (288,160 ) (288,160 )
Dividends (603,307 ) (603,307 )
Net loss (2,773,430 ) (2,773,430 )
Balance, March 31, 2019 1,058,497 106 4,227,740 421 7,817,238 782 62,788,256 (1,095,550 ) (632,729 ) - - 61,061,286
Share based compensation - stock options 275,097 275,097
Issuance of preferred stock 279,505 28 6,987,597 6,987,625
Preferred stock issuance costs (538,295 ) (538,295 )
Stock Options Exercised - 16,666 2 160,159 160,161
Conversion of Class B shares to Class A shares 3,300 - (3,300 ) - -
Dividends (797,981 ) (797,981 )
Crackle Business Combination 15,322,531 36,350,000 521,945 52,194,476
Net income attributable to noncontrolling interest 513 513
Net loss (5,118,096 ) (5,118,096 )
Balance, June 30, 2019 1,338,002 $ 134 4,247,706 $ 423 7,813,938 $ 782 $ 84,995,345 $ (7,011,627 ) $ (632,729 ) 36,350,000 $ 522,458 114,224,786


	Six months ended June 30,
	2020		2019
Cash flows from Operating Activities:
Net loss	$	(19,585,706)	$	(7,891,013)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation		474,108		490,944
Amortization of programming costs and rights		165,393		269,971
Amortization of deferred financing costs		20,306		51,647
Amortization and depreciation of intangibles, property and equipment		10,701,700		935,614
Amortization of film library		8,800,473		2,260,861
Bad debt and video return expense		2,534,336		518,515
Realized and unrealized losses on marketable securities		100,607		—
Other non-operating income		(5,404,482)		—
Deferred income taxes		—		(801,000)
Changes in operating assets and liabilities:
Trade accounts receivable		9,553,351		(7,400,171)
Prepaid expenses and other assets		(1,092,921)		(1,247,926)
Programming costs and rights		(1,470,127)		(1,494,886)
Film library		(16,655,794)		(8,101,768)
Accounts payable, accrued expenses and other payables		280,672		14,264,609
Film library acquisition and programming obligations		2,430,151		2,837,500
Accrued participation costs		6,997,561		(424,982)
Other liabilities		1,313,944		(273,868)
Net cash used in operating activities		(836,428)		(6,005,953)
Cash flows from Investing Activities:
Expenditures for property and equipment		(387,386)		—
Sales of marketable securities		334,595		—
Decrease (increase) in due from affiliated companies		2,645,678		(3,898,487)
Net cash provided by (used in) investing activities		2,592,887		(3,898,487)
Cash flows from Financing Activities:
Repayments of commercial loan		(1,600,000)		(500,000)
Payment of preferred stock issuance costs		—		(826,455)
Proceeds from issuance of common stock under equity plans		—		160,161
Payment of deferred financing costs		—		(12,348)
Proceeds from issuance of Series A preferred stock		—		10,487,625
Dividends paid to preferred stockholders		(1,948,544)		(1,401,288)
Net cash (used in) provided by financing activities		(3,548,544)		7,907,695
Net decrease in cash and cash equivalents		(1,792,085)		(1,996,745)
Cash and cash equivalents at beginning of period		6,447,402		7,201,758
Cash and cash equivalents at end of the period	$	4,655,317	$	5,205,013

Supplemental data:
Interest paid	$	443,581	$	238,192
Non-cash investing activities:
Property and equipment in accounts payable and accrued expenses	$	4,600,000	$	—
Crackle Plus business combination	$	—	$	51,672,531
Reconciliation of cash and cash equivalents to the condensed consolidated balance sheets
Cash and cash equivalents	$	4,655,317	$	4,455,013
Restricted cash		—		750,000
Total cash, cash equivalents and restricted cash per statements of cash flows	$	4,655,317	$	5,205,013

Preferred Stock Common Stock
Class A Class B Additional Retained
Par Par Par Paid-In (Deficit) Treasury
Shares Value Shares Value Shares Value Capital Earnings Stock Total

Balance, December 31, 2017 $ - 4,096,353 $ 409 7,863,938 $ 786 $ 36,584,575 $ 9,421,619 $ - $ 46,007,389
Share based compensation - stock options 254,195 254,195
A Plus Tax adjustment (29,284 ) (29,284 )
Net loss (884,902 ) (884,902 )
Balance, March 31, 2018 - - 4,096,353 409 7,863,938 786 36,838,770 8,507,433 - 45,347,398
Share based compensation - stock options 239,005 239,005
Conversion of Class B Shares to Class A 42,200 4 (46,700 ) (4 ) 0
Class A shares issued to directors 5,700 1 1
Purchase of treasury stock (632,729 ) (632,729 )
A Plus Tax adjustment (66,096 ) (66,096 )
Issuance of preferred stock 600,000 60 14,999,940 15,000,000
Preferred stock issuance costs (1,346,561 ) (1,346,561 )
Net loss (1,667,457 ) (1,667,457 )
Balance, June 30, 2018 600,000 $ 60 $ 4,144,253 $ 414 $ 7,817,238 $ 782 $ 50,731,154 $ 6,773,881 $ (632,729 ) $ 56,873,561

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

~~Chicken Soup for the Soul Entertainment, Inc~~

~~Consolidated Statements of Cash Flows~~

~~(unaudited)~~

Six Months Ended June 30,
2019 2018*

Cash flows from Operating Activities:
Net (loss) income $ (7,891,013 ) $ (2,552,359 )
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation 490,944 493,200
Amortization of programming costs and rights 269,971 850,501
Amortization of deferred financing costs 51,647 14,290
Amortization of fixed assets and acquired intangibles 935,614 48,154
Amortization of film library 2,260,861 2,622,532
Bad debt (Recovery) expense 518,515 586,144
Deferred income taxes (801,000 ) 157,000
Changes in operating assets and liabilities:
Trade accounts receivable (7,400,171 ) (143,740 )
Prepaid expenses and other current assets (1,236,371 ) �� (101,970 )
Inventory (11,555 ) (108,159 )
Programming costs and rights (1,494,886 ) (2,405,566 )
Film library (8,101,768 ) (3,959,428 )
Accounts payable, accrued expenses and other payables 14,264,609 240,923
Film library acquisition obligations 2,837,500 1,577,200
Accrued participation costs (424,982 ) (94,384 )
Other liabilities (267,399 ) (39,152 )
Deferred revenue (6,469 ) 385,000
Net cash used in operating activities (6,005,953 ) (2,429,814 )
Cash flows from Investing Activities:
Payment for business acquisition, net of cash acquired -
(Increase) decrease in due from affiliated companies (3,898,487 ) 315,549
Net cash (used in) provided by investing activities (3,898,487 ) 315,549

~~(continued on next page)~~

~~Chicken Soup for the Soul Entertainment, Inc~~

~~Consolidated Statements of Cash Flows~~

~~(unaudited) Cont'd~~

Six Months Ended June 30,
2019 2018*

Cash flows from Financing Activities:
Proceeds from revolving credit facility from related party - 200,000
Repayments of senior secured term loan and revolving line of credit from third party (500,000 ) (1,700,000 )
Proceeds from commercial loan and third party line of credit - 7,500,000
Repayments of commercial loan - (83,333 )
Payment of preferred stock issuance costs (826,455 ) (1,114,779 )
Proceeds from issuance of common stock under equity plans 160,161
Payment of deferred financing costs (12,348 ) (388,258 )
Proceeds from issuance of Series A preferred stock 10,487,625 15,000,000
Common stock repurchases held in treasury - (632,729 )
Dividends paid to preferred stockholders (1,401,288 ) -
Net cash provided by financing activities 7,907,695 18,780,901
Net decrease in cash and cash equivalents (1,996,745 ) 16,666,636
Cash and cash equivalents at beginning of period 7,201,758 2,172,985
Cash and cash equivalents at end of the period $ 5,205,013 $ 18,839,621

Supplemental data:
Interest paid $ 238,192 $ 70,349
Noncash investing activities (Crackle Plus business combination) 51,672,531 -

Reconciliation of cash and cash equivalents and restricted cash per consolidated balance sheets to statements of cash flows
Per consolidated balance sheets:
Cash and cash equivalents $ 4,455,013 $ 18,839,621
Restricted cash 750,000 -
Total cash, cash equivalents and restricted cash per statements of cash flows $ 5,205,013 $ 18,839,621

* In accordance with ASC Subtopic 805-50 "Transactions between entities under common control", results of operations for the 2018 year have been retrospectively adjusted for the acquisition of A Plus on December 28, 2018 to furnish comparative information as required. The effects of intra-entity transactions have been eliminated as a part of the consolidation, where applicable.

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Description of the Business

Chicken Soup for the Soul Entertainment, Inc. (the “Company”) is a Delaware corporation formed on May 4, 2016. Chicken Soup for the Soul Productions, LLC, the Company’s predecessor and immediate parent company, was formed in December 2014 by Chicken Soup for the Soul, LLC (“CSS”), a publishing and consumer products company, and initiated operations in January 2015. The Company ~~was formed to create~~operates video-on-demand networks and is a ~~discrete entity focused on video content opportunities using the~~~~Chicken Soup for the Soul~~ ~~brand (the “Brand”). The Brand is owned~~leading global independent television and ~~licensed to the Company by CSS. Chicken Soup for the Soul Holdings, LLC (“CSS Holdings”), is the parent~~film distribution company ~~of CSS and the Company’s ultimate parent company.~~

On May 14, 2019, the company consummated a new streaming video joint venture known as Crackle Plus. Crackle Plus is an AVOD platform. The platform allows its users to view premium content, such as films and TV shows. The content is accessible through various internet connected digital devices such as mobile, tablet, smart TV and console. The platform primarily earns revenue from placing advertisements on its platform through direct and reseller channels, and on the behalf of its advertisement representation partners.

~~The Company creates and distributes video content under the Brand. The Company has an exclusive, perpetual and worldwide license from CSS to create and distribute video content under the Brand.~~

The Company is 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 enactmentwith one of the ~~JOBS Act until such time as those standards apply to private companies. The Company has irrevocably elected to avail itself of this exemption from new or revised accounting standards,~~largest independently owned television and ~~therefore, will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies.~~

film libraries.

The Company operates ~~and is managed by the chief operating decision maker as~~in one reportable segment, across two operations areas, the ~~production~~distribution and ~~distribution~~production of video ~~content.~~content for sale to others and for use on our owned and operated video on demand platforms. The Company currently operates in the United States and internationally and derives its revenue primarily in the United States. The Company has a presence in over 56 countries and territories worldwide. The chief executive officer of the Company is Mr. William J. Rouhana Jr.

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

The accompanying ~~unaudited~~interim condensed consolidated financial statements of Chicken Soup for the Soul Entertainment, Inc. have been prepared in ~~accordance~~conformity with accounting principles generally accepted ~~accounting principles~~ in the United States ~~of America (“GAAP”~~and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2020. These condensed consolidated financial statements are unaudited and ~~applicable~~have been prepared by the Company following the rules and regulations of the ~~Securities and Exchange Commission (“SEC”) regarding interim financial reporting.~~

SEC. Certain information and ~~note~~footnote disclosures normally included in ~~the~~ financial statements prepared in accordance with ~~GAAP~~U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted ~~pursuant to~~as permitted by such rules and ~~regulations. As such,~~regulations; however, the Company believes the disclosures are adequate to make the information ~~included~~presented not misleading.

The preparation of the condensed consolidated financial statements in ~~this quarterly report~~conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include revenue recognition, estimated film ultimate revenues, allowance for doubtful accounts, intangible assets, share-based compensation expense, valuation allowance for income taxes and amortization of programming and film library costs. The Company bases its estimates on ~~Form 10-Q~~historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.

The interim financial information is unaudited, but reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and ~~accompanying~~related notes included in the Company’s ~~report~~Annual Report on Form 10-K for the year ended December 31, ~~2018.~~

The condensed consolidated balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.

The unaudited condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company at June 30, 2019 and the2019. Interim results ~~of its operations for the three and six months ended June 30, 2019 and 2018.~~

~~The results of operations of any interim period~~ are not necessarily indicative of the results ~~of operations~~for a full year. Certain prior year amounts have been reclassified to ~~be expected~~conform to the current year presentation.

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the ~~full fiscal year.~~

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Note 3 – Summary of Significant Accounting Policies~~

~~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 Company’s significant estimates include those related to revenue recognition, accounts receivable allowances, intangible assets, share-based compensation expense, income taxes and amortization of programming and film library costs. 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.~~

~~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 June 30, 2019 and~~year ended December 31, 2018, the fair value of the Company’s financial instruments including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, accrued programming costs, film library acquisition costs and accrued participation costs, approximated their carrying value due primarily to the short-term nature of these instruments.2019.

~~Accounts Receivable~~

Accounts receivable are stated at the amount management expects to collect which is net of an allowance for doubtful accounts and video returns. An allowance for doubtful accounts is recorded based on a combination of historical experience, aging analysis and information on specific accounts. Account balances are written off against the allowance after all means of collections have been exhausted and the potential for recovery is considered remote. Accounts are considered past due or delinquent based on contractual terms and how recently payments have been received. Estimated losses resulting from doubtful accounts are reported as bad debt expense in the consolidated statements of operations. At June 30, 2019, and December 31, 2018, accounts receivable is presented net of allowance for doubtful accounts and video returns of $373,732, and $601,500, respectively. Bad debt (recovery) expense of $(22,936) and $52,519 was recorded in the condensed consolidated statements of operations for the three months ended June 30, 2019 and 2018, respectively, and $(54,877) and $140,151 for the six months ended June 30, 2019 and 2018, respectively. Provision for returns and allowances of $241,047 and $125,645 was recorded in the condensed consolidated statements of operations for the three months ended June 30, 2019 and 2018, respectively, and $573,391 and $445,994 for the six months ended June 30, 2019 and 2018, respectively.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Inventory~~

Inventory consists of DVD films held for resale to wholesale and retail customers. Inventory is stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Market value is based on net realizable value. When the net realizable value falls below its cost, a provision for write-downs is recorded.

~~Programming Costs~~

Programming costs include the unamortized costs of completed, in-process, or in-development long-form and short-form video content. 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 the 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 the series is still in production, five years from the date of delivery of the most recent episode, if later.

Programming costs are stated at the lower of amortized cost or estimated fair value. The valuation of programming costs is reviewed on a title-by-title basis, 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 discounted cash flows (“DCF”) methodology with assumptions for cash flows. Key inputs employed in the DCF methodology include estimates of a program’s 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 producing a particular program. The Company performs an annual impairment analysis for unamortized programming costs. 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 programming costs may be required as a consequence of changes in management’s future revenue estimates.

Included in cost of revenue in the condensed consolidated statements of operations for the three months ended June 30, 2019 and 2018 is amortization of programming costs totaling $34,640 and $80,100, respectively, and $96,438 and $850,501 for the six months ended June 30, 2019 and 2018, respectively. There was no impairment charge recorded in the three and six months ended June 30, 2019 and 2018.

~~Film Library~~

The film library represents the cost of acquiring film distribution rights and related acquisition and accrued participation costs. The film library is amortized using the individual-film-forecast method.

The film library is stated at the lower of unamortized cost or fair value. Amortization is based upon management’s best estimate of ultimate revenue. Amortization is adjusted when necessary to reflect increases or decreases in forecasted ultimate revenue.

~~Ultimate revenue time frame is determined based on the term of the related acquisition agreement. The Company generally acquires distribution rights covering periods of ten or more years.~~

Included in cost of revenue in the condensed consolidated statements of operations for the three months ended June 30, 2019 and 2018, is amortization of film library totaling $1,389,735 and $1,168,392, respectively, and $2,260,861 and $2,622,532 for the six months ended June 30, 2019 and 2018, respectively. For the three and six months ended June 30, 2019 and 2018, there was no impairment charge recorded.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Programming 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 presented at the lower of unamortized cost or estimated net realizable value on a program by program basis and amortized over the license period using a straight line method beginning with the first month of availability. Programming obligations represent the gross commitment amounts to be paid to program suppliers over the life of the contracts.

~~Included in the cost of revenue in the condensed consolidated statements of operations for the three and six months ended June 30, 2019 is program rights amortization totaling $173,533, respectively.~~

~~Acquisitions, Goodwill & Acquired Intangible Assets~~

We have made and expect to continue to make selective acquisitions. The valuation of potential acquisitions is based on various factors, including specialized know-how, reputation, competitive position and service offerings of the target businesses, as well as our experience and judgment.

The Company accounts for business combinations using the acquisition accounting method, which requires the determination of the fair value of the net assets acquired including tangible assets, identified intangible assets, liabilities assumed and any noncontrolling interest in the acquired business are recorded at their acquisition date fair values. Determining the fair value of assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates, including projections of future cash inflows and outflows, discount rates, asset lives and market multiples. The Company continually evaluates its estimates, including the assumptions, risks, and uncertainties inherent in estimates; however, the Company cannot ensure that these estimates will be accurate. If the Company subsequently determines that the estimates are not accurate, it will be required to record an impairment charge. Considering the characteristics of AVOD and film distribution companies, the Company’s acquisitions to date did not have significant amounts of tangible assets, as the principal asset typically acquired is talent and customer relationships. As a result, a substantial portion of the purchase price is allocated to other intangible assets including goodwill where appropriate.

Changes to the original estimates may be required during the life of an asset. The Company reviews goodwill and other intangible assets with indefinite lives not subject to amortization at least annually and whenever events or significant changes in circumstances indicate that the carrying value may not be recoverable, an impairment charge is recorded. As of the June 30, 2019 no indicators of impairment have been identified and thus no impairment charge has been recorded.

~~Goodwill and Acquired Intangible Assets consist of the following,~~

~~Video Content License~~

The Company has been granted a perpetual, exclusive, sublicensable license from CSS to utilize the Brand and related content, for visual exploitation on a worldwide basis (“Perpetual License”). The Company paid a purchase price of $5,000,000 for the Perpetual License in 2016, which approximated the cost of the licensed content to CSS. The Company has recorded the initial purchase price of the Perpetual License at the estimated cost to CSS.

~~Popcornflix Film Rights and Other Assets~~

Popcornflix film rights and other assets represent the direct-to-consumer online video service and application platform comprised of five ad-supported networks with rights to over 3,000 films and approximately 60 television series. Popcornflix is an indefinite-lived intangible and is not subject to amortization but annual impairment analysis.

~~Pivotshare~~

~~Acquired intangible assets of Pivotshare represent the fair value of its installed customer base, the non-compete obligation of the former chief executive officer and goodwill.~~

The installed customer base and the non-compete obligation are stated at the lower of unamortized cost or fair value. Amortization is based upon management’s best estimate of useful lives, which is five years for the installed customer base and three years for the non-compete, which is the period it is in effect.

~~A Plus~~

~~The Company recorded goodwill from the acquisition of A Plus which resulted from the portion of the purchase price in excess of the net assets purchased as of the initial acquisition date.~~

~~Crackle Plus~~

~~Intangible assets as a result of the Crackle Plus Joint Venture represent the fair value of its brand value, customer user base, content rights, partner agreements and goodwill.~~

The Crackle Plus intangibles are stated at the lower of unamortized cost or fair value. Amortization is based upon management’s best estimate of useful lives, which is 3-7 years for the customer user base, content rights and partner agreements and indefinite for the brand value.

~~Income Taxes~~

The Company records income taxes under the asset and liability method. 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 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 income in the period that includes the enactment date.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

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 condensed consolidated statements of operations. At June 30, 2019 and 2018, the Company did not have any unrecognized tax benefits or liabilities.

~~Long-Lived Assets~~

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset 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.

~~Film Library Acquisition Obligations~~

Film library acquisition obligations represent amounts due in connection with the Company acquiring film distribution rights. Pursuant to the film distribution rights agreements, the Company’s right to distribute films may revert to the licensor in the event that the Company is unable to satisfy its financial obligations with respect to the acquisition of the related distribution rights.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Ad Representation Fees Payable~~

~~Included in cost of revenue are advertisement representation fees earned by the Ad Rep Partners and license fees payable to third parties and amortization associated with programming rights.~~

~~Accrued Participation Costs~~

The Company accrues for participation costs payable to production companies and producers based on the respective agreements. Amounts payable to production companies and producers are calculated based on gross revenue for each film after exceeding certain minimum targets. In addition, the Company must recoup its original investment in each film before such payments are due. Accrued participation costs are capitalized and amortized as part of the film library.

~~Revenue Recognition~~

~~Online Networks~~

Revenue from AVOD and online digital distribution platforms are recorded and invoiced when monthly activity is reported by advertisers or third party agencies. The Company earns revenues on a cost-per-mille basis (“CPM basis”) as ad impressions are run on the inventory sold to ad agencies and as ad impressions are run on the ad inventory made available to resellers. The company considers ad agencies and resellers as customers in these transactions and therefore revenue is presented as gross receipts from the agencies and resellers. In addition, advertising representation revenues are commission fees that the Company earns for selling ad inventory on behalf of third party over-the-top platforms. The Company earns revenues as placed advertisements are run on the available ad inventory of its Ad Rep Partners. Advertising representation revenues are presented as the gross receipts from advertisers and the amount remitted to the Ad Rep Partners are recorded as cost of sales.

Revenue earned on the distribution of third parties’ streaming content by Pivotshare is reported on a net basis as the Company’s performance obligation is to facilitate a transaction between third party content producers and customers, for which we earn a commission based on revenue share (see Note 6). Revenue from digital online media distribution is included in online networks in the accompanying condensed consolidated statements of operations.

The Company generally invoices customers in arrears on a monthly basis in accordance with the number of advertisements placed or impressions delivered during the month. The Company generally invoices customers when the right to consideration becomes unconditional, and as such, the only contract balances the Company recognizes are accounts receivable

~~Television and film distribution~~

The Company licenses and distributes multi-film packages to its customers. Revenue from multi-film sales is allocated on a per title basis and recognized upon initial availability for exploitation by customers. In addition, the Company distributes DVDs and similar media to its customers. The Company recognizes revenue upon shipment of DVD units or similar media units to its customers. Provision for future returns and other allowances are established based upon historical experience. For theatrical releases, revenue is recorded after the theatrical release date and when box office proceeds reports are received. Revenue from the distribution of multi-film packages and DVDs and similar media is included in television and film distribution in the accompanying condensed consolidated statements of operations.

~~Television and short-form video production~~

~~The Company recognizes revenue from the production and distribution of television programs and short-form video content in accordance with Accounting Standards Codification Topics, ASC 606:~~~~Revenue from contracts with customers~~ ~~and ASC 926:~~~~Entertainment – Films~~ as amended. For episodic television programs, revenue is recognized as each episode becomes available for delivery or becomes available for broadcast, and for short-form online videos, revenue is recognized when the videos are posted to a website for viewing. Revenue from the distribution of short-form online media content is included in television and short-form video production revenue in the accompanying condensed consolidated statements of operations.

~~Cash advances received by the Company are recorded as deferred revenue until all the conditions of revenue recognition have been met.~~

~~Share-Based Payments~~

~~The Company accounts for share-based payments in accordance with ASC 718:~~~~Share-based Compensation~~, which establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Under the provisions of the authoritative guidance, share-based compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period, net of estimated forfeitures. Shares issued for services are based upon current selling prices of the Company’s Class A common stock or independent third party valuations.

The Company estimates the fair value of share-based instruments using the Black-Scholes option-pricing model. All share-based awards will be fulfilled with new shares of Class A common stock. For the three and six months ended June 30, 2019 and 2018, share-based awards were issued to non-employee directors and individuals for services rendered and were recorded at fair value.

~~Advertising Costs~~

~~Generally, advertising costs are expensed as incurred except for the advertising costs associated with the Company’s theatrically released titles which the Company is obligated to reimburse.~~

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Total advertising costs for the three months ended June 30, 2019 and 2018 was $835,225 and $50,699, respectively, and $1,348,722 and $275,141 for the six months ended June 30, 2019 and 2018, respectively. These costs are capitalized as part of the film library acquisition costs and are amortized as such.

~~Earnings (Loss) Per Share~~

Basic net income (loss) per common share is computed based on the weighted average number of shares of all classes of common stock outstanding. Diluted net loss per common share is computed based on the weighted average number of common shares outstanding increased, when applicable, by dilutive common stock equivalents, comprised of Class W warrants, Class Z 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.

Note 43 – Recent Accounting Pronouncements

Recently Issued Accounting Standards

In March 2019, the Financial Accounting Standards Board (“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

Table of Contents

Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

disclosure requirements under the current film and broadcaster entertainment industry guidance. The new guidance is effective for the Company’s interim and annual reporting periods starting in the fiscal year beginning after December 15, 2020, with early adoption permitted. The new guidance will be applied on a prospective basis. ~~The Company is currently in~~Based on the ~~process of evaluating~~Company’s preliminary assessment, the impact ~~if any,~~ of ~~this new guidance on its consolidated financial statements.~~implementation is not expected to be material.

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. The new guidance is effective for the Company’s interim and annual reporting periods starting in the fiscal year beginning after December 15, 2020, ~~for the Company,~~ with early adoption permitted. The new guidance should be applied retrospectively to the date of initial application of the new revenue guidance in Topic 606 (January 1, 2018 for the Company). The Company does not expect the adoption of the amendments to have a material impact on its condensed 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. The new guidance is effective for interim and annual reporting periods starting in fiscal year 2020 for the Company, with early adoption permitted. The new guidance should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company impact of adoption on its condensed consolidated financial statements is immaterial.

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. 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 condensed 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 is effective for public companies’ fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. Because the Company is an emerging growth company, adoption is not required until fiscal years beginning after December 15, ~~2019.~~2020, and interim periods within fiscal years beginning after December 15, 2021 as recently voted and deferred by FASB. The Company is currently assessing the potential impact ASU 2016-02 will have on its consolidated financial statements. ~~The~~Based on the Company’s preliminary assessment, the impact of implementation is ~~not~~ expected to ~~be material.~~have a material impact on its condensed consolidated financial statements. If adopted, the Company estimates the right-of-use lease asset and corresponding lease liability will each total approximately $15,800,000, respectively, as of June 30, 2020. The Company does not expect adoption to have any material impact on its results from operations and financial condition.

~~Recently Adopted Accounting Standards~~

~~In June 2018, the FASB~~The Company does not believe other recently issued ~~(“ASU”) 2018-07,~~~~Compensation – Stock Compensation Topic 718: Improvements to Nonemployee Share-Based Payment Accounting~~, which is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to nonemployees. Under the new guidance, equity-classified nonemployee awards are to be measuredbut not yet effective accounting standards, if currently adopted, would have a material effect on the ~~grant date, rather than on the earlier~~condensed consolidated financial statements.

Table of (1) the performance commitment date or (2) the date at which the nonemployee’s performance is complete. ASU 2018-07 is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2018 for public entities and after December 15, 2019 for all other entities. Early adoption is permitted but not before an entity adopts~~ASC 606. The Company has adopted ASC 606 on January 1, 2019 and the impact of implementation was not material.~~Contents

~~In May 2014, the FASB issued ASU 2014-09,~~~~Revenue from Contracts with Customers (Topic 606)~~ which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. For public entities, this standard is effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods). For all other entities, this standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments may be applied retrospectively to each prior period (full retrospective) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective). The Company has adopted ASU 2014-09 in the first quarter of 2019 and has applied the modified retrospective method. No adjustment was recorded to opening retained earnings given the lack of change to the company’s accounting for revenue with contracts with customers.

~~Refer to “Note 6 Revenue Recognition” for details of the impact and required disclosures.~~

Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 54 – Business Combination

~~On May 14, 2019, Chicken Soup for the Soul Entertainment, Inc. (the “~~The Company”) consummated ~~(the “Closing~~”) the creation of ~~a joint venture entity to be branded “~~~~Crackle Plus~~~~”, contemplated by the previously announced Contribution Agreement, dated as of March 27, 2019 (the “Contribution Agreement”) by and among the Company,~~its Crackle Plus ~~LLC, a Delaware limited liability company (the “JV Entity”),~~subsidiary on May 14, 2019. In consideration for assets contributed to Crackle Plus by CPE Holdings, Inc. (“~~CPEH~~”CPEH”), a Delaware corporation and affiliate of Sony Pictures Television Inc. (“~~Sony~~”Sony”), and Crackle, Inc., a Delaware corporation and wholly owned subsidiary of CPEH (“~~Crackle~~”Crackle”)~~. The Contribution Agreement provides, among other things, for the creation of a new streaming video joint venture to be branded “~~, Crackle Plus~~” and for the contribution by CPEH and its affiliates of certain U.S. and Canadian assets of the~~ ~~Crackle~~ branded advertising-based video on demand streaming business to the JV Entity and for the contribution by the Company and its affiliates of certain assets of their advertising-based and subscription-based video on demand businesses to the JV Entity.

~~Pursuant to the Contribution Agreement, upon Closing the JV Entity~~ issued to Crackle 37,000 units of preferred equity (“Preferred Units”) and 1,000 units of common equity (“Common Units”) of, which are now held by CPEH. In consideration for assets contributed to Crackle Plus by the ~~JV Entity (“~~Company, Crackle ~~JV Interest”) and~~Plus issued to the Company 99,000 Common Units. ~~The JV Entity is governed by the terms of an amended and restated operating agreement entered into upon Closing by the JV Entity and the Company and Crackle as members of the JV Entity,~~ From May 2020 to October 2020 (“Exercise ~~Period~~”Period”), ~~Crackle~~CPEH will have the right to either convert its ~~preferred equity~~Preferred Units into ~~common equity~~Common Units of Crackle Plus or require us to purchase all, but not less than all, of its interest in Crackle Plus (“Put ~~Option~~”Option”). We may elect to pay ~~for such interest~~the put option in cash or through the issuance of our 9.75% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred ~~Stock~~Stock”) using a price per share of $25. Subject to certain limitations, in the event that ~~Crackle~~CPEH hasn’t converted its ~~preferred equity~~Preferred Units into ~~common equity~~Common Units of Crackle Plus or exercised its Put Option, Crackle shall be deemed to have automatically exercised the Put Option on the last day of the Exercise Period.

~~Additionally, pursuant~~As additional consideration to ~~the Contribution Agreement, upon Closing~~CPEH, the Company issued to CPEH warrants to purchase (a) Eight Hundred Thousand (800,000) shares of the Class A common stock of the Company at an exercise price of $8.13 per share (the “~~CSSE~~“CSSE Class I ~~Warrants~~”Warrants”), (b) warrants to purchase One Million Two Hundred Thousand (1,200,000) shares of the Class A common stock of the Company at an exercise price of $9.67 per share, (the “~~CSSE~~“CSSE Class II Warrants”); (c) warrants to purchase Three Hundred Eighty Thousand (380,000) shares of the Class A common stock of the Company at an exercise price of $11.61 per share, (the “~~CSSE~~“CSSE Class III-A ~~Warrants~~”Warrants”); and (d) warrants to purchase One Million Six Hundred Twenty Thousand (1,620,000) shares of the Class A common stock of the Company at an exercise price of $11.61 per share, (the “~~CSSE~~“CSSE Class III-B ~~Warrants~~”Warrants”). All of the CSSE Warrants have a five-year term commencing on the closing and are exercisable at any time and from time to time during such term immediately, except for the CSSE Class III-B Warrants, which only will become exercisable upon approval by the vote of the holders of the outstanding common stock of the Company, as required by Nasdaq rules.

term.

The ~~acquisition is~~Crackle Plus transaction was accounted for as a purchase of a business ~~under~~in accordance with FASB ASC 805, Business Combinations and the aggregate purchase price consideration of ~~$51.7 million~~$51,672,531 has been allocated to assets acquired and liabilities assumed, based on management’s analysis and information received from an independent third-party appraisal.

The initial purchase price allocation was preliminary ~~results are~~and subject to change up to one year after the date of acquisition. The final allocation of the purchase price to the fair values of the assets acquired and liabilities assumed at the date of the acquisition was as follows:


	May 14, 2019
Accounts receivable, net	$	5,360,667
Prepaid expenses		892,200
Programming Rights		1,155,363
Goodwill		18,911,027
Brand Value		18,807,004
Customer User Base		21,194,641
Content Rights		1,708,270
Partner Agreements		4,005,714
Assets acquired		72,034,886
Accounts payable and accrued expenses		(13,061,494)
Programming Obligations		(7,300,861)
Liabilities assumed		(20,362,355)
Total purchase consideration	$	51,672,531

~~Purchase price consideration allocated to fair value of net assets acquired:~~

Accounts receivable, net $ 5,360,667
Prepaid expenses 892,200
Programming Rights 1,155,363
Goodwill 8,278,710
Brand Value 30,487,527
Customer User Base 12,900,088
Content Rights 2,576,140
Partner Agreements 5,498,533
Assets acquired 67,149,228
Accounts payable and accrued expenses (8,175,835 )
Programming Obligations (7,300,862 )
Liabilities assumed (15,476,697 )
Total purchase consideration $ 51,672,531

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

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The amount related to other intangible assets represents the estimated fair values of the brand (trademark), customer user base, content rights, and partner agreements. These long lived assets are being amortized on a straight-line basis over their estimated useful lives of ~~3-7 years. The impact of the intangible asset amortization has been included as adjustments within the presented periods of unaudited pro forma statements of operations.~~

16-84 months.

Goodwill iswas 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 Company has preliminarily estimated $62.1 million of Goodwill in connection with the Crackle transaction.~~

The fair values of assets acquired, and liabilities assumed were based upon ~~preliminary~~ valuations performed for the preparation of the pro forma financial information and are subject to the final valuations. These estimates and assumptions are subject to change within the measurement period as additional information is obtained. A decrease in the fair value of the assets acquired or liabilities assumed in the Crackle transaction from the preliminary valuations presented would result in dollar for dollar corresponding increase or decrease, as applicable, in the amount of goodwill resulting from the transaction. In addition, if the value of the other intangible assets is higher than the amount included in these unaudited pro forma condensed combined financial statements, it may result in higher amortization expense than is presented herein. Any such increases could be material and could result in the Company’s actual future financial condition or results of operations differing materially from that presented herein. As permitted, the final determination of these estimated fair values will be completed as soon as possible but no later than one year from the acquisition date when the Company has completed the detailed valuations and calculations.by independent third party valuation experts.

Purchase Price Consideration Allocation:


Fair Value of Preferred Units	$	36,350,000	$	36,350,000
Fair Value of Warrants in CSSE		10,899,204		10,899,204
Fair Value of Put Option		4,423,327		4,423,327
Total Estimated Purchase Price	$	51,672,531	$	51,672,531

The purchase price paid by the Company reflects the total consideration given in return for the ownership share available to ~~affiliates of Sony~~CPEH in the entity. Consideration given has been calculated at the fair market value of the Crackle Plus Preferred ~~Units in the JV;~~Units; the four CSSE tranches of warrants and the Put ~~option.~~Option. The Company valued the securities based on the terms of the Contribution Agreement and the use of the Black Scholes model valuation technique on each of the respective components as follows,

The ~~preferred units~~Preferred Units have a stated value at the time of the acquisition of $36.35 million, as set forth in the Crackle Plus Operating Agreement;

The four (4) tranches of CSSE warrants were individually valued based on the Black Sholes valuation model using their respective terms and strike prices (ranging from a 5% to 50% premium over the initial market price of $7.74). Each tranche used a volatility of 58% and a 5-year risk free rate of 2.2%;

The Put Option was valued via the Black-Sholes valuation model assuming an initial price of $36.35 million, strike price of $40M, volatility of 17% and term of 1.5 years reflecting the latest time the Put Option could be exercised or triggered.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

All consideration transferred has been determined to represent equity-classified contingent consideration and has been measured at fair value as of the acquisition date. Equity-classified contingent consideration is not remeasured following the acquisition date, and its subsequent settlement is accounted for within equity. The equity classification has been determined based on the terms of the transaction.

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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


	Three Months Ended June 30,

	2020		2019
Gross revenue	$	5,852,767	$	9,421,629
Gross margin	$	(45,092)	$	3,159,812
Net (loss) income	$	(4,119,889)	$	423,566


	Six Months Ended June 30,

	2020		2019
Gross revenue	$	15,142,012	$	9,421,629
Gross margin	$	2,320,711	$	3,159,812
Net (loss) income	$	(10,137,921)	$	423,566

Note 65 – 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 as we satisfy contractual performance obligations at a point in time or over time. Our contractual performance obligations include ~~the distribution of film content, production of episodic television series,~~ licensing of content and delivery of online advertisements on our owned and operated VOD ~~platforms.~~platforms, the distribution of film content and production of episodic television series. 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 do not include any variable consideration or financing components in our normal course of business. Sales tax, value added tax, and other taxes that are collected concurrently with revenue producing activities are excluded from revenue.

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following tables disaggregates our revenue by ~~major category:~~operations area:

	Three Months Ended June 30,
	2019			% of revenue			2018			% of revenue

													Three Months Ended June 30,
																			% of
													2020		% of revenue		2019		revenue
Revenue:
Online networks	$	10,009,078			84	%	$	899,197			30	%	$	5,360,693	40	%	$	10,009,078	84	%
Television and film distribution		1,975,711			16	%		2,031,818			67	%
Television and short-form video production		226,740			2	%		229,622			7	%

Distribution and Production														8,537,956	63	%		2,202,451	18	%
Total revenue		12,211,529			102	%		3,160,637			104	%		13,898,649	103	%		12,211,529	102	%

Less: returns and allowances		(241,047	)		-2	%		(125,645	)		-4	%		(378,109)	(3)	%		(241,047)	(2)	%

Net revenue	$	11,970,482			100	%	$	3,034,992			100	%	$	13,520,540	100	%	$	11,970,482	100	%


	Six Months Ended June 30,
							% of
	2020		% of revenue		2019		revenue
Revenue:
Online networks	$	14,386,403	54	%	$	10,744,342	76	%
Television and film distribution		13,630,745	51	%		3,992,685	28	%
Total revenue		28,017,148	105	%		14,737,027	104	%
Less: returns and allowances		(1,252,535)	(5)	%		(573,391)	(4)	%
Net revenue	$	26,764,613	100	%	$	14,163,636	100	%

Six Months Ended June 30,
2019 % of
revenue 2018 % of
revenue
Revenue:
Online networks $ 10,744,342 76 % $ 1,530,212 17 %
Television and film distribution 3,444,990 24 % 5,274,965 60 %
Television and short-form video production 547,695 4 % 2,436,161 28 %

Total revenue 14,737,027 104 % 9,241,338 105 %

Less: returns and allowances (573,391 ) -4 % (445,994 ) -5 %

Net revenue $ 14,163,636 100 % $ 8,795,344 100 %

Online Networks

In this ~~business~~operations area, ~~we distribute~~the Company distributes and ~~exhibit~~exhibits VOD content through Crackle Plus directly to consumers across all digital platforms, such as connected TV’s, smartphones, tablets, ~~smart TVs,~~ gaming consoles and the web through our ~~subsidiaries~~owned and operated AVOD ~~networks including~~ Crackle ~~Popcornflix® and Truli. We generate advertising revenues primarily by delivering video advertisements to our streaming viewers.~~Plus networks. We also distribute our own and third-party owned content to ~~end users~~consumers across various digital platforms through our ~~subsidiaries and operated~~ SVOD network, Pivotshare.

We generate advertising revenues primarily by serving video advertisements to our streaming viewers on our AVOD networks and subscription revenue from customers on our SVOD network.

Revenue from online digital distribution and VOD platforms in our Online Networks operations area are recorded over time as advertisements are delivered and when monthly activity is reported by advertisers. ~~Revenue from all digital media distribution is included in online networks in the accompanying consolidated statements of operations.~~

Television and Film Distribution

and Production

In this ~~business~~operations area, ~~we distribute~~the Company distributes movies and television series worldwide, through Screen Media, to consumers through license agreements across all media, including theatrical, home video, pay-per-view, free, cable, pay television, VOD, mobile and new digital media platforms worldwide.

~~The Company licenses~~ We own the copyright or long-term distribution rights to over 1,000 television series and ~~distributes multi-film packages to its customers. Revenue from multi-film sales is allocated on a per title basis and recognized upon initial availability for exploitation by customers. In addition,~~feature films, representing one of the ~~Company distributes DVDs and similar media to its customers. The Company recognizes revenue upon shipment~~largest independently owned libraries of DVD units or similar media units to its customers. Provision for future returns and other allowances are established based upon historical experience. Revenue from the distribution of multi-film packages and DVDs and similar media is included in television and film distributionfilmed entertainment in the ~~accompanying consolidated statements of operations.~~world.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Television and Short-Form Video Production~~

~~In this business area,~~Historically, we ~~work~~produced content in two main ways: we worked with sponsors and ~~use~~used highly regarded independent producers to develop and produce our television and short-form video content, including Brand-related content. We also ~~derive~~derived revenue from our subsidiary, A Plus, which develops and distributes high-quality, empathetic short-form videos to millions of people worldwide. AAs a result of launching Crackle Plus, ~~enhances~~we decided to change our ~~ability~~approach to ~~distribute short form versions~~content production, focusing primarily on co-production partnerships in order to build our AVOD networks, through Crackle Plus, and our worldwide distribution capabilities through Screen Media. By focusing this way, we believe that we will be able to grow our business more rapidly by entering into production agreements with a variety of production partners. In October 2019, we launched Landmark Studio Group, our ~~video productions~~first production co-venture subsidiary. Landmark Studio Group is a fully

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

integrated entertainment company focused on ownership, development, and ~~video library and provides us with content developed and distributed by A Plus that is complementary to the Brand.~~

production of quality entertainment franchises.

The Company recognizes revenue from the production and distribution of television programs and short-form video content as each episode becomes available for delivery or becomes available for broadcast, and for short-form online videos, revenue is recognized when the videos are posted to a website for viewing. Revenue from the distribution of short-form online media content is included in television and short-form video production revenue in the accompanying consolidated statements of operations. Cash advances received by the Company are recorded as deferred revenue until all performance obligations have been satisfied.

For all customer contracts, ~~we evaluate~~the Company evaluates whether we are the principal (i.e., report revenue on a gross basis) or the agent (i.e., report revenue on a net basis). Generally, ~~we report~~the Company reports revenue for show productions, films distributed, 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 publishers is recorded as a cost of revenue). ~~We are~~The Company is the principal because we control the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory, being primarily responsible to our customers, having discretion in establishing pricing, or a combination of these factors. WeThe Company also ~~generate~~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 content or the ad inventory.

No impairment losses have arisen from any CSSE contracts with customers during the three and six months ended June 30, 2020 and 2019.

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. Our 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 ~~Assets and Contract Liabilities (Deferred Revenues)~~balances include the following:


	June 30,		December 31,
	2020		2019
Accounts receivable, net	$	15,717,939	$	23,266,611
Contract assets (included in accounts receivable)		6,855,493		11,394,508
Total accounts receivable, net	$	22,573,432	$	34,661,119

Deferred revenue (included in other liabilities)	$	994,580	$	—

~~The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers:~~

June 30,
2019 January 1,
2019
Contract Assets $ 19,722,755 $ 12,841,099
Contract Liabilities $ - $ 6,469

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Contract assets are primarily comprised of contract obligations that are generally satisfied ~~annually~~over time under the terms of our contracts with customers and are transferred to accounts receivable when the right to payment becomes unconditional. Contract liabilities relate to advance consideration received from customers under the terms of our contracts primarily

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

related to cash payments received in advance of satisfaction of the contractual performance obligation.

We generally receive payments from customers based upon contractual billing ~~schedules; accounts receivable is recorded when the right to consideration becomes unconditional.~~ schedules and arrangements.

Contract receivables are recognized in the period the Company ~~provides services when~~performs the agreed upon performance obligations and the Company’s right to consideration isbecomes unconditional. Payment terms vary by the type and location of our customer and the products or services ~~offered.~~provided. Payment terms for amounts invoiced are typically net ~~30-60~~30 or 60 days. The term between invoicing and when payment is due is not significant. ~~The Company had no material bad debt expense recorded during the three and six months ended June 30, 2019.~~

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 customers for terms that include minimum guarantees which are contractual obligations for payment over a period of time that may extend past one year at a variable rate of payment – based on ~~sales.~~sales or collections. These minimum guarantees are generally collectible via royalty payments at an agreed rate which are collected on a monthly or quarterly basis. Contractual arrangements containing minimum guarantees are evaluated on a contract by contract basis for the need for present value treatment. As of the financial statement date no material arrangements requiring financing treatment have been identified.

~~We record~~The Company records deferred revenues (also referred to as contract liabilities under Topic 606) when cash payments are received or due 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. ~~The Company’s deferred revenue (i.e. contract liabilities) as of June 30, 2019 and January 1, 2019 was $0 and $6,469, respectively.~~ These contract liabilities are recognized as revenue as the related performance obligations are satisfied. No significant changes in the timeframe of the satisfaction of contract liabilities have occurred during the three and six months ended June 30, ~~2019.~~

2020.

Arrangements with multiple performance obligations

In contracts with multiple performance obligations, ~~we identify~~the Company identifies each performance obligation and ~~evaluate~~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.

Practical expedients

The Company has elected to use the practical expedient under the relevant accounting guidance to omit disclosure of remaining (or partially unsatisfied) performance obligations as the related contracts have an original expected duration of one year or less.

The Company has elected to use the practical expedient under the relevant accounting guidance to expense sales commissions as incurred because the amortization period is generally one year or less. These commission costs are recorded within Selling, general and administrative expenses.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

~~Note 7 – Episodic Television Programs~~

~~(a)~~ ~~In September 2014, CSS and a charitable foundation (the “Foundation”), entered into an agreement under which the Foundation agreed to sponsor a Saturday morning family television show,~~~~Chicken Soup for the Soul’s Hidden Heroes (“Hidden Heroes”)~~~~, a half-hour hidden-camera family friendly show that premiered on the CBS Television Network (“CBS”). The Foundation has funded four seasons of~~~~Hidden Heroes~~.~~Hidden Heroes~~ ~~was nominated for an Emmy award for “Outstanding Children’s or Family Viewing Series” in March 2019.~~

~~(b)~~ ~~In September 2015, CSS Productions received corporate sponsorship funding from a company (the “Sponsor”), to develop the Company’s second episodic television series entitled~~~~Project Dad, a Chicken Soup for the Soul Original~~(“~~Project Dad~~~~”).~~~~Project Dad~~ ~~presents three busy celebrity dads as they put their careers on the “sidelines” and get to know their children like never before. The~~~~Project Dad~~ ~~slate is comprised of eight, one-hour episodes that aired weekly on Discovery Communications, LLC’s Discovery Life network in November and December 2016. In addition, in January 2017,~~~~Project Dad~~~~began airing on Discovery Communications, LLC’s TLC network.~~

~~In 2017, the Sponsor funded a new parenting series called~~~~Being Dad,~~ ~~our third episodic television show. In August 2018, the series began streaming on Netflix.~~

~~(c)~~ ~~On June 20, 2017, the Company entered into an agreement with HomeAway.com and received corporate sponsorship funding for our fourth episodic television series entitled~~~~Vacation Rental Potential.~~ This series, comprised of eight, one-hour episodes began airing on the A&E Network in November and December 2017. The show gives viewers the information needed to obtain their dream vacation. The show premiered on A&E Network in December 2017. Its second season aired on A&E Network.

~~(d)~~In July and August 2018, the Company signed agreements with Acorns Grow, Inc., Handy Technologies, Inc., Adobe Systems Inc., State Farm, and Chegg Inc. to sponsor the Company’s fifth episodic television series entitled~~Going From Broke. Ashton Kutcher is the executive producer of~~~~Going From Broke~~.~~Going From Brokeis expected to air on the Crackle Plus network in the fall of 2019.~~

The series is comprised of ten, half-hour episodes and thirty-two, one-minute short form videos. The essence of the show is to pair a financial expert with a twenty-something college graduate trying to make their way out of student and other debt and execute a plan that will lead to financial stability.

~~(e)~~ In December 2018, the company signed agreements with Chicken Soup for the Pet Lovers Soul, LLC (“Chicken Soup for the Soul Pet Food”), a related party, and American Humane, the country’s first national humane organization, to sponsor~~Chicken Soup for the Soul’s Animal Tales. The series began airing on The CW in January 2019.~~

Chicken Soup for the Soul’s Animal Tales consists of 15 half-hour episodes. Chicken Soup for the Soul Pet Food makes a complete line of super premium dog and cat food, made from the finest natural ingredients for every stage of pet life. American Humane has sponsored content with CSS Entertainment in the past, telling the heroic and inspiring stories of the safety, welfare, and well-being of animals. The series was renewed for a second season on May 13, 2019.

Note 86 – 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 ~~initially provided~~provides for the issuance of up to ~~one million (1,000,000)~~1,250,000 common stock equivalents subject to the terms and conditions of the Plan. ~~The Plan was amended on June 13, 2018 to increase the number of shares available under the Plan to 1,250,000 shares.~~ 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.

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company ~~recognized these~~recognizes stock options granted under the Plan 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 three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized ~~$250,097~~$198,023 and ~~$214,005,~~$250,097, respectively, and for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized ~~$440,944~~$411,608 and ~~$443,200,~~$440,944, respectively, of non-cash share-based compensation expense relating to stock options in selling, general and administrative expenses in the condensed consolidated statements of operations.

The company did not have any stock option grants, forfeitures, exercises or expirations during the six months ended June 30, 2020.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Stock options ~~activity~~ as of June 30, ~~2019 is~~2020 are as follows:

As of June 30, 2019
Number of
Stock Options Weighted
Average
Exercise Price Weighted
Average
Remaining
Contract Term
(Yrs.) Aggregate
Intrinsic Value

Total outstanding at December 31, 2018 662,500 $ 7.52 3.34 $ 332,100
Granted 490,000 8.30 4.65 -
Forfeited (33,334 ) 9.61 3.49 -
Exercised (16,666 ) 9.61 3.49 -
Expired - - - -

Outstanding at June 30, 2019 1,102,500 $ 7.77 3.62 $ 322,000

Vested and exercisable at June 30, 2019 565,420 $ 7.17 3.36 $ 314,087


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contract	Intrinsic
	Stock Options	Price		Term (Yrs.)	Value
Outstanding at December 31, 2019	1,032,500	$	7.73	3.33	$	576,000
Outstanding at June 30, 2020	1,032,500	$	7.73	2.79	$	137,250
Vested and exercisable at June 30, 2020	785,833	$	7.49	2.24	$	137,250

As of June 30, ~~2019~~2020 the Company had unrecognized pre-tax compensation expense of ~~$2,185,121~~$1,018,493 related to non-vested stock options under the Plan of which ~~$517,009, $901,378, $690,669~~$376,860, $582,347 and ~~$76,065~~$59,286 will be recognized in ~~2019,~~ 2020, 2021 and 2022, respectively.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

We used the following weighted average assumptions to estimate the fair value of stock options granted for the periods presented as follows:

	Six Months Ended June 30,

							Six Months Ended June 30,
Weighted Average Assumptions:	2019			2018			2020			2019

Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%
Expected equity volatility		56.0	%		57.2	%		56.1	%		56.0	%
Expected term (years)		5.00			2.57			5			5
Risk-free interest rate		2.23	%		2.05	%		2.22	%		2.23	%
Exercise price per stock option	$	7.77		$	7.63		$	7.73		$	7.77
Market price per share	$	7.34		$	6.95		$	7.27		$	7.34
Weighted average fair value per stock option	$	3.55		$	3.35		$	3.51		$	3.55

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 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~~under the Plan to directors, employees and ~~non-employee executive producers~~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

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

vesting period. For the three months ended June ~~31,~~30, 2020 and 2019, ~~and 2018,~~ the Company recognized ~~in selling, general and administrative expense,~~ non-cash share-based compensation expense relating to stock grants of $31,250 and $25,000, ~~respectively and for~~respectively. For the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized non-cash share-based compensation expense relating to stock grants of $62,500 and $50,000, ~~respectively.~~respectively

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Note ~~9 –~~7 - Earnings Per Share

~~A reconciliation~~Basic EPS is computed based on the weighted average number of shares ~~used~~of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period. The dilutive effect of outstanding common stock equivalents is reflected in ~~calculating basic~~diluted earnings per share by application of the treasury stock method.

Basic and diluted earnings per share ~~data is~~are computed as follows:


	Three Months Ended June 30,
	2020		2019
Net loss available to common stockholders	$	(10,010,127)	$	(5,916,077)
Basic weighted-average shares outstanding		12,007,428		11,984,296
Effect of dilutive securities:
Assumed issuance of shares from exercise of stock options^(a)		—		—
Assumed issuance of shares from exercise of warrants^(a)		—		—

Diluted weighted-average shares outstanding^(a)		12,007,428		11,984,296

Loss per share:
Basic and diluted	$	(0.83)	$	(0.49)

Three Months Ended
June 30,
2019 2018

Net (loss) income available to common stockholders $ (5,916,077 ) $ (1,667,457 )
Basic weighted-average shares outstanding 11,984,296 11,898,223
Effect of dilutive securities:
Assumed issuance of shares from exercise of stock options* -
Assumed issuance of shares from exercise of warrants* -

Diluted weighted-average shares outstanding* 11,984,296 11,898,223

Earnings per share:
Basic and diluted $ (0.49 ) $ (0.14 )

Six Months Ended
June 30,
2019 2018

Net (loss) income available to common stockholders $ (9,292,814 ) $ (2,552,359 )
Basic weighted-average shares outstanding 11,977,557 11,891,756
Effect of dilutive securities:
Assumed issuance of shares from exercise of stock options* -
Assumed issuance of shares from exercise of warrants* -

Diluted weighted-average shares outstanding* 11,977,557 11,891,756

Earnings per share:
Basic and diluted $ (0.78 ) $ (0.21 )

*(a) For the three ~~and six~~ months ~~ending~~ended June 30, 2020 and 2019, common stock equivalents totaling 83,282 and 147,244, respectively, were excluded from the calculation of diluted loss per share because their effect is anti-dilutive.


	Six Months Ended June 30,
	2020		2019
Net loss available to common stockholders	$	(21,437,507)	$	(9,292,814)
Basic weighted-average shares outstanding		12,006,013		11,977,557
Effect of dilutive securities:
Assumed issuance of shares from exercise of stock options^(a)		—		—
Assumed issuance of shares from exercise of warrants^(a)		—		—

Diluted weighted-average shares outstanding^(a)		12,006,013		11,977,557

Loss per share:
Basic and diluted	$	(1.79)	$	(0.78)

(a) For the six months ended June 30, 2020 and 2019, common stock equivalents totaling 91,829 and 107,054, respectively, were excluded from the calculation of diluted ~~(loss)~~loss per share because their effect is anti-dilutive.

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 108 – Programming Costs

Programming costs ~~net of amortization,~~and rights, consists of the following:

	June 30,		December 31,
	2019		2018

Released, net of accumulated amortization of $9,569,745 and $9,473,308, respectively	$	12,396,448	$	11,418,244

					June 30,		December 31,
					2020		2019
Programming costs released					$	22,344,720	$	21,254,720
In production		17,477		17,099		—		991,277
In development		1,601,479		1,355,146		3,267,613		1,896,209
	$	14,015,404	$	12,790,489
Accumulated depreciation						(9,746,686)		(9,682,935)
Programming costs, net						15,865,647		14,459,271

Programming rights						1,155,364		1,155,364
Accumulated depreciation						(602,703)		(501,061)
Programming rights, net						552,661		654,303

Total					$	16,418,308	$	15,113,574

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 employee salaries.

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 expense related to episodic television programs was $6,873 and $34,640 for the three months ended June 30, 2020 and 2019, respectively, and $63,751 and $96,437 for the six months ended June 30, 2020 and 2019, respectively.

During the three and six months ended June 30, 2020 and 2019, the Company did not record any impairments related to our programming costs.

Programming rights consists of licenses to various titles which the company makes available for streaming on Crackle for an agreed upon license period.

Amortization expense related to programming rights was $47,891 and $173,533 for the three months ended June 30, 2020 and 2019, respectively, and $101,642 and $173,534 for the six months ended June 30, 2020 and 2019, respectively.

Note 119 – Film Library

Film library costs, net of amortization, consists of the following:

	June 30,			December 31,
	2019			2018

							June 30,		December 31,
							2020		2019
Acquisition costs	$	41,278,570		$	33,176,802		$	67,926,409	$	51,270,615
Accumulated amortization		(10,099,161	)		(7,838,300	)		(26,820,939)		(18,020,466)
Net film library costs	$	31,179,409		$	25,338,502		$	41,105,470	$	33,250,149

Film library consists primarily of the cost of acquiring film distribution rights and related acquisition and accrued participation costs. Costs related to film distribution rights are amortized in the proportion that revenues bear to management’s estimates of the ultimate revenue expected to be recognized from various forms of exploitation.

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Film library amortization expense ~~recorded in the condensed consolidated statements of operations~~was $6,359,392 and $1,389,735 for the three months ended June 30, ~~2019~~2020 and ~~2018 was $1,389,735 and $1,168,393,~~2019, respectively, and ~~$2,260,861~~$8,800,473 and ~~$2,622,532~~$2,260,861 for the six months ended June 30, 2020 and 2019, respectively.

During the three and ~~2018, respectively.~~six months ended June 30, 2020 and 2019, the Company did not record any impairments related to our film library.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Note ~~12 –~~10 - Intangible Assets

Indefinite lived intangible assets, consists of the following:

	June 30,		December 31,
	2019		2018


					June 30,		December 31,
					2020		2019
Intangible asset - video content license	$	5,000,000	$	5,000,000	$	5,000,000	$	5,000,000
Popcornflix film rights and other assets		7,163,943		7,163,943		7,163,943		7,163,943
Crackle Plus Brand (Trademark)		30,487,527		-
	$	42,651,470	$	12,163,943
					$	12,163,943	$	12,163,943

Intangible assets, net, consists of the following:

	June 30,		December 31,
	2019		2018


					June 30,		December 31,
					2020		2019
Acquired customer base, net	$	1,889,449	$	2,118,473	$	1,431,401	$	1,660,425
Non-compete agreement, net		375,536		463,898		198,813		287,175
Website development, net		324,388		389,266		194,633		259,510
Crackle Plus Customer User Base		12,577,586		-
Crackle Plus Content Rights		2,511,737		-
Crackle Plus Partner Agreements		5,361,070		-
	$	23,039,766	$	2,971,637
Crackle Plus customer user base, net						3,311,663		11,259,653
Crackle Plus content rights, net						1,067,669		1,352,381
Crackle brand value, net						15,784,450		17,127,807
Crackle Plus partner agreements, net						3,104,428		3,505,000
					$	25,093,057	$	35,451,951

Amortization expense was $5,179,447 and $715,501 for the three months ended June 30, 2020 and 2019, respectively, and $10,358,894 and $906,633 for the six months ended June 30, 2020 and 2019, respectively.

As of June 30, 2020 amortization expense for the next 5 years is expected be:


Remainder of 2020	$	5,722,567
2021		4,755,536
2022		4,159,440
2023		3,774,138
2024		2,987,143
Thereafter		3,694,233
Total	$	25,093,057

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Goodwill consists of the following:


	June 30,		December 31,
	2020		2019
Goodwill: Pivotshare	$	1,300,319	$	1,300,319
Goodwill: A Plus		1,236,760		1,236,760
Goodwill: Crackle Plus		18,911,027		18,911,027
	$	21,448,106	$	21,448,106

There was no impairment recorded related to goodwill and intangible assets in the three and six months ended June 30, 2020 and 2019, respectively.

~~Goodwill consists of the following:~~

June 30, December
31,
2019 2018

Goodwill: Pivotshare $ 1,300,319 $ 1,300,319
Goodwill: A Plus 1,236,760 1,236,760
Goodwill: Crackle Plus 9,929,601 -
$ 12,466,680 $ 2,537,079

~~There were no impairments identified or recorded related to goodwill and intangible assets for any period presented.~~

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Note 1311 – Long-term Debt

Commercial Loan ~~Revolving Line of Credit and Senior Secured Revolving Line of Credit~~

~~Commercial Loan~~

On ~~April 27, 2018,~~August 22, 2019, the Company, entered into an amended and restated loan agreement with Patriot Bank, N.A. Under the Amended and Restated Loan Agreement, the Company’s outstanding $5,000,000 term loan and $3,500,000 line of credit were consolidated and combined into a term loan in the principal amount of $16,000,000 (the Commercial Loan”). As a result, the Company recognized a loss on extinguishment of $350,691 for the year ended December 31, 2019.

The Commercial Loan is evidenced by a consolidated, amended and restated term promissory note (“Note”). Subject to the terms of the Note, the Commercial Loan ~~totaling $7.5 million, comprised of a $5.0 million Term Loan and a $2.5 million Revolver. On December 27, 2018, the company increased the Revolver from $2.5 million to $3.5 million.~~

~~The Commercial Loan was advanced~~bears interest, payable monthly in ~~full on April 27, 2018 and matures on May 1, 2023. Borrowings under the Term Loan bear interest~~arrears, at a fixed rate of 5.75% per ~~annum~~annum. (which amount increased to 6.25% in March 2020 due to our failure to maintain a minimum cash deposit with ~~interest payable~~Patriot Bank, N.A.) The outstanding principal amount of the Commercial Loan is repayable in consecutive monthly ~~over a five-year period and was subject to a one-time commitment fee payment of $75,000. Principal is payable~~installments in equal ~~monthly installments~~amounts of ~~$83,333 over~~$266,667, which commenced on October 1, 2019 and continues on the same date of each subsequent month thereafter during the term of the Commercial Loan. The Commercial Loan matures on September 1, 2024.

On June 19, 2020, the Company entered into the First Amendment and Waiver to the Amended and Restated Loan Agreement (“Amendment”), pursuant to which Patriot Bank waived certain defaults under the Amended and Restated Loan Agreement, the Company agreed to furnish certain financial reports to Patriot Bank and Patriot Bank acknowledged the Company’s intention to consummate an underwritten public offering of bonds and use a ~~five-year period. Part~~portion of the proceeds of such offering to repay in full the ~~Commercial~~outstanding obligations under the Amended and Restated Loan ~~were used to fully repay $1.7 million~~Agreement.

Revolving Credit Facility

On October 11, 2019, the Company consummated the creation of ~~existing debt (see below)~~the majority owned subsidiary Landmark Studio Group. Through and ~~for general working capital purposes.~~in connection with the creation of the Landmark Studio Group subsidiary, the Company entered into a Revolving Credit Facility (“Revolving Credit Facility”) with Cole Investments VII, LLC. The ~~Revolver matures on April 26, 2021~~Revolving Credit Facility consists of a revolving line of credit in the amount of $5,000,000 and bears interest atof 8% per annum. The outstanding

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Chicken Soup for the ~~prime rate plus 1.5%, interest only~~Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

principal is ~~payable monthly over a three-year period, until such time as~~repayable in full on October 10, 2022, the maturity date. At the option of the lender, the loan is ~~renewed~~repayable in cash or ~~becomes due and~~additional equity in the subsidiary.

Long-term debt for the periods presented was subject to a one-time commitment fee payment of $37,500. The Revolver is subject to adjustment based upon eligible accounts receivable supporting such borrowing. Advances made under the Revolver are used for general working capital purposes.as follows:


	June 30,		December 31,
	2020		2019
Commercial Loan	$	13,600,000	$	15,200,000
Revolving Credit Facility		5,000,000		5,000,000
Total debt		18,600,000		20,200,000
Less: debt issuance costs		169,219		189,525
Less: current portion		3,200,000		3,200,000
Total long-term debt	$	15,230,781	$	16,810,475

As of June 30, 2019, the principal balance outstanding on the Term Loan is $3,916,667 and the Revolver balance is $3,500,000. The Term Loan and the Revolver are presented on the condensed consolidated balance sheets net of unamortized debt issuance costs of $295,255. For the three months ended June 30, 2019, the Company incurred $58,019 and $62,516 of interest expense on the Term Loan and Revolver, respectively. For the six months ended June 30, 2019, the Company incurred $113,239 and $122,596 of interest expense on the Term Loan and Revolver, respectively. For the three and six months ended June 30, 2018, the Company incurred $51,510 and $22,751 of interest expense on the Term Loan and Revolver, respectively.

The ~~Commercial~~Amended and Restated Loan Agreement includes customary financial covenants, restrictions and ~~restrictions~~interest rate covenants including delivery of financial statements, maintaining an account at Patriot Bank, N.A. with an average balance of ~~$750,000~~$2,500,000 in any trailing 90-day period or the interest rate will increase by 0.50% and maintaining a minimum debt service coverage ratio of 1.25 to 1.0. The Company did not maintain an average balance of $2,500,000 during the 90-day trailing period ended March 31, 2020 and did not cure such failure as of June 30, 2020, and as a result the interest rate remained at 6.25%. ~~We were~~The Company was in compliance with all ~~such~~other covenants as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. ~~The lender has provided the company with a Letter of Intent to expand the loan to $16 million and amend the current terms and covenants.~~

~~Senior Secured Revolving Line of Credit~~

On May 12, 2016, the Company entered into a revolving credit line (the “Credit Facility”) with an entity controlled by its chief executive officer (the “Lender”). Under the amended terms of the Credit Facility, the Company was able to borrow up to an aggregate of $4,500,000 until the maturity date of January 2, 2019. Advances made under the Credit Facility were used for working capital and general corporate purposes.

~~Borrowings under the Credit Facility bore interest at 5% per annum and an annual fee equal to 0.75% of the unused portion of the Credit Facility, payable monthly in arrears in cash.~~

The balance outstanding under the Credit Facility prior to the IPO was $4.5 million which was repaid in full on August 23, 2017 from the proceeds of the IPO. On December 27, 2017, the Company drew an advance of $1,500,000 under the Credit Facility. As of March 31, 2018, advances under the Credit Facility totaled $1,700,000.

~~On April 27, 2018, the Company repaid the Credit Facility in full from the proceeds of the Commercial Loan and the Credit Facility was terminated by the Company and the Lender.~~

In connection with the Credit Facility, the Company issued Class W warrants to the Lender to purchase 157,500 shares of the Company’s Class A common stock at an exercise price of $7.50 per share. All Warrants issued to the Lender expire on May 12, 2021 and were accounted for as equity warrants.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

The Credit Facility and the related warrants were accounted for in accordance with ASC 470, which provides, among other things, that the fair value is allocated between the debt and the related warrants.

The fair value of the warrants issued was determined to be $424,025 using the Black-Scholes option-pricing model and the relative fair value of the warrants was recorded as a discount to the Credit Facility with a corresponding credit to additional paid-in capital.

~~For the three and six months ended June 30, 2019 and 2018, interest expense on the Credit Facility was $0 and $8,712, respectively.~~

As of June 30, ~~2019,~~2020, the expected aggregate maturities of long-term debt for each of the next five years are as follows:



Remainder of 2020	$	1,600,000
2021		3,200,000
2022		8,200,000
2023		3,200,000
2024		2,400,000
	$	18,600,000

~~Future Principal Payments~~

Year Ended December 31, Amount
Remainder of 2019 $ 500,000
2020 1,000,000
2021 4,489,642
2022 1,000,000
2023 416,667
$ 7,406,309

Note 1412 – Income Taxes

The Company’s current and deferred income tax provision (benefit) are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Current provision:
States	$	18,000	$	83,000		67,000		110,000
Total current provision		18,000		83,000		67,000		110,000
Deferred provision:
Federal		—		(247,000)		—		(590,000)
States		—		(89,000)		—		(211,000)
Total deferred provision		—		(336,000)		—		(801,000)
Total provision for income taxes	$	18,000	$	(253,000)	$	67,000	$	(691,000)

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Chicken Soup for the Soul Entertainment, Inc.

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Current provision (benefit):
Federal $ - $ - $ - $ -
States 83,000 6,000 110,000 47,000
Total current provision $ 83,000 $ 6,000 $ 110,000 $ 47,000
Deferred provision (benefit):
Federal $ (247,000 ) $ (52,000 ) $ (590,000 ) $ 108,000
States (89,000 ) 37,000 (211,000 ) 49,000
Total deferred provision (benefit) (336,000 ) (15,000 ) (801,000 ) 157,000
Total provision (benefit) for income taxes $ (253,000 ) $ (9,000 ) $ (691,000 ) $ 204,000

Notes to Condensed Consolidated Financial Statements

(unaudited)

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, adjusted by the relevant tax rate. The components of deferred tax assets and liabilities are as follows:


	June 30,		December 31,
	2020		2019
Deferred tax assets:
Net operating loss carry-forwards	$	12,333,000	$	9,680,000
Acquisition-related costs		723,000		723,000
Film library and other intangibles		5,504,000		3,769,000
Deferred state taxes		34,000		34,000
Less: valuation allowance		(15,646,000)		(11,243,000)
Total deferred tax assets		2,948,000		2,963,000
Deferred tax liabilities:
Programming costs		2,834,000		2,820,000
Other assets		114,000		143,000
Total deferred tax liabilities		2,948,000		2,963,000
Net deferred tax asset	$	—	$	—

June 30,
2019 December 31,
2018
Deferred Tax Assets:
Net operating loss carry-forwards $ 4,127,000 $ 3,022,000
Acquisition-related costs 723,000 663,000
Film library and other intangibles 702,000 427,000
Deferred state taxes 34,000 157,000
Less: valuation allowance (823,000 ) (719,000 )
Total Deferred Tax Assets $ 4,763,000 $ 3,550,000
Deferred Tax Liabilities:
Programming costs 3,043,000 2,779,000
Other assets 467,000 319,000

Total Deferred Tax Liabilities $ 3,510,000 $ 3,098,000
Net deferred tax asset $ 1,253,000 $ 452,000

The Company and its subsidiaries have combined net operating losses of approximately ~~$16,141,000~~$45,808,000, $10,845,000 of which were incurred before 2018 and expire between 2031 and ~~2039.~~2037 with the balance of $35,161,000 having no expiration under changes made by the Tax Cuts and Jobs Act but may only be utilized generally to offset only 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 and may be limited in any one period by alternative minimum tax rules.~~

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 ~~from the acquisitions of A Plus~~is not assured and ~~Pivotshare (representing the entire balance of $11,223,000) will be limited to approximately $8,552,000 and, accordingly,~~ has recorded a ~~deferred tax asset~~full valuation ~~allowance of $823,000.~~allowance. Public trading of company 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 ~~has~~ increased by ~~$104,000~~$2,098,000 and $0 in the three months ended June 30, ~~2019.~~2020 and 2019, respectively. The deferred tax asset valuation allowance increased by $4,403,000 and $104,000 in the six months ended June 30, 2020 and 2019, respectively.

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Note 1513 – Related Party Transactions

~~(a)~~ ~~Affiliate Resources and Obligations~~

~~Management Services Agreement~~

In May 2016, we entered into a management services agreement, that has an initial term of five years and automatically renews for additional one-year terms at the discretion of the parties thereto, which we refer to as the “CSS Management Agreement.” 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 vice chairman and chief strategy officer, Mr. Seaton, 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.

We pay CSS a management fee equal to 5% of our gross revenue for each calendar quarter, each payable on or prior to the 45th day after the end of the calendar quarter to which it relates, or the 10th day after the filing of the applicable Exchange Act report for such quarter. For the three months ended June 30, 2019 and 2018, the Company recorded management fee expense of $597,760 and $146,844, respectively, and $707,395 and $432,542 for the six months ended June 30, 2019 and 2018, respectively, payable to CSS.

On August 1, 2019, we entered into an amendment (“Amendment”) to the CSS Management Agreement. The Amendment retroactively 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.

~~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.~~

~~License Agreement~~

In May 2016, we entered into 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, sublicensable 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 paid CSS a one-time license fee of $5 million. We also pay CSS an incremental recurring license fee equal to 4% of our gross revenue for each calendar quarter, and a marketing fee of 1% of our gross revenue for each calendar quarter, each fee payable on or prior to the 45th day after the end of the calendar quarter to which it relates, or the 10th day after the filing of the applicable Exchange Act report for such quarter. Provided that the CSS License Agreement remains in place, CSS has agreed that it will not engage, and will not cause or permit its subsidiaries (other than us) to engage, in the production or distribution of video content, including that which is unrelated to the Chicken Soup for the Soul brand, except in connection with the marketing of their other products and services.

For the three months ended June 30, 2019 and 2018, the Company recorded total license fee expense (including for marketing support) of $597,760 and $146,845, respectively, and $707,395 and $432,542 for the six months ended June 30, 2019 and 2018, respectively, payable to CSS. 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.

~~Due from Affiliated Companies~~

At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company is owed ~~$5.1 million~~$4,996,754 and ~~$1.2 million,~~$7,642,432, respectively, from affiliated companies - primarily CSS. 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 ~~as needed.~~

~~As noted above, advances~~to fulfill joint liquidity needs and business initiatives. Advances and repayments occur periodically. The Company and CSS do not charge interest on the net advances.

For the three months ended June 30, 2020 and 2019, the Company recorded management fee expense of $676,027 and $597,760, respectively, and $1,338,230 and $707,395 for the six months ended June 30, 2020 and 2019, respectively, payable to CSS.

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

For the three months ended June 30, 2020 and 2019, the Company recorded total license fee expense (including for marketing support) of $676,027 and $597,760, respectively, and $1,338,231 and $707,395 for the six months ended June 30, 2020 and 2019, respectively, payable to CSS.

Note ~~16 –~~14 - 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. Lease obligations due within one year are included in accounts payable and accrued expenses on our condensed consolidated balance sheets. These leases expire at various points through 2031.

During May 2020, a technology platform vendor discontinued operations prior to the completion of the contractual service period. As a result, the Company was relieved of its multi-year commitment which extended through May 2022 of approximately $9,800,000 as of June 30, 2020. This commitment relief has been reflected in the below future minimum payments table.

Rent expense related to these leases was $436,007 and $113,210 for the three months ended June 30, 2020 and 2019, respectively, and $914,308 and $226,418 for the six months ended June 30, 2020 and 2019, respectively.

Content Obligations

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 ~~from time-to-time,~~have been included below. 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 condensed consolidated balance sheet. The Company does not include any estimated obligation for these future titles beyond the known minimum amount.

Future minimum payments under non-cancelable operating leases and content agreements as of June 30, 2020 were as follows:



Remainder of 2020		3,411,851
2021		6,665,120
2022		2,022,085
2023		1,269,773
2024		1,295,168
2025 - 2031		8,862,909
Total minimum lease payments	$	23,526,906

Legal and Other Matters

The Company is not presently a party to any legal proceedings the resolution of which the Company ~~may become subject~~believes would have a material adverse effect on its business, financial condition, operating results, or cash flows. However, legal proceedings

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Chicken Soup for the Soul Entertainment, Inc.

Notes to ~~claims in legal proceedings. Legal proceedings~~ Condensed Consolidated Financial Statements

(unaudited)

are subject to inherent uncertainties, and an unfavorable outcome could include monetary damages, and inexcessive verdicts can result from litigation, and as such, ~~event,~~ could result in a material adverse impact on ~~the Company's~~its business, financial position, results of operations, orand /or cash flows.

~~Screen Media is contingently liable~~ Additionally, although the Company has specific insurance for ~~a standby letter of credit in connection with an office lease agreement~~certain potential risks, the Company may in the ~~amount~~future incur judgments or enter into settlements of ~~$129,986 as~~claims which may have a material adverse impact on its business, financial condition, or results of ~~June 30, 2019 and December 31, 2018.~~operations.

Screen Media leases its office facilities under the terms of a non-cancelable operating lease agreement that expires on February 28, 2020. Minimum annual rental commitments under the lease are as follows:

~~Operating Lease Commitment - Screen Media~~

Year Ended December 31, Amount
Remainder of 2019 210,000
2020 70,000
$ 280,000

Rent expense recorded in the condensed consolidated statements of operations for the three months ended June 30, 2019 and 2018 was $113,210 and $101,296, respectively, and $226,418 and $207,388 for the six months ended June 30, 2019 and 2018, respectively. The Company does not record rent expense for its Connecticut office as it is included under the Management Agreement with CSS.

~~Programming obligations~~

The Company enters into long-term contracts for programming content that cover various periods up to 5 years. Programming obligations are recognized when the license period begins and the content is available for showing. Programming obligations of $7,300,862 are included in the Consolidated Condensed Balance Sheet as of June 30, 2019. There are no other future contractual commitments in regard to the Company’s programming obligations as of June 30, 2019.

Note 1715 – Equity

Subsidiary convertible preferred stock

The subsidiary convertible preferred stock represents 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 has the right to convert ~~their preferred interest~~its Preferred Units in the Crackle Plus JVjoint venture into Common Units representing common ownership of 49% in the Crackle Plus ~~entity~~joint venture or ~~series~~into Series A ~~Cumulative Redeemable Perpetual~~ Preferred ~~stock~~Stock in the Company. Based on the terms of the transaction agreement, the noncontrolling interest in the Crackle Plus ~~entity~~joint venture is convertible into equity.

Noncontrolling interest

Noncontrolling interests represents a 1% equity interest in the consolidated subsidiary Crackle Plus. The noncontrolling interests are presented as a component of equity and the proportionate share of net income (loss) attributed to the noncontrolling interests is recorded in results of operations. Changes in noncontrolling interests that do not result in a loss of control are accounted for in equity. Gains and losses from the changes in noncontrolling interests that result in a loss of control are recorded in results of operations.

Note 1816 – Segment Reporting and Geographic Information

The Company’s reportable ~~segments have~~segment has been determined based on the distinct nature of its operations, the ~~Company's~~Company’s internal management structure, and the financial information that is evaluated regularly by the ~~Company's~~Company’s chief operating decision maker. The Company operates in one reportable segment, across two operations areas, the ~~production~~distribution and ~~distribution~~production of video content for sale to others and ~~currently operates~~for use on our owned and operated video on demand platforms. We have a presence in ~~the United States~~over 56 countries and territories worldwide and intend to continue to sell our video content internationally.

Net revenue generated in the United States accounted for approximately 99% of total net revenue for ~~each of~~ the three and six months ended June 30, 2020 and 2019, ~~and 2018.~~respectively. Remaining net revenue was generated in the rest of the world. ~~100% of total consolidated long-lived~~Long-lived assets are 100% based in the United ~~States.~~States

~~Chicken Soup for the Soul Entertainment, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(unaudited)~~

Note 1917 – Subsequent Events

COVID-19

There are many uncertainties regarding the current novel coronavirus ("COVID-19") pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees, vendors, and business partners. While the pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s second fiscal quarter ended June 30, 2020, we are unable to predict the impact that COVID-19 will have on its financial position and operating results in the future throughout the duration of the pandemic due to numerous uncertainties around the entertainment industry particularly around production and advertising investments created by the effects of the pandemic. Some clients have responded to the current economic and financial conditions by reducing their marketing budgets, thereby decreasing the market and demand for some of our services. In addition, many businesses have adjusted, reduced or suspended operating activities, which could negatively

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~~Series A Preferred Stock Dividends~~Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

impact the markets we serve. All of the foregoing may impact our business, financial condition, results of operations and forward-looking expectations.

In an effort to contain COVID-19 or slow its spread, governments around the world have also enacted various measures, some of which have been subsequently rescinded or modified, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing. We anticipate that these actions and the global health crisis caused by COVID-19 will continue to impact business activity across the globe. While we have observed demand increases for our services in the first half of 2020, we cannot estimate the impact COVID-19 will have in the future as business and consumer activity decelerates across the globe. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, vendors, and partners. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results. The Company ~~has declared~~will continuously evaluate the impact of the COVID-19 pandemic to respond and ~~paid monthly dividends~~adjust accordingly.

Private Placement of ~~$0.2031 per share on its 9.75% Series A Cumulative Redeemable Perpetual Preferred~~Common Stock (“Series A Preferred Stock”) to holders of record as of June 30, 2019 and July 31, 2019. The monthly dividend for June was paid on July 15, 2018 and the monthly dividend for July is expected to be paid on August 15, 2019. The total dividends declared and paid in July and August was approximately $272,000.

~~Series A Preferred Stock Offering~~

On July 23, ~~2019~~2020, the Company, entered into a subscription agreement with ~~one investor~~Cole Investments IX, LLC pursuant to which the ~~company sold 40,000~~Company agreed to issue and sell to Cole Investments IX, LLC in a private placement an aggregate of 625,000 unregistered shares of ~~Series~~the Company’s Class A ~~Preferred~~Common Stock, par value $0.0001 at a price of ~~$25.00~~$8.00 per ~~share.~~ share, generating gross proceeds to the Company of $5,000,000.

Prepayment and Amendment to subsidiary Landmark Studio Group Revolving Credit Facility

On July 23, 2020, the Company, Cole Investments VII, LLC, David Ozer, Legend Capital Management, LLC, and Kevin Duncan, each members of Landmark Studio Group, LLC (“Landmark”), entered into an Agreement and Addendum to the Credit Agreement and Operating Agreement of Landmark, each dated as of September 27, 2019, pursuant to which the Company agreed to cause Landmark to prepay $2,500,000 of the outstanding principal amount under the Credit Agreement on such date, accelerate the maturity date of the Credit Agreement by approximately one year to October 11, 2021, and to unconditionally guarantee to Cole Investments VII, LLC the obligations of Landmark to pay, when and as due, the principal and interest due under the Credit Agreement. As a result of such prepayment, the aggregate principal amount of the commitment under the Credit Agreement was permanently reduced to $2,500,000. In consideration of the Company’s guarantee of Landmark’s obligations under the Credit Agreement, David Ozer transferred to the Company 2,500 common units of Landmark, increasing the Company’s ownership interest in Landmark from 51% to 53.5%.

Closing of $22.1 Million of Notes Due 2025; Repayment of Patriot Bank Commercial Loan

On July 17, 2020, the Company completed its underwritten public offering of $21,000,000 aggregate principal amount of its 9.50% Notes due 2025 (the “Notes”), pursuant to an Underwriting Agreement, dated as of July 13, 2020 (the “Underwriting Agreement”), between the Company and Ladenburg Thalmann & Co. Inc., as representative of the underwriters. On August 5, 2020, the Company consummated the sale of an additional $1,100,000 aggregate principal amount of Notes pursuant to the underwriters’ partial exercise of their overallotment option.

The Notes were offered and sold pursuant to a prospectus, dated July 13, 2020, which is part of the Company’s registration statement on Form S-1 (Registration No. 333-239198) declared effective by the Securities and Exchange Commission on

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Chicken Soup for the Soul Entertainment, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

July 10, 2020. Ladenburg Thalmann and National Securities Corporation acted as joint bookrunning managers of the offering, and Benchmark Company and Northland Capital Markets acted as lead managers of the offering.

The Notes were issued under a base indenture and a supplemental indenture, each dated as of July 17, 2020 (the “Base Indenture” and “Supplemental Indenture,” respectively, and together, the “Indenture”) between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Notes bear interest from July 17, 2020 at the rate of 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 Notes resulted in net proceeds of approximately $20,995,000 after deducting underwriting discounts and commissions of approximately $1,105,000. On July 17, 2020 the Company used approximately $13,300,000 of the net proceeds from the offering ~~after deducting offering expenses, were approximately $0.9 million.~~to repay the entirety of the outstanding principal and unpaid accrued interest under the Amended and Restated Loan Agreement with Patriot Bank, N.A. The Company ~~intends~~will have broad discretion with respect to the use of the ~~net~~remaining proceeds ~~from~~of the ~~sale~~offering, which may include using of some or all of such remaining proceeds to pay certain obligations to Sony Pictures Television Inc. or its affiliates that may otherwise be payable in shares of the Series A Preferred ~~Stock for working capital and other general corporate purposes including, possibly, for dividends.~~Stock.

~~Amendment to CSS Management Agreement~~

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Item 2. 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 in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s ~~report~~Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as filed with the Securities and Exchange Commission (“SEC”) on ~~April 1, 2019, and amended on April~~March 30, ~~2019 and June 4, 2019~~2020 (“Form 10-K”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, includes forward-looking statements involving risks and uncertainties and should be read together with the "Risk Factors" section of our report on Form 10-K for a discussion of important factors which 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.

Forward-Looking Statements

This Quarterly Report contains forward-looking statements. Forward-looking statements include, but are not limited to, statements regarding expectations, intentions and strategies regarding the future. 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 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. These forward-looking statements involve many risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Important factors that may affect our actual results include:

·●

the outbreak of the novel coronavirus, including the measures to reduce its spread, and the impact on the economy and demand for our ~~limited operating history;~~

services, which may precipitate or exacerbate other risks and uncertainties our financial performance, including our ability to generate revenue;

·●

potential effects of a challenging economy, for example, on the demand for our advertising and marketing services, on our clients’ financial condition and on our business or financial condition;

●

the ability of our content offerings to achieve market acceptance;

·●

our success in retaining or recruiting, or changes required in retaining, our officers, key employees or directors;

·●

our potential ability to obtain additional financing when and if needed;

·●

our ability to protect our intellectual property;

·●

our ability to complete strategic ~~acquisitions;~~acquisitions, including joint ventures and co-production arrangements;

·●

our ability to manage growth and integrate acquired operations;

·●

uninterrupted service by the third-party service providers we rely on for the distribution of our content and delivery of ad impressions;

●

the potential liquidity and trading of our securities;

·●

regulatory or operational risks;

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·●

our inability to pay dividends if we fall out of compliance with our loan covenants in the future and then are prohibited by our bank lender from paying dividends;

·●

downward revisions to, or withdrawals of, our credit ratings by third-party rating agencies;

·●

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; and

·●

the time during which we will be an Emerging Growth Company ~~(“EGC”)~~ under the Jumpstart Our Business Startups Act of 2012, or JOBS Act.

You should refer to the “Risk Factors” section of the ~~report~~Annual Report on Form 10-K, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. 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 Quarterly Report on Form 10-Q and the documents we have filed as exhibits to this Quarterly Report on Form 10-Q and the report on Form 10-K for the year ended December 31, ~~2018,~~2019, 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.

Overview

~~CSSE is~~We operate streaming video-on-demand networks (VOD). The Company owns a ~~growing, branded media~~majority stake in Crackle Plus, a company ~~building online video-on-demand (“VOD”) networks that provide positive and entertaining video content for all screens. In May 2019, we~~ formed ~~a joint venture~~ with ~~Crackle, Inc. (“Crackle”), a business~~an affiliate of Sony Pictures Television ~~(“SPT”)~~Inc., ~~through~~ which ~~we operate our VOD business. The joint venture is named “Crackle Plus.” Our Crackle Plus offering includes Crackle®~~owns and ~~Popcornflix®, both popular online advertiser-supported VOD (“AVOD”) networks, Pivotshare,~~operates a variety of ad-supported and subscription-based VOD ~~(“SVOD”) network, Truli.com, a faith-based AVOD network,~~networks including Crackle, Popcornflix, Popcornflix Kids, Truli, Pivotshare, Españolflix and ~~numerous additional AVOD networks.~~

~~Crackle Plus is one of the largest AVOD companies in the United States. Crackle Plus:~~

	·	~~has more than 26 million registered users;~~
	·	~~has more than 38,000 combined hours of programming, including access to library assets from SPT, Screen Media and other affiliates of the joint venture partners;~~
	·	~~streams more than 1.3 billion minutes per month;~~
	·	~~has more than 90 content partnerships; and~~
	·	~~includes more than 100 VOD networks.~~

~~Our~~FrightPix. The Company also acquires and distributes video content through its Screen Media subsidiary ~~is a leading global independent television~~ and ~~film distribution company, which owns one of the largest independently owned television and film libraries. We also curate, produce and distribute long-~~produces long and short-form ~~video~~original content ~~that brings out~~through subsidiaries and outside partnerships. The content acquired or produced by the ~~best of~~Company is sometimes used exclusively on the human spirit, and distribute the online content of our U.S. based subsidiary, A Plus. We are aggressively growing our business through a combination of organic growth, licensing and distribution arrangements, acquisitions and strategic relationships. We are also expanding our partnerships with sponsors, televisionCompany’s networks and ~~independent producers.~~

~~All~~is generally also sold to others with the goal of providing our ~~online~~ networks ~~are available for all screens, including mobile devices. We expect the increasingly widespread penetration of 5G mobile networks, with virtually no latency~~access to original and ~~10 times the download capacity of 4G,~~exclusive AVOD content at a lower cost and to ~~be an accelerator of mobile video consumption.~~

~~We have an exclusive, perpetual~~generate additional revenue and ~~worldwide license agreement (“CSS License Agreement”) with our intermediate parent, CSS, a publishing and consumer products company, to create and distribute video content under the~~~~Chicken Soup~~operating cash flow for the ~~Soul~~^®~~brand (the “Brand”).~~

Company.

We operate ~~in three~~one reportable segment across two operations areas:

·●

Online Networks.: In this ~~business~~operations area, we distribute and exhibit VOD content ~~through Crackle Plus~~ directly to consumers across all digital platforms, such as connected ~~tv’s,~~TV’s, smartphones, tablets, gaming consoles and the web through our owned and operated AVOD Crackle Plus networks. We also distribute our own and third-party owned content to end ~~users~~viewers across various digital platforms through our ~~owned and operated~~ SVOD ~~network.~~network, Pivotshare. We generate advertising revenues primarily by serving video advertisements to our streaming ~~viewers.~~viewers and subscription revenue from consumers.

·●

Television and Film ~~Distribution.~~Distribution and Production: In this ~~business~~operations area, we distribute movies and television series worldwide, through Screen Media, to consumers through license agreements across all media, including theatrical, home video, pay-per-view, free, cable, pay television, VOD, mobile and new digital media platforms worldwide. We own the copyright or long-term distribution rights to ~~approximately 1,500~~over 1,000 television series and feature ~~films.~~

Television and Short-Form Video Production. In this business area, we work with sponsors and use highly regarded independent producers to develop and produce our television and short-form video content, including Brand-related content. We also derive revenue from our subsidiary A Plus, which develops and distributes high-quality, empathetic short-form videos to millions of people worldwide. A Plus enhances our ability to distribute short form versions of our video productions and video library and provide us with content developed and distributed by A Plus that is complementary to the Brand.

Since our inception in January 2015, our business has grown rapidly. As described below in “Use of Non-GAAP Financial Measure”, we use Adjusted EBITDA as an important metric for management. Summary data is as follows:

For the three months ended June 30, 2019 and 2018, our gross revenue was approximately $12.2 million and $3.2 million, respectively, and $14.7 million and $9.2 million for the six months ended June 30, 2019 and 2018, respectively. These increases in gross revenue were primarily due to the formation of the Crackle Plus Joint Venture.

Our Adjusted EBITDA for the three months ended June 30, 2019 and 2018 was $1.3 million and $0.2 million, respectively, and $0.5 million and $1.8 million for the six months ended June 30, 2019 and 2018, respectively.

Our plan is to use our solid core of television and short-form video production and television and film distribution activities to support the development and growth of a powerful portfolio of online VOD networks. Our production and distribution businesses generate current revenue and Adjusted EBITDA that we can use to fund our rapidly growing online VOD networks. We will continue to seek to opportunistically acquire assets such as content libraries, digital publishers with content related to our own, and other VOD networks. We are also growing and acquiring multiple brands to support our online VOD networks (e.g. Popcornflix, Truli, and Chicken Soup for the Soul) as evidenced by our recent formation of Crackle Plus.

One of our fundamental objectives is to continue to grow our online VOD networks to create a “network of networks”. Our strategy is to build our library of video content through a combination of Chicken Soup for the Soul original video content and the opportunistic acquisitions of third-party video content libraries that we seek to make, such as our transformative acquisitions of Screen Media and Pivotshare. We will also seek to acquire other VOD networks to accelerate this growth. When we acquire video content libraries, we will seek to rapidly monetize these libraries through our traditional television and film distribution activity while retaining the right to use these libraries on our VOD networks thereby lowering our cost of content acquisition for these VOD networks.

~~Recent Developments~~

~~The following transactions occurred during the period covered by this Management’s Discussion and Analysis of Financial Condition and Results of Operations:~~

~~Formation of Joint Venture with Crackle~~

On May 14, 2019, the joint venture, Crackle Plus, LLC was formed, and we launched our new streaming video joint venture. CPEH, Crackle, and their affiliates, and CSS Entertainment and its subsidiaries are each contributing assets to establish Crackle Plus. Crackle’s contributions to the joint venture include Crackle’s U.S. and Canadian assets including the Crackle brand in those territories, its monthly active users and its ad rep business. SPT and the joint venture also entered into a license agreement for rights to popular TV series and movies from the Sony Pictures Entertainment library, including Crackle’s original content library. In addition, New Media Services, a wholly-owned subsidiary of Sony Electronics Inc., has contracted to provide the technology back-end services for the newly formed joint venture. CSS Entertainment contributions to the joint venture include the rights to six owned and operated AVOD networks (Popcornflix, Truli, Popcornflix Kids, Popcornflix Comedy, Frightpix, and Espanolflix) and subscription video-on-demand (SVOD) platform Pivotshare.

Under the terms of the agreement, we own the majority interest in the joint venture. Additionally, we issued to CPEH four million five-year warrants to purchase Class A common stock of CSS Entertainment at various prices.

~~We believe that Crackle Plus will be~~films, representing one of the largest providers of free AVOD service in the United States with an expected approximately 10 million monthly unique users on our owned and operated networks with an audience of millions more served through our advertising representation network. We anticipate that Crackle Plus will have 26 million registered users. Crackle Plus will be highly competitive in the growing VOD space with over 100 VOD networks and more than 90 content partnerships, assuming full contribution by the parties upon the terms of, and after closing of the Contribution Agreement. Upon launch, we believe Crackle Plus will stream over 1.3 billion minutes per month. The addition of Crackle Plus to our company is expected to more than double our overall annual revenue and will add meaningful EBITDA.

~~Series A Preferred Stock Dividends~~

We declared monthly dividends of $0.2031 per share on our 9.75% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) to holders of record as of each month end for January through June 2019. The monthly dividends for each month were paid on approximately the 15^th ~~day subsequent to each respective month end. The total amount of dividends declared and paid through August 2019 was approximately $272,000, respectively.~~

~~Sales of Series A Preferred Stock~~

For the six months ended June 30, 2019, the company completed the sale of an aggregate of 419,505 shares of its Series A Preferred Stock at an offering price of $25.00 per share. The Company’s net proceeds from the sale of Series A Preferred Stock, after deducting offering expenses, was approximately $9.7 million. The Company intends to use the net proceeds from the sale of Series A Preferred Stock for working capital and other general corporate purposes including, possibly, for dividends and share repurchases.

~~Business~~

~~Online Networks~~

~~On May 14, 2019, the company launched a new streaming video venture known as Crackle Plus through which it operates its VOD networks including, Crackle and Popcornflix.~~

Our acquisition of Screen Media in 2017 began our entry into the direct-to-consumer online VOD market through Popcornflix, which has an extensive footprint with apps that have been downloaded more than 27 million times.

Popcornflix is one of the largest AVOD services. Under the Popcornflix brand, we operate a series of direct-to consumer advertising supported channels. On Popcornflix, we have the rights to exhibit more than 3,000 films and approximately 60 television series comprised of approximately 1,500 episodes, with new content added regularly. As a “free-to-consumer” digital streaming channel, Popcornflix is an extremely popular online video platform that can be found on the web, iPhones and iPads, Android products, Roku, Xbox, Amazon Fire, Apple TV, Chromecast and Samsung and Panasonic internet connected televisions, among others. Popcornflix is currently available in 56 countries, including the United States, United Kingdom, Canada, Australia, Scandinavia, Germany, France, Hong Kong, and Singapore, with additional territories to be added.

In October 2018, we completed the acquisition of the assets of Truli Media Corp., a nascent global family-friendly and faith-based online video channel (“Truli”). The Truli content library includes 2,500 hours of programming and brings us an additional 630,000 Facebook fans. Truli’s content fits strategically in our plans and includes film, television, music videos, sports, comedy, and educational material.

Our Crackle joint venture which closed most recently allows users to view premium content, such as films and TV shows. The content is accessible through various internet connected digital devices such as mobile, tablet, smart TV and console. The platform primarily earns revenue from placing advertisements on its platform through direct and reseller channels, and on the behalf of its advertisement representation partners

~~We have also begun to expand in SVOD networks. Our entry into subscription-based VOD was initiated by our acquisition of the Pivotshare VOD network in August 2018.~~

~~The result of these acquisitions, Crackle Plus, is one of the largest AVOD companies in the United States as well as a targeted SVOD network provider.~~

~~Crackle Plus:~~

	·	~~has more than 26 million registered users;~~
	·	~~has more than 38,000 combined hours of programming, including access to library assets from SPT, Screen Media and other affiliates~~ of the ~~joint venture partners;~~
	·	~~streams more than 1.3 billion minutes per month;~~
	·	~~has more than 90 content partnerships; and~~
	·	~~includes more than 100 VOD networks.~~largest independently owned libraries of filmed entertainment in the world.

~~Television and Film Distribution~~

We distribute television series and films worldwide through Screen Media. We own the copyright or hold long-term distribution rights to approximately 1,700 hours of television series and feature films, representing one of the largest independently owned libraries of filmed entertainment in the world. We distribute our television series and films through license agreements across all media, including theatrical, home video, pay-per-view, free, cable and pay television, VOD and emerging digital media platforms worldwide.

Screen Media’s distribution capabilities across all media give us the ability to distribute our produced television series directly. We believe that the cost savings from Screen Media’s distribution capabilities will enhance our revenue and profits from our produced television series.

We have distribution licensing agreements with numerous VOD services across all major platforms, such as cable and satellite VOD and Internet VOD, which includes TVOD for rentals or purchases of films, AVOD for free-to-viewer streaming of films supported by advertisements and SVOD for unlimited access to films for a monthly fee.

Our cable and satellite VOD distribution agreements include those with DirecTV, Cablevision (Altice USA), Verizon and In Demand (owned by Comcast, Charter and Time Warner ~~Cable)~~Cable-Spectrum). Our Internet VOD distribution agreements include ~~those~~agreements with Amazon, iTunes, Samsung, YouTube, Hulu, Xbox, Netflix, Sony, Vudu, Plex, Xfinity Flex, and ~~Vudu,~~Fubo TV, among others.

We ~~are rapidly expanding~~have expanded our international distribution capabilities in connection with the acquisition of ~~our content through agreements with iTunes, Sony PlayStation, Xbox, among others. Under these agreements, our titles are available on iTunes, Sony PlayStation and Xbox in~~ the ~~United Kingdom, Australia, France, Germany, Italy and Hong Kong with additional territories added regularly.~~Foresight library.

~~Television and Short-Form Video Production~~27

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~~We utilize~~Screen Media’s distribution capabilities across all media give us the ~~Chicken Soup for the Soul brand, together with our management’s industry experience and expertise,~~ability to generate revenue through the production and distribution of video content with sponsors. We partner with sponsors and use highly-regarded independent producers to develop and produce video content. Using this approach provides us with access to a diverse pool of creative ideas for new video content projects and allows us to scale our business on a variable cost basis. We currently have producer agreements or arrangements in place with a number of these producers, including Litton Entertainment (a Hearst company). We anticipate entering into relationships with additional independent producers.

We seek committed funding from corporate and foundation sponsors covering more than the production costs prior to moving forward with a project. Since we seek to secure both the committed funding and production capabilities for our video content prior to moving forward with a project, we have high visibility into the profitability of a particular project before committing to proceed with such project. In addition, we take limited financial risk on developing our projects.

Corporate and foundation sponsors with which we work include HomeAway, Hilton Grand Vacations, American Humane, Chegg, Acorns, the Boniuk Foundation, State Farm, Michelson Found Animals Foundation and the Morgridge Family Foundation, and we are currently in discussions with numerous others. We endeavor to retain meaningful back-endmonetize various rights to our ~~video~~produced and co-produced television series and films directly, including our content ~~in these relationships, which provides opportunities~~that will be produced through Landmark Studio Group (“Landmark”). The cost savings from Screen Media’s distribution capabilities enhance our revenue and profits from our produced or co-produced content. Furthermore, Screen Media supports the programming and content needs of our AVOD networks. The ability to monetize film and TV rights through Screen Media gives us the ability to retain exclusive AVOD rights for ~~improved profitability and enhances~~some of our ~~library value.~~acquired or produced films or television series on a cost advantaged basis.

Our ~~long-form video~~approach to content ~~consists~~production is focused primarily on co-production partnerships in order to build our AVOD networks, through Crackle Plus, and our worldwide distribution capabilities through Screen Media. By focusing this way, we believe that we will be able to grow our business more rapidly by entering into production agreements with a variety of ~~30-~~production partners. In October 2019, we launched Landmark, our first production co-venture subsidiary. Landmark is a fully integrated entertainment company focused on ownership, development, and production of quality entertainment franchises. Landmark develops, produces, distributes and owns all the intellectual property (IP) it creates, building a valuable library. The studio is independent, with the ability to ~~60-minute episodic programs typically distributed initially on traditional television~~sell its content to any network or ~~cable networks. Our current longform video~~platform, while also developing and producing original content ~~projects include:~~for Crackle Plus. Landmark controls all worldwide rights and distributes those rights exclusively through Screen Media. We plan to enter into other similar co-production arrangements going forward. We will only occasionally produce programming internally.

~~Chicken Soup for the Soul’s Hidden Heroes (‘‘Hidden Heroes’’).~~ The multi-award-winning Hidden Heroes was hosted by Brooke Burke. The series third season was on The CW Network. The Boniuk Foundation has agreed to sponsor a fourth season of Hidden Heroes with a new host. A segment of Hidden Heroes can be seen at~~https://cssentertainment.com/hiddenheroes. Hidden Heroes was nominated for an Emmy award for “Outstanding Children’s or Family Viewing Series” in March 2019.~~

Since our inception in January 2015, our business has grown rapidly. Summary data is as follows:

~~Being Dad, a Chicken Soup for the Soul Original Series (“Being Dad”).~~ This series is an intimate, revealing and entertaining portrait of nine men who are tackling one of the most important roles in the world: fatherhood. The episodes are about the lives of dads who are facing challenges that are simultaneously unique and universal. The fathers are all bound by the singular belief that raising their children is life’s greatest gift. In August 2018, the series began streaming on Netflix.

~~Vacation Rental Potential.~~ This television series gives viewers the information and inspiration needed to realize their dreams of using real estate entrepreneurship to afford a vacation home for their family. Hosted by Holly Baker, Vacation Rental Potential offers insight on how to make the dream of vacation homeownership possible. The show premiered on A&E Network in December 2017. Its second season aired on A&E Network. The series was nominated for a Real Screen award in the “Digital and Branded Content: Brand-Funded Content” category.

~~Going From Broke~~. Ashton Kutcher is the executive producer on this new series about the 44 million young Americans that are today saddled with student and credit card debt totaling nearly $1.5 trillion. Recent college graduates have no idea how to dig themselves out of their financial disaster. Going From Broke is hosted by money expert Dan Rosensweig, CEO of multi-billion dollar company Chegg. Throughout the series, Dan helps these millennials deal with their financial challenges. The series will premiere on Crackle in October 2019.

~~Chicken Soup for the Soul’s Animal Tales (“Animal Tales”).~~ This series is sponsored by Chicken Soup for the Soul Pet Food and American Humane, the country’s first national humane organization. This series celebrates everything pets and animals add to our lives. The series will bring awareness to the Chicken Soup for the Soul mission of helping all pets eat well, whether that’s by making super premium pet food that is affordable or donating millions of meals to shelter pets every year. The show premiered on the CW Network in January 2019 hosted by Eva La Rue. The series was renewed for a second season on May 13, 2019.

For the three months ended June 30, 2020 and 2019, our gross revenue was approximately $13.9 million and $12.2 million, respectively, and $28.0 million and $14.7 million for the six months ended June 30, 2020 and 2019, respectively. The increase in gross revenue was primarily due to significant growth in our distribution and production operations area.

Our ~~short-form video~~Adjusted EBITDA for the three months ended June 30, 2020 and 2019 was $2.7 million and $1.3 million, respectively, and $4.7 million and $0.5 million for the six months ended June 30, 2020 and 2019, respectively. As described below in “Use of Non-GAAP Financial Measure”, we use Adjusted EBITDA as an important metric for management.

Recent Developments

COVID-19

There are many uncertainties regarding the current COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees, vendors, and business partners. While the pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s second fiscal quarter ended June 30, 2020, we are unable to predict the impact that COVID-19 will have on its financial position and operating results in the future throughout the duration of the pandemic due to numerous uncertainties around the entertainment industry particularly around production and advertising investments created by the effects of the pandemic. Some clients have responded to the current economic and financial conditions by reducing their marketing budgets, thereby decreasing the market and demand for some of our services. In addition, many businesses have adjusted, reduced or suspended operating activities, which could negatively impact the markets we serve. All of the foregoing may impact our business, financial condition, results of operations and forward-looking expectations.

In an effort to protect the health and safety of our employees, our workforce has had and continues in most instances to spend a significant amount of time working from home, travel has been severely curtailed and many of our productions remain paused or continue to experience disruption, as are the productions of our third-party content suppliers. Our other partners have similarly had their operations disrupted, including those partners that we use for our branded short-form video content known as Sips, is receiving increased focus from our advertisers and sponsors. Such short-form video content is typically exhibited through online video content distribution through A Plus and various social media platforms, such as YouTube, Facebook,operations as well as ondevelopment, production, and post-production of content.

Table of ~~Chicken Soup~~Contents

actions and the global health crisis caused by COVID-19 will continue to impact business activity across the globe. While we have observed demand increases for our services in the ~~Soul~~first half of 2020, we cannot estimate the impact COVID-19 will have in the future as business and ~~our sponsors. A Plus is adding more short-form video content,~~consumer activity decelerates across the globe. We will continue to actively monitor the situation and ~~we are focusing on acquisitions in this space. Increasing revenue from short-form video will make~~may take further actions that alter our business ~~less cyclical~~operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, vendors, and ~~assist~~partners. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results. The Company will continuously evaluate the impact of the COVID-19 pandemic to respond and adjust accordingly.

Private Placement of Common Stock

On July 23, 2020, the Company, entered into a subscription agreement with Cole Investments IX, LLC pursuant to which the Company agreed to issue and sell to Cole Investments IX, LLC in ~~reducing~~a private placement an aggregate of 625,000 unregistered shares of the ~~relative size~~Company’s Class A Common Stock, par value $0.0001 at a price of ~~fourth quarter revenue compared~~$8.00 per share, generating gross proceeds to ~~other quarters.~~the Company of $5.0 million.

~~Corporate Information~~Prepayment and Amendment to subsidiary Landmark Studio Group Revolving Credit Facility

~~We are~~On July 23, 2020, the Company, Cole Investments VII, LLC, David Ozer, Legend Capital Management, LLC, and Kevin Duncan, each members of Landmark, entered into an Agreement and Addendum to the Credit Agreement and Operating Agreement of Landmark, each dated as of September 27, 2019, pursuant to which the Company agreed to cause Landmark to prepay $2.5 million of the outstanding principal amount under the Credit Agreement on such date, accelerate the maturity date of the Credit Agreement by approximately one year to October 11, 2021, and to unconditionally guarantee to Cole Investments VII, LLC the obligations of Landmark to pay, when and as due, the principal and interest due under the Credit Agreement. As a ~~Delaware corporation formed on May 4, 2016. We were formed~~result of such prepayment, the aggregate principal amount of the commitment under the Credit Agreement was permanently reduced to ~~create video content opportunities~~$2.5 million. In consideration of the Company’s guarantee of Landmark’s obligations under the Credit Agreement, David Ozer transferred to the Company 2,500 common units of Landmark, increasing the Company’s ownership interest in Landmark from 51% to 53.5%.

Closing of $22.1 Million of Notes Due 2025; Repayment of Patriot Bank Commercial Loan

On July 17, 2020, the Company completed its underwritten public offering of $21.0 million aggregate principal amount of its 9.50% Notes due 2025 (the “Notes”), pursuant to an Underwriting Agreement, dated as of July 13, 2020 (the “Underwriting Agreement”), between the Company and Ladenburg Thalmann & Co. Inc., as representative of the underwriters. On August 5, 2020, the Company consummated the sale of an additional $1.1 million aggregate principal amount of Notes pursuant to the underwriters’ partial exercise of their overallotment option.

The sale of the Notes resulted in net proceeds of approximately $21.0 million after deducting underwriting discounts and commissions of approximately $1.1 million. The Company used approximately $13.3 million of the net proceeds from the offering to repay the entirety of the outstanding principal and unpaid accrued interest under the Amended and Restated Loan Agreement with Patriot Bank, N.A. The Company will have broad discretion with respect to the use of the remaining proceeds of the offering, which may include using of some or all of such remaining proceeds to pay certain obligations to Sony Pictures Television Inc. or its affiliates that may otherwise be payable in shares of the ~~Brand.~~Series A Preferred Stock.

JOBS Act Accounting Election

The Company is 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. The Company has irrevocably elected to avail itself 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.

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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 ~~non-recurring~~acquisition related expenses recognized for the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, and the likelihood of material non-cash, non-recurring, and ~~non-recurring~~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.~~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 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 condensed consolidated financial statements. ~~See “~~~~Use of non-GAAP Financial Measure~~~~” below for further discussion.~~

~~Reporting Segment~~

We ~~operate~~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 ~~one reportable segment, the production~~nature identified charges. Adjusted EBITDA is not an earnings measure recognized by U.S. GAAP and ~~distribution~~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 ~~video content. We operate in the United States and internationally. We have entered into distribution agreements with a company~~our performance that provides ~~for the distribution~~useful information to investors regarding our financial condition and results of ~~episodic television series~~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 ~~Europe. We have a presence in over 56 countries worldwide. We intend to continue to sell our video content internationally.~~

~~Seasonality and Cyclicality~~

~~Revenue derived from our long-form and short-form production activities has been cyclical~~isolation or as a result of the timing of sponsorship agreements funding those activities. To date, this has affected our production schedules and hence, our revenue, since we recognize revenue as each episode becomes availablesubstitute for ~~delivery or becomes available for viewing, and for short-form online videos, as the videos are posted to a website for viewing. As a result, to date we have reported the vast majority~~analysis of our ~~revenue in the fourth quarter~~results as reported under U.S. GAAP. Some of ~~each year.~~these limitations are:

34●

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 future 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;

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●

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 expense (benefit) 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 income and expenses; and

●

Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

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In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation.

~~Financial~~ 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:

Three Months Ended June 30,

2020

2019
Net loss available to common stockholders

$
(10,010,127)

$
(5,916,077)
Preferred dividends

974,272

797,981
Provision for income taxes

18,000

(253,000)
Other taxes

51,240

50,465
Interest expense^(a)

333,903

146,359
Film library and program rights amortization^(b)

6,407,283

1,563,268
Share-based compensation expense^(c)

229,273

275,097
Acquisition-related costs^(d)

—

2,258,801
Reserve for bad debt and video returns

812,741

218,111
Amortization and depreciation^(e)

5,496,972

729,991
Other non-operating income, net^(f)

(4,331,409)

(12,024)
Transitional expenses^(g)

2,239,876

1,241,353
All other nonrecurring costs

469,392

162,901
Adjusted EBITDA

$
2,691,416

$
1,263,226

Six Months Ended June 30,

2020

2019
Net loss available to common stockholders

$
(21,437,507)

$
(9,292,814)
Preferred dividends

1,948,544

1,401,288
Provision for income taxes

67,000

(691,000)
Other Taxes

104,651

331,675
Interest expense^(a)

663,028

287,482
Film library and program rights amortization^(b)

8,902,115

2,434,394
Share-based compensation expense^(c)

474,108

490,944
Acquisition-related costs^(d)

98,926

2,656,736
Reserve for bad debt & video returns

2,534,336

518,514
Amortization and depreciation^(e)

10,701,700

935,614
Other non-operating income, net^(f)

(4,337,847)

(25,549)
Transitional expenses^(g)

4,353,345

1,241,353
All other nonrecurring costs

656,340

187,056
Adjusted EBITDA

$
4,728,739

$
475,693

(a)	Includes amortization of deferred financing costs of $10,154 and $25,823 for the three months ended June 30, 2020 and 2019, respectively, and $20,306 and $51,647 for the six months ended June 30, 2020 and 2019, 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, as well as common stock grants issued to employees, non-employee directors and third-party consultants.

(d)	Represents aggregate transaction-related costs, including legal fees, accounting fees, investment advisory fees and various consulting fees.

(e)	Includes depreciation and amortization of intangibles, property and equipment and amortization of technology expenditures included in cost of revenue.

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(f)	Other non-operating income is primarily comprised of various extinguished liabilities as part of a settlement, see Results of Operations for further detail.

(g)	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.

Results of Operations

Revenue

Our online network revenue is derived from content generated by online streaming of films and television programs on our advertising-supported video on demand (AVOD) networks consisting of Crackle, our YouTube channel and Popcornflix®, and our subscription-based video on demand (SVOD) network Pivotshare, ~~and recently acquired subsidiary~~all of which collectively form Crackle Plus. Our television and film distribution ~~revenue~~revenues are derived primarily from our distribution of television series and films in all media, including theatrical, home video, pay-per-view, free, cable and pay television, VOD and new digital media platforms worldwide as well as owned and operated networks, (i.e., Crackle, ~~Plus,~~ Popcornflix® and A Plus). Our television and short-form video production revenue is derived primarily from corporate and charitable sponsors that compensate us for the production of half-hour or one-hour episodic television programs as well as short-form video content.

Cost of Revenue

Our cost of revenue is derived from platform costs which are related to the various expenses incurred by the company to support and maintain the AVOD and SVOD networks. These costs are comprised of hosting and bandwidth costs, website traffic costs, royalty fees, and music costs. Also, included in cost of revenue are advertisement representation fees earned by our advertising representation partners (“Ad Rep Partners”) and license fees payable to third parties and the related amortization associated with programming rights. Also included in our cost of revenue is the amortization of capitalized programming and film library costs relating to both television and short-form online videos as well as film library costs. We record cost of revenue based on the individual-film-forecast method. This method requires costs to be amortized in the proportion that the current period’s revenue bears to management’s estimate of ultimate revenue expected to be recognized from each production or film. Our costs are fixed for each series before we begin production. We have a growing list of independent production companies that we work with. We generally acquire distribution rights of our films covering periods of ten or more years. Cost of revenue also includes distribution costs for television series and films and non-cash amortization of film library costs. In addition, cost of revenue includes platform costs which are related to the various expenses incurred by the company to support and maintain the AVOD and SVOD networks. These costs are comprised of hosting and bandwidth costs, website traffic report costs, royalty fees, and music costs. Also, included in cost of revenue are advertisement representation fees earned by the Ad Rep Partners and license fees payable to third parties and the related amortization associated with programming rights.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses include salaries and benefits, non-cash share-based compensation, public and investor relations fees, outside director fees, professional fees and other overhead. A significant portion of selling, general and administrative expenses are covered by our management and license agreements with CSS, as noted below.

Management and License Fees

We pay management fees of five percent (5%) of our ~~gross~~net revenue to CSS pursuant to the CSS Management ~~Agreement.~~Agreement as amended. CSS provides us with the operational expertise of its personnel, and we also receive other services, including accounting, legal, marketing, management, data access and back office systems, office space and equipment usage. 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.

We pay license and marketing support fees of five percent (5%) of our ~~gross~~net revenue to CSS pursuant to a License Agreement, which we refer to as the CSS License Agreement. Four percent (4%) of this fee is a recurring license fee for the right to use all video content of the Brand. One percent (1%) of this fee relates to marketing support activities through CSS’ email distribution, blogs and other marketing and public relations resources. 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.

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Interest Expense

Our interest expense is comprised of cash interest paid on our Commercial ~~Loan.~~Loan and Revolving Credit Facility. See “Liquidity and Capital Resources” below for a full description of the Commercial ~~Loan.~~

Loan and Revolving Credit Facility.

Income Taxes

We provide for federal and state income taxes currently payable, as well as those deferred resulting from temporary differences between reporting income and expenses for financial statement purposes versus income tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoverable. The effect of the change in the tax rate, if it occurs, will be recognized as income or expense in the period of the enacted change in tax rate. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more-likely-than-not to be realized.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, ~~2019~~2020 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, ~~2018~~

2019

Revenue

The following table presents revenue line items for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 and for the period-over-period dollar and percentage changes for those line items:

	Three Months Ended June 30,
	2019			% of revenue			2018			% of revenue			Change Period over Period

																		Three Months Ended June 30,
																				% of				% of		Change
																		2020		revenue		2019		revenue		Period over Period
Revenue:
Online networks	$	10,009,078			84	%	$	899,197			30	%	$	9,109,881		1013	%	$	5,360,693	40	%	$	10,009,078	84	%	$	(4,648,385)	(46)	%
Television and film distribution		1,975,711			16	%		2,031,818			67	%		(56,107	)	-3	%
Television and short-form video production		226,740			2	%		229,622			7	%		(2,882	)	-1	%
Distribution and Production																			8,537,956	63	%		2,202,451	18	%		6,335,505	288	%
Total revenue		12,211,529			102	%		3,160,637			104	%		9,050,892		286	%		13,898,649	103	%		12,211,529	102	%		1,687,120	14	%
Less: returns and allowances		(241,047	)		-2	%		(125,645	)		-4	%		(115,402	)	92	%		(378,109)	(3)	%		(241,047)	(2)	%		(137,062)	57	%
Net revenue	$	11,970,482			100	%	$	3,034,992			100	%	$	8,935,490		294	%	$	13,520,540	100	%	$	11,970,482	100	%	$	1,550,058	13	%

Our net revenue increased by ~~$8.9~~$1.6 million for the three months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This increase in net revenue was primarily due to the ~~$9.1~~$6.3 million increase in Distribution and Production revenue resulting primarily from TVOD and video distribution revenue, driven by the strong performance of our film library content, as further described below.

Online ~~Networks~~Network revenue ~~as a result of the Crackle Plus joint venture.~~

~~Online network revenue~~

Our online networks revenue ~~increased~~decreased by ~~$9.1~~$4.6 million for the three months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. The ~~increase~~decrease of ~~$9.1~~$4.6 million was primarily due to a $3.3 million decrease in advertisement representation revenue primarily due to the discontinued operations of one ad rep partner, $0.9 million increase in AVOD distribution revenue share driven by an increase in original and owned content viewership and a $0.4 million net combined decrease in various other online networks revenues. The Crackle ~~Plus Joint Venture formed on May 14, 2019 and the Pivotshare acquisition during August~~network accounted for 93% of ~~2018.~~

~~Online network revenue was 84% and 30% of net revenue for the three months ended June 30, 2019 and 2018, respectively. Our online revenue includes revenue generated from~~ our online ~~advertising-supported video on demand content~~networks revenues, driven by the delivery of advertisements during the viewing of full-length movies, television shows and original programming on our ~~owned~~platform.

Distribution and ~~operated networks, Crackle Plus, Popcornflix, YouTube~~Production revenue

Distribution and the subscription-based VOD third-party niche channels operating our Pivotshare platform. We recognize online network revenue when videos are posted to a website or VOD platform for viewing or as advertisements are viewed in connection with these videos.

~~Television and film distribution revenue~~

~~Television and film distribution revenue decreased~~production revenues increased by ~~$0.1~~$6.3 million for the three months ended June 30, ~~2019~~2020 compared to ~~2018,~~2019, primarily due to a $3.5 million increase in video distribution and theatrical revenues driven primarily by the performance of The Last Full Measure, a film we acquired in connection with the acquisition of the Foresight Unlimited film library, $0.9 million increase in AVOD distribution revenue driven by our original and owned content and a $2.1

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million increase in TVOD and internet streaming revenue, offset by a net combined $0.2 million decrease in ~~international distribution revenue, $0.1 decrease in syndication barter revenue offset by a $0.2 increase in AVOD distribution revenue.~~

Television and film distribution revenue was 16% and 67% of net revenue for the three months ended June 30, 2019 and 2018, respectively. Television and film distribution revenue derived from Screen Media, consists of revenue recognized from license sales in all media including theatrical, home video, pay-per-view, free, cable and pay television, VOD and new digital media platforms worldwide. Revenues from digitalother distribution and VOD platforms are recorded when revenue is reported by their respective platforms. Sales of DVD units are generally recorded upon their shipment to customers and provision for future returns and other allowances are established based upon historical experience.

~~Television and short-form video~~ production ~~revenue~~

Our television and short-form video production revenue decreased by $0.1 million for the three months ended June 30, 2019 compared to 2018, primarily due to the number of episodes that became available for delivery or became available for broadcast during the respective periods and licensing revenue earned on previously produced series episodes. Television and short-form video production was 2% and 7% of net revenue for the three months ended June 30, 2019 and 2018, respectively. We have now created 164 half-hours of~~Chicken Soup for the Soul~~ ~~original television productions and 132 short-form video productions which were created with sponsor funding while we retained significant rights to license all of this programming.~~

~~For the three months ended June 30, 2019, the majority of our revenue recognized was related to our original episodic production of~~~~Animal Tales~~ ~~season one. For the three months ended June 30, 2018, revenue was recognized relating to licensing our~~~~Chicken Soup for the Soul~~ ~~original episodic productions,~~~~Hidden Heroes seasons one and two~~,~~Being Dad and Vacation Rental Potential season one~~~~; licensing agreements for these programs or other original episodic programming were not completed during the three months ended June 30, 2019.~~

~~For episodic and short-form video production, revenue is recognized as each episode or short-form video becomes available for delivery or becomes available for broadcast.~~

revenues.

Cost of Revenue

The following table presents cost of revenue line items for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 and the period-over-period dollar and percentage changes for those line items:

	Three Months Ended June 30,
	2019			% of revenue			2018			% of revenue			Change Period over Period

																		Three Months Ended June 30,
																					% of					% of		Change
																		2020			revenue		2019			revenue		Period over Period
Cost of revenue:
Programming costs amortization	$	208,173			2	%	$	80,100			3	%	$	128,073		160	%	$	54,764		1	%	$	208,173		2	%	$	(153,409)	(74)	%
Film library amortization (non-cash)		1,389,735			12	%		1,168,393			38	%		221,342		19	%
Film library amortization																			6,359,392		47	%		1,389,735		12	%		4,969,657	358	%
Revenue share and partner fees																			1,719,544		13	%		3,990,764		33	%		(2,271,220)	(57)	%
Distribution and platform costs		6,724,086			56	%		557,773			18	%		6,166,313		1106	%		4,799,845		35	%		2,733,322		23	%		2,066,523	76	%
Total cost of revenue	$	8,321,994			70	%	$	1,806,266			59	%	$	6,515,728		361	%	$	12,933,545		96	%	$	8,321,994		70	%	$	4,611,551	55	%
Gross profit	$	3,648,488					$	1,228,726					$	2,419,762		197	%	$	586,995				$	3,648,488				$	(3,061,493)	(84)	%
Gross profit margin		30	%					40	%					-10	%				4	%				30	%

Our cost of revenue increased by ~~$6.5~~$4.6 million for the three months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This increase was primarily due to a ~~result of increased revenues~~$5.0 million increase in film library amortization as a result of the ~~Crackle Plus Joint Venture.~~

~~Cost of~~$6.3 million increase in distribution revenue ~~consists primarily of amortization of programming costs for our television~~ and ~~short-form videos, non-cash amortization of our film library~~a $2.1 million increase in distribution and platform costs associated with AVOD and SVOD networks. The amortization is recognized in the proportion that the current period’s revenue bears to management’s estimate of ultimate revenue expected to be recognized from each production or film. It also includes direct expenses to distribute film and video on our owned and operated Crackle Plus, Popcornflix, Pivotshare, and other VOD platforms.

Platform costs are related to the various expenses incurred by the company to support and maintain the AVOD and SVOD networks. These costs are comprised of hosting and bandwidth costs, website traffic report costs, royalty fees, and music costs.

We initially capitalize our programming costs incurred to produce and develop our long-form and short-form video content. We capitalize all direct production and financing costs, capitalized interest, when applicable, and production overhead. We also capitalize the cost of acquiring film distribution rights, related film acquisition costs and accrued participation costs. For the three months ended June 30, 2019, the cost of revenue included film library amortization and distribution costs related to various films distributed during the period.

The costs of producing our long-form and short-form video content, and the costs of acquiring film distribution rights, are amortized using the individual-film-forecast method. As noted above, this method provides that costs are amortized to cost of revenue in the proportion that the current period’s revenue compares to our estimate of the ultimate revenue expected to be recognized, which spans several years.

~~For the three months ended June 30, 2019, the cost of revenue included amortization of programming cost related to our original production~~~~Animal Tales~~~~season one. To the extent the episodes generated revenue, that revenue was recognized in the period. For the three months ended June 30, 2018, cost of revenue was~~primarily driven by the ~~production~~formation of ~~episodes for our series~~~~Vacation Rental Potential~~~~season~~the Crackle Plus network during May of 2019, offset by a $2.3 million decrease in revenue share and partner fees as a result of the $3.3 million decrease in advertisement representation revenue primarily driven by the discontinued operations of one ad rep partner and~~Being Dad~~.

a $0.2 million decrease in programming costs amortization.

Operating Expenses

The following table presents operating expense line items for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 and the period-over-period dollar and percentage changes for those line items:

	Three Months Ended June 30,
	2019		% of revenue			2018		% of revenue			Change Period over Period

															Three Months Ended June 30,
																	% of				% of		Change
															2020		revenue		2019		revenue		Period over Period
Operating expenses:
Selling, general and administrative	$	4,700,424		39	%	$	2,493,625		82	%	$	2,206,799	88	%	$	7,052,776	52	%	$	4,700,424	39	%	$	2,352,352	50	%
Amortization		729,991		6	%		24,078		0	%		705,913	2932	%
Amortization and depreciation																5,241,415	39	%		729,991	6	%		4,511,424	*	%
Management and license fees		1,195,520		10	%		293,689		10	%		901,831	307	%		1,352,054	10	%		1,195,520	10	%		156,534	13	%
Total operating expenses	$	6,625,935		55	%	$	2,811,392		92	%	$	3,814,543	136	%	$	13,646,245	101	%	$	6,625,935	55	%	$	7,020,310	106	%

~~Including amortization and non-cash share-based compensation, our~~*Not meaningful

Our total operating expenses were ~~55%~~101% of net revenue for the three months ended June 30, 2020 and 2019 compared to ~~92%~~55% in the same period in ~~2018~~2019 and increased in absolute dollars by ~~$3.8 million. This increase was~~$7.0 million primarily ~~due to increased selling, general and administrative expenses, increased management and license fee~~ as a result of ~~an $8.9 million increase~~our operating growth in ~~revenue and amortization expense driven by acquired intangibles resulting from~~ the formation of the Crackle Plus ~~Joint Venture~~network which has resulted in increased amortization and depreciation. Excluding amortization and depreciation, operating expenses were 62% and 49% of net revenue for the three months ended June 30, 2020 and 2019, respectively.

Selling, general and administrative expenses increased by $2.4 million for the three months ended June 30, 2020 compared to 2019. The increase is primarily due to a $1.0 million increase in payroll, benefits and commissions expense and other operating expenses driven by the Company’s growth in headcount discussed in the following selling, general and administrative section.

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Amortization and depreciation expense increased by $4.5 million for the three months ended June 30, 2020 compared to 2019. The increase is primarily due to the amortization of intangible assets formed as a result of the Crackle Plus acquisition ~~of Pivotshare~~ in ~~August 2018.~~May 2019.

The management and license fee increased $0.2 million or 13% for the three months ended June 30, 2020 compared to 2019. The increase is due to and in line with the $1.6 million or 13% increase in net revenue for the three months ended June 30, 2020 compared to 2019.

Selling, General and Administrative Expenses

The following table presents selling, general and administrative expense line items for the three months ended June 30, ~~2019~~2020 and ~~2018~~2019 and the period-over-period dollar and percentage changes for those line items:

Three Months Ended

June 30,

Change


2020

2019

Period over Period

Payroll, benefits and commissions

$
3,903,792

$
2,911,668

$
992,124

34
%
Share-based compensation

229,273

275,097

(45,824)

(17)
%
Outside professional services

1,110,391

480,467

629,924

131
%
Public company costs and expenses

186,758

94,627

92,131

97
%
Bad debt expense

434,632

(22,935)

457,567

*
%
Other costs and expenses

1,187,930

961,500

226,430

24
%

$
7,052,776

$
4,700,424

$
2,352,352

50
%

Three Months Ended June 30, Change
2019 2018 Period over Period

Payroll, benefits and commissions $ 2,911,668 $ 1,121,593 $ 1,790,075 160 %
Share-based compensation 275,097 239,005 36,092 15 %
Outside professional services 480,467 670,671 (190,204 ) -28 %
Public company costs and expenses 94,627 82,686 11,941 14 %
Bad debt expense (22,935 ) 52,519 (75,454 ) -144 %
Other costs and expenses 961,500 327,151 634,349 194 %
$ 4,700,424 $ 2,493,625 $ 2,206,799 88 %
*Not meaningful

Our selling, general and administrative expenses increased by ~~$2.2~~$2.4 million for the three months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This increase ~~resulted~~is primarily ~~from increased~~due to a $1.0 million increase in payroll, benefits and commissions expense, $0.6 million increase in outside professional services, $0.5 million increase in bad debt expense and a $0.3 million combined residual increase in other overhead ~~expenses offset by a decrease in outsides professional services~~costs and ~~bad debt expense. See “~~~~Use of non-GAAP Financial Measure,~~~~” below for further discussion relating to selling, general and administrative expense.~~
expenses.
Our payroll, benefits and commission expense increased by ~~$1.8~~$1.0 million for the three months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This increase is primarily due to ana 14% increase in headcount as a result of the Crackle Plus ~~Joint Venture.~~acquisition.
~~Other costs and expenses~~Outside professional services increased by $0.6 million for the three months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This increase is primarily related to ~~corporate overhead~~a $0.4 million increase in legal expenses and a $0.2 million increase in accounting expenses as a result of the ~~Company’s year~~period over ~~year~~period growth in the business.
Bad debt expense increased $0.5 million for the three months ended June 30, 2020 compared to 2019 as a result of reserving certain aged customer balances within our Distribution and Production operations area.
~~Outside professional services decreased~~Other costs and expenses increased by $0.2 million in the three months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This ~~resulted from the timing of costs~~increase is primarily related to ~~professional services provided.~~
~~Bad debt expense decreased~~a $0.3 million increase in rent driven by the period over period growth in the business, offset by $0.1 million ~~resulting from stronger collection efforts year over year.~~
~~Effective January 1, 2017, we adopted our 2017 Long Term Incentive Plan (the “Plan”) to attract~~net combined decrease in other costs and ~~retain certain employees. The Plan,~~expenses primarily driven by decreased travel and entertainment expenses as ~~amended, currently allows us to issue up to 1.25 million common stock equivalents subject to the terms and conditions~~a result of the ~~Plan. The Plan generally provides for quarterly~~COVID-19 pandemic.
Public company costs and ~~bi-annual vesting over terms ranging from two to three years. We account for the Plan as an equity plan.~~
In both 2018 and 2019, we issued stock options pursuant to the Plan. We recognize 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. The non-cash share-based compensation expense is amortized on a straight-line basis over their respective vesting periods. We recognized $250,098 and $214,005 non-cash share-based compensation expenseexpenses increased $0.1 million for the three months ended June 30, ~~2019~~2020 compared to 2019. This increase was primarily related to investor relations fees and ~~2018, respectively. We also recognized $25,000~~other public company related costs incurred during the period.
Share-based compensation decreased $0.1 million for the three months ended June 30, ~~2019 and 2018, respectively,~~2020 compared to 2019. The decrease is primarily related to stock option grants issued under the Long Term Incentive Plan becoming fully vested during the period.

Table of ~~non-cash share-based compensation expense for share awards issued to our outside directors and non-employee producers for services rendered.~~Contents

Management and License Fees

We incurred management ~~and license~~ fees to CSS equal to ~~10%~~5% of total net revenue reported for the three ~~month periods~~months ended June 30, ~~2019~~2020 and ~~2018. See “~~~~Affiliate Resources~~2019. We also incurred license fees to CSS for use of the brand equal to 5% of total net revenue reported for the three months ended June 30, 2020 and ~~Obligations”~~ below for further discussion relating to the management services agreement and the license agreement. We believe that the terms and conditions of these agreements are more favorable to us than any similar agreements we could have negotiated with independent third parties.

2019.

Interest Expense

For the three ~~month periods~~months ended June 30, ~~2019~~2020 and ~~2018,~~2019, our interest expense was comprised primarily of ~~cash~~ interest ~~paid~~incurred on the ~~Commercial Loan~~commercial loan and a revolving credit ~~line with an entity controlled by our chief executive officer (“Credit Facility”) prior to its repayment, respectively.~~

facility.

The following table presents ~~cash based and non-cash based~~ interest expense for the three months ended June 30, 2020 and ~~2018:~~2019:

Three Months Ended June 30,
2019 2018
Cash Based:
Commercial Loan $ 120,536 $ 74,261
Revolving line of credit - related party - 8,712
120,536 82,973
Non-Cash Based:
Amortization of deferred financing costs 25,823 14,290
25,823 14,290
$ 146,359 $ 97,263

Three Months Ended June 30,

2020

2019
Commercial Loan

$
222,639

$
120,536
Revolving credit facility

101,110

—
Amortization of deferred financing costs

10,154

25,823

$
333,903

$
146,359

~~We incurred interest~~Interest expense ~~on advances under our Commercial Loan~~increased $0.2 million for the three months ended June 30, 2020 compared to 2019. ~~Financing costs incurred~~The increase is primarily related to ~~establish~~amending the ~~Commercial Loan are also amortized~~commercial loan in August 2019, pursuant to which our existing commercial loan of $5.0 million and line of credit of $3.5 million were consolidated and combined into a term loan of $16.0 million, bearing an initial interest ~~over its term for~~rate of 5.75% per annum (which increased to 6.25% in March 2020 due to not maintaining a minimum cash deposit with Patriot Bank). In addition, we entered into a revolving credit facility with Cole Investments VII, LLC in connection with the creation of our Landmark Studio Group subsidiary in October 2019. The revolving credit facility consists of a revolving line of credit in the amount of $5,000,000 and bears interest of 8% per annum.
Acquisition Related Costs
For the three months ended June 30, ~~2019.~~2020 and 2019 acquisition related costs, including legal, accounting and investment advisory fees totaled $0.0 million and $2.3 million, respectively. The $2.3 million decrease in acquisition related costs is primarily related to costs incurred in the prior period 2019 related to the formation of Crackle Plus, while in the current period we had no such acquisition.
Other Non-Operating Income, net
~~Advances under~~For the ~~Commercial Loan bear interest at 5.75% for~~three months ended June 30, 2020 and 2019 other non-operating income was $4.3 million and $0.1 million, respectively. Other non-operating income is primarily comprised of $5.4 million in extinguished liabilities as part of a settlement agreement with a technology platform vendor which discontinued operations prior to the ~~Term Loan and at a rate of prime plus 1.5% for the Revolver. Any advances we received under the Credit Facility bore interest at 5% per annum, plus an annual fee equal to 0.75%~~completion of the ~~unused portion of the Credit Facility. See “~~~~Liquidity~~contractual service period. Other income was offset by $1.1 million in other non-operating expenses related to a Crackle Plus partner settlement and ~~Capital Resources”~~ ~~below, for a full description of the Commercial Loan~~realized and ~~the Credit Facility.~~
unrealized losses on marketable securities.
Provision for Income Taxes
The Company’s provision for income taxes consists of federal and state taxes in amounts necessary to align our tax provision to the effective rate that we expect for the full year.
Our effective rate is impacted by permanent differences which consist primarily of ~~amortization of debt discounts included in interest expense~~charges for ~~the three months ended June 30, 2019, and the impact of~~ incentive stock options issued under the Company’s Long-Term Incentive Plan that are not tax-deductible as well as amortization of pre-acquisition film library costs for ~~both~~Screen Media Ventures for the three months ended June 30, ~~2019~~2020 and ~~2018.~~
2019.
Temporary timing differences consist primarily of net programming costs being deductible for tax purposes in the period incurred ~~(under~~under Internal Revenue Code Section ~~181)~~181(pre-2018) and when placed in service (released) for production costs incurred in the United States under Section 168(k) (post-2017) as contrasted to the capitalization and amortization for

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financial reporting purposes under the guidance of ASC 926 —~~Entertainment~~—Entertainment — ~~Films~~~~. Additionally, the~~Films. The Company also amortized, ~~for tax purposes only, an intangible asset~~ under Section 197 of the Internal Revenue Code, certain intangible assets acquired in business combinations, with such amortization either not reported in the consolidated financial ~~statements.~~

~~Affiliate Resources and Obligations~~

~~CSS License Agreement~~

In May 2016, we entered into 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~~statements or reported at different amounts. Additionally, acquisition related costs that were expensed for ~~the Soul~~ ~~brand and related content, such as stories published in the~~~~Chicken Soup for the Soul~~ ~~books. We paid CSS a one-time license fee of $5 million.~~

We are obligated to pay CSS an incremental recurring license fee equal to 4% of our gross revenue for each calendar quarter, and a marketing fee of 1% of our gross revenue for each calendar quarter. For the three months ended June 30, 2019 and 2018, the Company recorded total license fee expense (including for marketing support) of $597,760 and $146,844, respectively, payable to CSS.

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~~

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. We are obligated to pay CSS a management fee equal to 5% of our gross revenue for each calendar quarter. For the three months ended June 30, 2019 and 2018, the Company recorded management fee expense of $597,760 and $146,845, respectively, payable to CSS.

~~We believe that the terms and conditions of the CSS Management Agreement 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~~

In addition to the results reported in accordance with GAAP, we use a non-GAAP financial measure, which is not recognized under GAAP, as a supplemental indicator of our operating performance. This non-GAAP financial measure is provided to enhance the readers understanding of our historical and current financial performance. Management believes that this measure provides useful information in that it excludes amounts thatreporting purposes are not ~~indicative of our core operating results and ongoing operations and provide a more consistent basis~~immediately deductible for ~~comparison between periods. The non-GAAP financial measure that we currently use is Adjusted EBITDA which is defined as follows:~~tax purposes but are amortized over 15 years under Section 197.

“Adjusted EBITDA” means earnings before interest, taxes, depreciation, amortization, acquisition-related costs, consulting fees related to acquisitions and non-cash share-based compensation expense, and adjustments for other 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;~~

Although 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 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; 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.~~

~~Reconciliation of Unaudited Historical Results to Adjusted EBITDA~~

~~A reconciliation of net loss to Adjusted EBITDA is as follows:~~

Three Months Ended June 30,
2019 2018

Net loss available to common stockholders, as reported $ (5,916,077 ) $ (1,667,456 )
Preferred dividends 797,981 -
Provision for (benefit from) income taxes (253,000 ) (9,000 )
Other Taxes 50,465 -
Interest expense, net of interest income 134,335 93,791
Film library and program rights amortization, included in cost of revenue (non-cash) 1,595,768 1,168,393
Share-based compensation expense 275,097 239,005
Acquisition-related costs and other one-time consulting fees 2,258,801 50,000
Reserve for bad debt & video returns 218,111 178,164
Amortization 729,991 37,110
Transitional Expenses (a) 1,241,353 -
All other nonrecurring costs 144,150 122,276
Adjusted EBITDA $ 1,276,975 $ 212,283
~~(a)~~ ~~Represents transitional related expenses primarily associated with the Crackle Plus business combination.~~
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, ~~2019~~2020 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, ~~2018~~2019
Revenue
The following table presents revenue line items for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 and for the period-over-period dollar and percentage changes for those line items:

Six Months Ended June 30,




% of



% of

Change

2020

revenue

2019

revenue

Period over Period

Revenue:













Online networks

$
14,386,403

54
%
$
10,744,342

76
%
$
3,642,061

34
%
Distribution and Production

13,630,745

51
%

3,992,685

28
%

9,638,060

241
%
Total revenue

28,017,148

105
%

14,737,027

104
%

13,280,121

90
%
Less: returns and allowances

(1,252,535)

(5)
%

(573,391)

(4)
%

(679,144)

118
%
Net revenue

$
26,764,613

100
%
$
14,163,636

100
%
$
12,600,977

89
%
Six Months Ended June 30,
2019 % of
revenue 2018 % of
revenue Change
Period over Period
Revenue:
Online networks $ 10,744,342 76 % $ 1,530,212 17 % $ 9,214,130 602 %
Television and film distribution 3,444,990 24 % 5,274,965 60 % (1,829,975 ) -35 %
Television and short-form video production 547,695 4 % 2,436,161 28 % (1,888,466 ) -78 %
Total revenue 14,737,027 104 % 9,241,338 105 % 5,495,689 59 %
Less: returns and allowances (573,391 ) -4 % (445,994 ) -5 % (127,397 ) 29 %
Net revenue $ 14,163,636 100 % $ 8,795,344 100 % $ 5,368,292 61 %

Our net revenue increased by ~~$5.4~~$12.6 million for the six months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This increase in net revenue was primarily due to ~~an $9.2~~the $9.6 million increase in ~~online networks~~Distribution and Production revenue ~~as a result of the Crackle Plus Joint Venture which was offset~~resulting primarily from TVOD and video distribution revenue increases driven by ~~distribution and production revenue,~~strong performance by our film library content, as further described below.

Online ~~network~~Network revenue
Our online networks revenue increased by ~~$9.2~~$3.6 million for the six months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. The increase of ~~$9.2~~$3.6 million was primarily due to the acquisition of the Crackle Plus ~~Joint Venture formed on May 14, 2019 and the Pivotshare acquisition during August~~network which accounted for 94% of ~~2018.~~
~~Online network revenue was 76% and 17% of net revenue for the six months ended June 30, 2019 and 2018, respectively. Our online revenue includes revenue generated from~~ our online ~~advertising-supported video on demand content~~networks revenues, driven by the delivery of advertisements during the viewing of full length movies, television shows and original programming on our ~~owned~~platform.
Distribution and operated networks, Crackle Plus, Popcornflix, YouTube and the subscription-based VOD third-party niche channels operating our Pivotshare platform. We recognize online network revenue when videos are posted to a website or VOD platform for viewing or as advertisements are viewed in connection with these videos.
~~Television and film distribution~~Production revenue
~~Our television~~Distribution and ~~film distribution revenue decreased~~production revenues increased by ~~$1.8~~$9.6 million for the six months ended June 30, ~~2019~~2020 compared to ~~2018,~~2019, primarily due to a ~~$1.1 decrease~~$5.8 million increase in video distribution and theatrical revenues driven primarily by the performance of The Last Full Measure, a film we acquired in connection with the acquisition of the Foresight Unlimited film library, $2.5 million increase in TVOD and internet streaming revenue and a $1.8 million increase in AVOD distribution ~~$0.4 decrease in SVOD distribution, $0.3 decrease in international~~revenue driven by our original and ~~syndication barter revenue respectively,~~owned content, offset by a ~~$0.3~~$0.5 million ~~increase AVOD and TVOD distribution revenue. The six months ended June 30, 2018 was a particularly stronger year~~decrease in production revenue due to ~~specific titles which generated greater viewer acceptance than those distributed~~the lack of production of content in the current year. We continue to invest in content and distribution relationships which we believe will generate sustainable revenues in the future domestically and internationally and look forward to seeing those benefits as the year ~~progresses. As our business continues to grow and evolve, we look forward to increasing out distribution revenues through the newly formed Crackle Plus platform.~~
43
Television and film distribution revenue was 24% and 60% of net revenue for the six months ended June 30, 2019 and 2018, respectively. Television and film distribution revenue derived from Screen Media, consists of revenue recognized from license sales in all media including theatrical, home video, pay-per-view, free, cable and pay television, VOD and new digital media platforms worldwide. Revenues from digital distribution and VOD platforms are recorded when revenue is reported by their respective platforms. Sales of DVD units are generally recorded upon their shipment to customers and provision for future returns and other allowances are established based upon historical experience. We also held back network rights to two of our shows in the 4^th ~~quarter in anticipation of airing on Crackle Plus which did not occur until the second quarter of the fiscal year, delaying certain revenue for part of our business.~~
~~Television and short-form video production revenue~~
~~Our television and short-form video production revenue decreased by $1.9 million for the three months ended June 30, 2019 compared to 2018,~~ primarily due to the ~~number~~COVID-19 pandemic.

Table of episodes that became available for delivery or became available for broadcast during the respective periods and licensing revenue earned on previously produced series episodes. Television and short-form video production was 4% and 28% of net revenue for the six months ended June 30, 2019 and 2018, respectively. We have now created 164 half-hours of~~Chicken Soup for the Soul~~ ~~original television productions and 132 short-form video productions which were created with sponsor funding while we retained significant rights to license all of this programming.~~Contents

~~In the six months ended June 30, 2019, the majority of our revenue was recognized relating to our original episodic production of~~~~Animal Tales~~ ~~season one. For the six months ended June 30, 2018, revenue was recognized relating to our~~~~Chicken Soup for the Soul~~ ~~original episodic productions,~~~~Hidden Heroes~~,~~Vacation Rental Potential Season one~~~~, and~~~~Being Dad~~~~; episodes for these programs or similar replacements were not produced during the six months ended June 30, 2019.~~

~~For episodic and short-form video production, revenue is recognized as each episode or short-form video becomes available for delivery or becomes available for broadcast.~~

Cost of Revenue

The following table presents cost of revenue line items for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 and the period-over-period dollar and percentage changes for those line items:

Six Months Ended June 30,




% of



% of

Change

2020

revenue

2019

revenue

Period over Period

Cost of revenue:













Programming costs amortization

$
165,393

1
%
$
269,971

2
%
$
(104,578)

(39)
%
Film library amortization

8,800,473

33
%

2,260,861

16
%

6,539,612

289
%
Revenue share and partner fees

4,210,337

15
%

3,990,764

28
%

219,573

6
%
Distribution and platform costs

9,667,732

36
%

3,432,499

24
%

6,235,233

182
%
Total cost of revenue

$
22,843,935

85
%
$
9,954,095

70
%
$
12,889,840

129
%
Gross profit

$
3,920,678

$
4,209,541





Gross profit margin

15
%

30
%

Six Months Ended June 30,
2019 % of
revenue 2018 % of
revenue Change
Period over Period
Cost of revenue:
Programming costs amortization $ 269,971 2 % $ 850,501 10 % $ (580,530 ) -68 %
Film library amortization (non-cash) 2,260,861 16 % 2,622,532 30 % (361,671 ) -14 %
Distribution and platform costs 7,423,263 52 % 1,453,938 17 % 5,969,325 411 %
Total cost of revenue $ 9,954,095 70 % $ 4,926,971 57 % $ 5,027,124 102 %
Gross profit $ 4,209,541 $ 3,868,373 $ 341,168 9 %
Gross profit margin 30 % 44 % -14 %

Our cost of revenue increased by ~~$5.0~~$12.9 million for the six months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This increase was primarily due to a ~~result of increased revenues~~$6.5 million increase in film library amortization as a result of the ~~Crackle Plus Joint Venture.~~
~~Cost of~~$9.6 million increase in distribution revenue, ~~consists primarily of amortization of programming costs for our television and short-form videos, non-cash amortization of our film library~~a $6.2 million increase in distribution and platform costs ~~associated with AVOD~~ and ~~SVOD networks. The amortization is recognized~~a $0.2 million increase in ~~the proportion that the current period’s~~ revenue ~~bears to management’s estimate of ultimate revenue expected to be recognized from each production or film. It also includes direct expenses to distribute film~~share and ~~video on our owned and operated Crackle Plus, Popcornflix, Pivotshare, and other VOD platforms.~~partner fees.
We initially capitalize our programming costs incurred to produce and develop our long-form and short-form video content. We capitalize all direct production and financing costs, capitalized interest, when applicable, and production overhead. We also capitalize the cost of acquiring film distribution rights, related film acquisition costs and accrued participation costs. For the six months ended June 30, 2019, the cost of revenue included film library amortization and distribution costs related to various films distributed during the period.
The costs of producing our long-form and short-form video content, and the costs of acquiring film distribution rights, are amortized using the individual-film-forecast method. As noted above, this method provides that costs are amortized to cost of revenue in the proportion that the current period’s revenue compares to our estimate of the ultimate revenue expected to be recognized, which spans several years.
~~For the six months ended June 30, 2019, the cost of revenue included amortization of programming cost related to our original production~~~~Animal Tales~~season one. To the extent the episodes generated revenue, that revenue was recognized in the period. For the six months ended June 30, 2018, cost of revenue was driven by the production of episodes for our series~~Vacation Rental Potentialseason one and~~~~Being Dad~~.
Operating Expenses
The following table presents operating expense line items for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 and the period-over-period dollar and percentage changes for those line items:

44

Six Months Ended June 30,




% of



% of

Change

2020

revenue

2019

revenue

Period over Period

Operating expenses:













Selling, general and administrative

$
13,892,673

52
%
$
7,522,481

53
%
$
6,370,192

85
%
Amortization and depreciation

10,446,143

39
%

935,614

7
%

9,510,529

*
%
Management and license fees

2,676,461

10
%

1,414,790

10
%

1,261,671

89
%
Total operating expenses

$
27,015,277

101
%
$
9,872,885

70
%
$
17,142,392

174
%
Six Months Ended June 30,
2019 % of
revenue 2018 % of
revenue Change
Period over Period
Operating expenses:
Selling, general and administrative $ 7,522,481 53 % $ 5,143,022 58 % $ 2,379,459 46 %
Amortization 935,614 7 % 48,155 1 % 887,459 1843 %
Management and license fees 1,414,790 10 % 865,084 10 % 549,706 64 %
Total operating expenses $ 9,872,885 70 % $ 6,056,261 69 % $ 3,816,624 63 %
*Not meaningful
~~Including amortization and non-cash share-based compensation, our~~Our total operating expenses were ~~70%~~101% of net revenue for the six months ended June 30, 2020 and 2019 compared to ~~69%~~70% in the same period in ~~2018~~2019 and increased in absolute dollars by ~~$3.8~~$17.1 million. ~~This increase was primarily due to increased selling,~~Excluding amortization and depreciation, operating expenses were 62% and 63% of net revenue for the six months ended June 30, 2020 and 2019, respectively.

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Selling, general and administrative expenses increased by $6.4 million for the six months ended June 30, 2020 compared to 2019. The increase is primarily due to a $2.9 million increase in payroll, benefits and commissions expense and other operating expenses discussed in the following selling, general and administrative section.

Amortization and depreciation expense increased by $9.5 million for the six months ended June 30, 2020 compared to 2019. The increase is primarily due to the amortization of intangible assets formed as a result of the Crackle Plus acquisition in May 2019.

The management and license fee ~~as a result of an $5.4~~increased $1.3 million or 89% for the six months ended June 30, 2020 compared to 2019. The increase is due to and in line with the $12.6 million or 89% increase in net revenue ~~and amortization expense driven by acquired intangibles resulting from~~for the ~~formation of the Crackle Plus Joint Venture and the acquisition of Pivotshare in August 2018.~~

six months ended June 30, 2020 compared to 2019.

Selling, General and Administrative Expenses

The following table presents selling, general and administrative expense line items for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 and the period-over-period dollar and percentage changes for those line items:

Six Months Ended

June 30,

Change


2020

2019

Period over Period

Payroll, benefits and commissions

$
7,272,927

$
4,334,909

$
2,938,018

68
%
Share-based compensation

474,108

490,944

(16,836)

(3)
%
Outside professional services

1,698,034

742,011

956,023

129
%
Public company costs and expenses

289,336

151,249

138,087

91
%
Bad debt expense

1,281,801

(54,877)

1,336,678

*
%
Other costs and expenses

2,876,467

1,858,245

1,018,222

55
%

$
13,892,673

$
7,522,481

$
6,370,192

85
%

Six Months Ended June 30, Change
2019 2018 Period over Period

Payroll, benefits and commissions $ 4,334,909 $ 2,475,147 $ 1,859,762 75 %
Share-based compensation 490,944 493,200 (2,256 ) 0 %
Outside professional services 742,011 974,310 (232,299 ) -24 %
Public company costs and expenses 151,249 179,782 (28,533 ) -16 %
Bad debt expense (54,877 ) 140,151 (195,028 ) -139 %
Other costs and expenses 1,858,245 880,432 977,813 111 %
$ 7,522,481 $ 5,143,022 $ 2,379,459 46 %
*Not meaningful
Our selling, general and administrative expenses increased by ~~$2.4~~$6.4 million for the six months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This increase ~~resulted~~is primarily ~~from increased~~due to a $2.9 million increase in payroll, benefits and commissions expense, $1.3 million increase in bad debt expense and ~~other overhead expenses offset by a decrease~~$1.0 million increase in ~~outsides~~outside professional services and ~~bad debt expense. See “~~~~Use of non-GAAP Financial Measure,~~~~” below for further discussion relating to selling, general~~other cost and ~~administrative expense.~~
expenses, respectively.
Our payroll, benefits and commission expense increased by ~~$1.9~~$2.9 million for the six months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This increase is primarily due to ana 14% increase in headcount as a result of the Crackle Plus ~~Joint Venture.~~acquisition.
Bad debt expense increased $1.3 million for the six months ended June 30, 2020 compared to 2019 as a result of reserving certain aged customer balances within our Distribution and Production operation area.
Other costs and expenses increased by $1.0 million for the six months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This increase is primarily related to ~~corporate overhead expenses as~~ a ~~result of the Company’s~~$0.7 million increase in ~~headcount~~rent and ~~overall year over year growth.~~
a $0.3 million increase in marketing.
Outside professional services ~~decreased~~increased by ~~$0.2~~$1.0 million in the six months ended June 30, ~~2019~~2020 compared to ~~2018.~~2019. This ~~resulted from the timing of costs~~increase is primarily related to ~~professional services provided.~~
~~Bad debt expense decreased~~a $0.6 million increase in legal fees, $0.2 million ~~resulting from our stronger collection efforts year over year.~~
~~Effective January 1, 2017, we adopted our 2017 Long Term Incentive Plan (the “Plan”) to attract~~increase in consulting expenses and ~~retain certain employees. The Plan was amended on June 13, 2018 to~~$0.2 million increase ~~the number of shares available for issuance under the Plan. The Plan currently allows us to issue up to 1.25 million common stock equivalents subject to the terms and conditions~~in accounting expenses as a result of the ~~Plan. The Plan generally provides for quarterly~~period over period growth in the business.
Public company costs and ~~bi-annual vesting over terms ranging from two to three years. We account for the Plan as an equity plan.~~
In both 2018 and 2019, we issued stock options pursuant to the Plan. We recognize 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. The non-cash share-based compensation expense is amortized on a straight-line basis over their respective vesting periods. We recognized $440,944 and $443,200 of non-cash share-based compensation expenseexpenses increased $0.1 million for the six months ended June 30, ~~2019 and 2018, respectively. We also recognized $50,000~~2020 compared to 2019. This increase was primarily related to investor relations fees.
Share-based compensation decreased $0.1 million for the six months ended June 30, ~~2019 and 2018, respectively,~~2020 compared to 2019. The decrease is primarily related to stock option grants issued under the Long Term Incentive Plan becoming fully vested during the period.

Table of ~~non-cash share-based compensation expense for share awards issued to our outside directors and non-employee producers for services rendered.~~Contents

Management and License Fees

We incurred management ~~and license~~ fees to CSS equal to ~~10%~~5% of total ~~gross~~net revenue reported for the ~~three and~~ six ~~month periods~~months ended June 30, ~~2019~~2020 and ~~2018. See “Affiliate Resources~~2019. We also incurred license fees to CSS for use of the brand equal to 5% of total net revenue reported for the six months ended June 30, 2020 and Obligations” below for further discussion relating to the management services agreement and the license agreement. We believe that the terms and conditions of these agreements are more favorable to us than any similar agreements we could have negotiated with independent third parties.2019.

Interest Expense

For the six ~~month periods~~months ended June 30, ~~2019~~2020 and ~~2018,~~2019, our interest expense was comprised primarily of ~~cash~~ interest ~~paid~~incurred on the ~~Commercial Loan~~commercial loan and a revolving credit ~~line with an entity controlled by our chief executive officer (“Credit Facility”) prior to its repayment, respectively.~~

facility.

The following table presents ~~cash based and non-cash based~~ interest expense for the six months ended June 30, ~~2019~~2020 and ~~2018:~~2019:

Six Months Ended June 30,

2020

2019
Commercial Loan

$
440,500

$
235,835
Revolving credit facility

202,222

—
Amortization of deferred financing costs

20,306

51,647

$
663,028

$
287,482

Six Months Ended June 30,
2019 2018
Cash Based:
Commercial Loan $ 235,835 $ 74,261
Revolving line of credit - related party - 30,267
235,835 104,528
Non-Cash Based:
Amortization of deferred financing costs 51,647 14,290
51,647 14,290
$ 287,482 $ 118,818
~~We incurred interest~~Interest expense ~~on advances under our Commercial Loan~~increased $0.4 million for the six months ended June 30, 2020 compared to 2019. ~~Financing costs incurred~~The increase is primarily related to ~~establish~~amending the ~~Commercial Loan are also amortized~~commercial loan in August 2019, pursuant to which our existing commercial loan of $5.0 million and line of credit of $3.5 million were consolidated and combined into a term loan of $16.0 million, bearing an interest ~~over its term for~~rate of 6.25%. In addition, we entered into a revolving credit facility with Cole Investments VII, LLC in connection with the creation of our Landmark Studio Group subsidiary in October 2019. The Revolving Credit Facility consists of a revolving line of credit in the amount of $5,000,000 and bears interest of 8% per annum.
Acquisition Related Costs
For the six months ended June 30, ~~2019.~~2020 and 2019 acquisition related costs, including legal, accounting and investment advisory fees totaled $0.1 million and $2.7 million, respectively. The $2.6 million decrease in acquisition related costs is primarily related to costs incurred in the prior period 2019 related to the formation of Crackle Plus while in the current year we had no such acquisition.
46
Other Non-Operating Income, net
~~Advances under~~For the ~~Commercial Loan bear interest at 5.75% for~~six months ended June 30, 2020 and 2019 other non-operating income was $4.3 million and $0.1 million, respectively. Other non-operating income is primarily comprised of $5.4 million in extinguished liabilities as part of a settlement agreement with a technology platform vendor which discontinued operations prior to the ~~Term Loan and at a rate of prime plus 1.5% for the Revolver. Any advances we received under the Credit Facility bore interest at 5% per annum, plus an annual fee equal to 0.75%~~completion of the ~~unused portion of the Credit Facility. See “~~~~Liquidity~~contractual service period. Other income was offset by other non-operating expenses related to a Crackle Plus partner settlement and ~~Capital Resources”~~ ~~below, for a full description of the Commercial Loan~~realized and ~~the Credit Facility.~~unrealized losses on marketable securities.
Provision for Income Taxes
The Company’s provision for income taxes consists of federal and state taxes in amounts necessary to align our tax provision to the effective rate that we expect for the full year.
Our effective rate is impacted by permanent differences which consist primarily of ~~amortization of debt discounts included in interest expense~~charges for ~~the six months ended June 30, 2019, and the impact of~~ incentive stock options issued under the Company’s Long-Term Incentive Plan that are not tax-deductible as well as amortization of pre-acquisition film library costs for ~~both~~Screen Media Ventures for the six months ended June 30, ~~2019~~2020 and ~~2018.~~
2019.
Temporary timing differences consist primarily of net programming costs being deductible for tax purposes in the period incurred ~~(under~~under Internal Revenue Code Section ~~181)~~181(pre-2018) and when placed in service (released) for production costs incurred in the United States under Section 168(k) (post-2017) as contrasted to the capitalization and amortization for financial reporting purposes under the guidance of ASC 926 —~~Entertainment~~—Entertainment — ~~Films~~~~. Additionally, the~~Films. The Company also amortized, ~~for tax purposes only, an intangible asset~~

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under Section 197 of the Internal Revenue Code, certain intangible assets acquired in business combinations, with such amortization either not reported in the consolidated financial ~~statements.~~

~~Affiliate Resources and Obligations~~

~~CSS License Agreement~~

In May 2016, we entered into 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~~statements or reported at different amounts. Additionally, acquisition related costs that were expensed for ~~the Soul~~ ~~brand and related content, such as stories published in the~~~~Chicken Soup for the Soul~~ ~~books. We paid CSS a one-time license fee of $5 million.~~

We are obligated to pay CSS an incremental recurring license fee equal to 4% of our gross revenue for each calendar quarter, and a marketing fee of 1% of our gross revenue for each calendar quarter. For the six months ended June 30, 2019 and 2018, the Company recorded total license fee expense (including for marketing support) of $707,395 and $432,542, respectively, payable to CSS.

~~CSS Management Agreement~~

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. We are obligated to pay CSS a management fee equal to 5% of our gross revenue for each calendar quarter. For the six months ended June 30, 2019 and 2018, the Company recorded management fee expense of $707,395 and $432,542, respectively, payable to CSS.

~~We believe that the terms and conditions of the CSS Management Agreement 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~~

~~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~~tax purposes but are amortized over 15 years 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 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; 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.~~

~~Reconciliation of Unaudited Historical Results to Adjusted EBITDA~~

~~A reconciliation of net loss to Adjusted EBITDA is as follows:~~

Six Months Ended June 30,
2019 2018

Net loss available to common stockholders, as reported $ (9,292,814 ) $ (2,552,359 )
Preferred dividends 1,401,288 -
Provision for (benefit from) income taxes (691,000 ) 204,000
Other Taxes 331,675 -
Interest expense, net of interest income^(a) 261,933 115,171
Film library and program rights amortization, included in cost of revenue (non-cash) 2,466,894 2,622,532
Share-based compensation expense 490,944 493,200
Acquisition-related costs and other one-time consulting fees 2,656,736 145,300
Reserve for bad debt & video returns 518,515 586,144
Amortization 935,614 74,221
Transitional Expenses^(a) 1,241,353 -
All other nonrecurring costs 187,055 122,278
Adjusted EBITDA $ 508,193 $ 1,810,487
~~(a)~~ ~~Represents transitional related expenses primarily associated with the Crackle Plus business combination.~~
Section 197.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our primary sources of liquidity are our existing cash and cash equivalents, cash ~~provided by~~inflows from operating activities and ~~borrowings under our Commercial Loan.~~financing activities. As of June 30, ~~2019,~~2020, we had cash and cash equivalents of ~~$5.2~~$4.7 million. Our total ~~debt~~commercial loan principal outstanding was ~~$7.4~~$13.6 million as of June 30, ~~2019.~~
~~We believe our cash and cash equivalents on hand should be sufficient to meet our cash requirements for at least~~2020. In addition, the ~~next twelve months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. It is possible that we could incur unexpected costs and expenses~~Company has an outstanding revolving credit facility in the future, fail to collect significant amounts that may be owed to us, or experience unexpected cash requirements that would force us to seek additional financing. If we seek additional financing, we would likely issue additional equity or debt securities, andamount of $5.0 million as ~~a result, stockholders may experience additional dilution, or the new debt or equity securities may have rights, preferences or privileges more favorable than those~~ of existing holders of our debt or equity. In this event, if additional financing is not available or is not available on acceptable terms, we may be required to delay or reduce the scope of our video content production plans.
June 30, 2020.
Preferred Stock ~~Offering~~Dividend
~~As described above under “~~~~Recent Developments”~~, during the six months ended June 30, 2019, we completed the sale of 419,505 shares of our 9.75% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Stock”) at an offering price of $25.00 per share generating total net proceeds to the Company, after deducting offering expenses, of approximately $9.7 million.
We have declared monthly dividends of $0.2031 per share on our Series A Preferred Stock to holders of record as of each month end January through June ~~2019.~~30, 2020. Total dividends paid from January through the date of this report were approximately $1.9 million.
49
Cash Flows
Our cash and cash equivalents balance was ~~$5.2~~$4.7 million as of June 30, ~~2019~~2020 and ~~$7.2~~$6.5 million as of December 31, ~~2018.~~ 2019.

Cash flow information for the six months ended June 30, ~~2019~~2020 and ~~2018~~2019 is as follows:

Six Months Ended June 30,


2020

2019

Cash (used in) provided by:





Operating activities

$
(836,428)

$
(6,005,953)

Investing activities

2,592,887

(3,898,487)

Financing activities

(3,548,544)

7,907,695

Net decrease in cash and cash equivalents

$
(1,792,085)

$
(1,996,745)

Six Months Ended June 30, Change in
2019 2018 Dollars Percentage
Cash provided by (used in):
Operating activities $ (6,005,953 ) $ (2,429,814 ) $ (3,576,139 ) -147 %
Investing activities (3,898,487 ) 315,549 (4,214,036 ) 1335 %
Financing activities 7,907,695 18,780,901 (10,873,205 ) -58 %
Net increase in cash and cash equivalents $ (1,996,745 ) $ 16,666,636 $ (18,663,381 ) -112 %
Operating Activities
Net cash used in operating activities was $0.8 million for the six months ended June 30, 2020. Net cash used in operating activities was $6.0 million for the six months ended June 30, 2019. The decrease in cash used in operating activities for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 was primarily due to a $3.2 million increase related to the effect of changes in operating assets and liabilities and a $2.0 million decrease in net loss adjusted for the exclusion of non-cash items.
The net loss adjusted for the exclusion of non-cash items was approximately $2.2 million for the six months ended June 30, 2020 as compared to net loss adjusted for the exclusion of non-cash expenses of $4.2 million for the six months ended June 30, 2019. The decrease in the net loss adjusted for non-cash expenses was primarily due to a $13.7 million increase in net non-cash items driven by the amortization of intangible assets and film library assets, respectively, offset by an $11.7 million increase in net loss.
The effect of changes in operating assets and liabilities was an increase of $1.4 million for the six months ended June 30, 2020 compared to a decrease of $1.8 million for the six months ended June 30, 2020. The most significant drivers contributing to this increase relate to the following:
● Changes in accounts receivable primarily driven by the timing of collections. Accounts receivable decreased $9.6 million during the six months ended June 30, 2020 as compared to an increase of $7.4 million during the six months ended June 30, 2019.

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●

Changes in the film library asset primarily due to increased premium content investment in our distribution and production operation area. The film library increased $16.7 million for the six months ended June 30, 2020 compared to a $8.1 million increase for the six months ended June 30, 2019.

●

Changes in accrued participation costs primarily due to increased revenues in our distribution and production operation area fueled by the distribution of our premium content and timing of payments. Accrued participation costs increased $7.0 million during the six months ended June 30, 2020 as compared to a decrease of $0.4 million during the six months ended June 30, 2019.

●

Changes in the film library acquisition and programming obligations primarily due to the timing payments and increased content investment in our distribution and production operation area. Film library acquisition and programming obligations increased $2.4 million for the six months ended June 30, 2020 compared to a $2.8 million increase for the six months ended June 30, 2019.

●

Changes in programming costs and rights due to increased content investment in our distribution and production operation area. Programming costs and rights increased $1.5 million for the six months ended June 30, 2020 compared to a $1.5 million increase for the six months ended June 30, 2019.

Investing Activities

For the six months ended inJune 30, 2020 and 2019, our ~~operating~~investing activities provided net cash totaling $2.6 million and required a net use of cash ~~totaling $6.0 million. This net use~~ of cash from operating activities resulted primarily from our investment in film library distribution rights and programs costs totaling $9.6 million and an increase in accounts receivable of $7.4 million, offset by an increase in accounts payable and accrued expenses of $14.3 million resulting from the timing of payment of normal course of business expenses. This was offset in part by amortization of programming costs and our film library of $2.5 million and our non-cash share-based compensation of $0.5 million.

For the six months ended in 2018, our operating activities required a net use of cash totaling $2.4 million as we adjusted to the operations of Screen Media. This net use of cash from operating activities resulted primarily from our investment in in-production and in-development programming costs and film libraries totaling $6.4 million, offset in part by the amortization of programming costs and our film library of $3.5 million and an increased accrual for film library acquisition obligations of $1.6 million.

~~Investing Activities~~

~~For the six months ended in 2019 and 2018, our investing activities required a net use of cash totaling~~ $3.9 ~~million and net provided cash totaling $0.3~~ million, respectively. This resulted primarily from ~~an increase~~a $2.6 million decrease in our ~~due to / from~~due-from affiliated companies’ balance driven by our parent ~~company~~company’s central cash management ~~system.~~system through which from time to time funds are transferred to meet liquidity needs and are settled on an ongoing basis. Settlements fluctuate period over period due to timing of these liquidity needs.

Financing Activities

For the six months ended June 30, 2020, our financing activities used net cash totaling $3.5 million. This resulted from the payment of scheduled dividend payments to preferred stockholders in the amount of $1.9 million and scheduled debt principal payments on the commercial loan of $1.6 million.

For the six months ended June 30, 2019, our financing activities provided net cash totaling $7.9 million. This resulted primarily from proceeds from the sale of our preferred stock of $10.5 ~~million. Such proceeds were primarily~~million, offset by the payment of scheduled dividend payments to preferred stockholders in the amount of $1.4 million, payment of stock issuance costs of $0.8 million and scheduled debt principal payments on the ~~payment~~commercial loan of ~~dividends to preferred stockholders of $1.4~~$0.5 million.

~~For the six months ended in 2018, our financing activities provided net cash totaling $18.8 million primarily consisting of an advance from the Credit Facility and preferred stock offering.~~

Anticipated Cash Requirements

~~Our strategy is to fund our investment in television programs through payments we receive~~We believe that cash flow from ~~sponsors. Our~~operations, cash on hand, and ~~amounts due~~the monetization of trade accounts receivable, together with equity and debt offerings, will be adequate to ~~us near term under contractual obligations allows us to be flexible as to payment timing from sponsors~~meet our known operational cash and to use our cash on hand to fund production in advance of such sponsor payments. Nevertheless, we do not begin production until we have payment commitments from sponsors in excess of our production costs. As a result, we expect our production activity to be cash flow positivedebt service (i.e., principal and interest payments) requirements for each series. Additionally, we may acquire businesses or assets, including individual video content libraries that are complementary to our business. Any such transaction could be financed through cash on hand,the foreseeable future. We monitor our cash flow ~~from~~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 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 or new equity or debt financing. For the current six months ended June 30, 2019, we’ve used cash of $2.0 million, we expect to have positive cash flows throughout the future reporting periods during the year.

and financial performance could be materially adversely affected.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates 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 amounts of revenue and expenses during the reported periods. In

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accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in more detail in the notes to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, and should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our report on Form 10-K for the year ended December 31, ~~2018.~~2019. There have been no significant changes in our critical accounting policies, judgments and estimates, since December 31, ~~2018.~~

~~Recent Accounting Pronouncements~~

~~See Item 1 of Part 1, Condensed Consolidated Financial Statements – Note 4 “~~~~Recent Accounting Pronouncements”.~~

2019.

JOBS Act

We are an emerging growth company, ~~(EGC),~~ as defined in the JOBS Act and are eligible to 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, only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy or information statements, and not being required to adopt certain new and revised accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of the extended time for the adoption of 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.

Off-Balance Sheet Arrangements

As of June 30, ~~2019,~~2020 and December 31, ~~2018,~~2019, we had no off-balance sheet arrangements.

Effect of Inflation and Changes in Prices

Not applicable.

~~We do not expect inflation and changes in prices will have a material effect on our operations.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not ~~applicable to smaller reporting companies.~~applicable.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Our management has established disclosure controls and procedures designed to ensure that information the Company is required to disclose in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission rules and forms. Such disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information the Company is required to disclose in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management to allow timely decisions regarding required disclosure. A ~~controls~~control system, no matter how well designed and operated, cannot provide absolute assurance the objectives of the ~~controls~~control system are met, and no evaluation of controls can provide absolute assurance all control issues and instances of fraud, if any, within a company have been detected.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2019,~~2020, the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the date of our Quarterly Report on Form 10-Q, June 30, 2020, have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the

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Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Our independent registered public accounting firm has not performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act. As a result, it is possible, had our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, material weaknesses and significant control deficiencies may have been identified. However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply with the requirement that our independent registered public accounting firm provide an attestation on the effectiveness of our internal control over financial reporting.

Changes in internal control over financial reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

In the normal course of business, from time-to-time, the Company may become subject to claims in legal proceedings. In addition to creating its own content and using its own technologies, the Company distributes third party content and utilizes third party technology, which could further expose the Company to claims arising from actions of such third parties (for which the Company would seek indemnification that may or may not be available under the terms governing the Company’s relationships with such third parties). Legal proceedings are subject-to inherent uncertainties, and an unfavorable outcome could include monetary damages, and in such event, could result in a material adverse impact on the ~~Company's~~Company’s business, financial position, results of operations, or cash flows.

Item 1A – Risk Factors

~~We are affected by risks specific~~The following risk factor is provided to ~~us as well as~~update the risk factors that could affect all businesses, including our desire to operate in a global market. The significant factors known to us that could materially adversely affect our business, financial condition, or operating results are set forthpreviously disclosed under the heading “Risk Factors” in the “~~Risk Factors”~~ ~~section of our report~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

The global spread of the coronavirus (COVID-19) and the various attempts to contain it have created significant volatility, uncertainty and economic disruption. In response to government mandates, health care advisories and otherwise responding to employee and vendor concerns, we have altered certain aspects of our operations. Our workforce has had to spend a significant amount of time working from home, which may impact their productivity. All of our productions are paused, as are productions of third-parties who supply us with content. Other operating partners have similarly had their operations altered or temporarily suspended, including those partners that we use for our Crackle Plus operations as well as our partners for development, production and post-production of content. To the extent the resulting economic disruption is severe, we could see some vendors go out of business, resulting in supply constraints and increased costs or delays to our operations. Such pauses cause us to have less new content available on our service, which has had an impact on our revenue and may have a material impact in subsequent quarters, due to reduced consumer demand for and user retention to our services. Temporary operation pauses or permanent shutdowns could result in content asset impairments or other charges and will change the timing and amount of cash outflows associated with operating activity.

~~Unknown Factors~~

~~Additional risks~~The full extent to which the COVID-19 pandemic and ~~uncertainties of which we are unaware or which currently we deem immaterial also may become important~~the various responses to it impacts our business, operations and financial results will depend on numerous evolving factors that ~~affect us.~~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

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customer demand for our services; disruptions or restrictions on our employees’ ability to work and travel; 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. Furthermore, given increased government expenditures associated with their COVID-19 response, we could see increased government obligations which could negatively impact our results of operations. If we need to access the capital markets, there can be no assurance that financing may be available on attractive terms, if at all. We will continue to actively monitor the issues raised by the COVID-19 pandemic and may take further actions that alter our business operations, including content production, as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, suppliers or vendors, or on our financial results.

In addition to the potential direct impacts to our business, the global economy is likely to be significantly weakened as a result of the actions taken in response to COVID-19. To the extent that such a weakened global economy impacts customers’ and partners ability or willingness to pay for our services or vendors’ ability to provide services to us, we could see our business and results of operation negatively impacted.

Item 2 – Unregistered Sales of Equity Securities

None

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

Not applicable.

Item 5 – Other Information

None

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Item 6 – Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which is incorporated herein by reference.

~~Exhibit No.~~		~~Description~~
Exhibit No.		Description
~~10.1~~		Amendment to Management Services Agreement *
31.1
~~31.1~~		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		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.*

32.2		Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

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*

~~Included herewith.~~

* Included herewith.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHICKEN SOUP FOR THE SOUL ENTERTAINMENT, INC.
	(Registrant)

	/s/ Christopher Mitchell
	Christopher Mitchell
	Chief Financial Officer (Principal Financial Officer)

	/s/ William J. Rouhana, Jr.
	William J. Rouhana, Jr.
	Chief Executive Officer
Date: August ~~14, 2019~~13, 2020	(Principal Executive Officer)

Delaware	81-2560811
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

132 East Putman Avenue – Floor 2W, Cos Cob, CT	06807
~~(Address~~ (Address of Principal Executive Offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock 9.75% Series A Cumulative Redeemable Perpetual Preferred Stock	CSSE CSSEP	The Nasdaq Stock Market LLC The Nasdaq Stock Market LLC
9.50% Notes Due 2025	CSSEN	The Nasdaq Stock Market LLC

Large accelerated filer¨☐	Accelerated filer¨☐
Non-accelerated filerx☒	Smaller reporting companyx☒
	Emerging growth companyx☒

transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ -2 of the Exchange Act). Yes ☐ No ☒ 12,642,428 as follows:
Title of Each Class
Class A Common Stock, $.0001 par value per share	~~4,252,964~~	4,834,960
Class B Common Stock, $.0001 par value per share*	7,813,938