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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 8/14/23 Chosen, Inc. 10-Q 6/30/23 48:4.9M Toppan Merrill/FA2 |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.24M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 20K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 19K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 15K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 15K
11: R1 Document and Entity Information HTML 73K
12: R2 Condensed Consolidated Balance Sheets HTML 123K
13: R3 Condensed Consolidated Balance Sheets HTML 42K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Operations HTML 114K
15: R5 Condensed Consolidated Statements of Equity HTML 67K
16: R6 Condensed Consolidated Statements of Cash Flows HTML 94K
17: R7 Basis of Presentation and Summary of Significant HTML 23K
Accounting Policies
18: R8 Revenue Recognition HTML 56K
19: R9 Earnings (loss) per share HTML 18K
20: R10 Balance Sheet Components HTML 200K
21: R11 Debt HTML 33K
22: R12 Equity HTML 22K
23: R13 Income Taxes HTML 38K
24: R14 Related Party Transactions HTML 21K
25: R15 Commitments and Contingencies HTML 19K
26: R16 Subsequent Events HTML 17K
27: R17 Basis of Presentation and Summary of Significant HTML 25K
Accounting Policies (Policies)
28: R18 Revenue Recognition (Tables) HTML 51K
29: R19 Balance Sheet Components (Tables) HTML 231K
30: R20 Debt (Tables) HTML 28K
31: R21 Income Taxes (Tables) HTML 34K
32: R22 Basis of Presentation and Summary of Significant HTML 54K
Accounting Policies (Details)
33: R23 Revenue Recognition - Disaggregation (Details) HTML 31K
34: R24 Revenue Recognition - Contract Assets and HTML 25K
Liabilities (Details)
35: R25 Balance Sheet Components - Inventory (Details) HTML 21K
36: R26 Balance Sheet Components - Property and Equipment HTML 51K
(Details)
37: R27 Balance Sheet Components - Film Costs (Details) HTML 42K
38: R28 Balance Sheet Components - Leases (Details) HTML 125K
39: R29 Balance Sheet Components (Details) HTML 31K
40: R30 Debt (Details) HTML 35K
41: R31 Equity (Details) HTML 41K
42: R32 Income Taxes (Details) HTML 24K
43: R33 Related Party Transactions (Details) HTML 31K
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47: JSON XBRL Instance as JSON Data -- MetaLinks 306± 440K
48: ZIP XBRL Zipped Folder -- 0001410578-23-001938-xbrl Zip 200K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form i 10-Q
(Mark One)
| |
i ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED i JUNE 30, 2023
or
| |
| |
i ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission file number: i 000-55029
THE CHOSEN, INC.
(Exact name of registrant as specified in its charter)
| |
i Delaware | i 82-3246222 |
(State
or other jurisdiction of | (I.R.S. Employer |
| |
i 4 S 2600 W, Suite 5 | i 84737 |
(Address of principal executive offices) | (Zip Code) |
( i 435) i 767-1338
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
i None | N/A | N/A |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | |
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☑ | Smaller reporting company | i ☑ |
| | Emerging growth company | i ☑ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. i ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☐ No ☑
At August 14, 2023, i 6,950,000 shares of the registrant’s Series A Common Stock, $0.001 par value per share, were issued and outstanding and i 5,595,015 shares of the registrant’s Series B Common Stock, $0.001 par value per share, were issued and outstanding.
- 1 -
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q (THIS “QUARTERLY REPORT”) MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE THIS FILING, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE FORWARD LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
- 2 -
Part I - Financial Information
Item 1. Financial Statements
The Chosen, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except par value)
| | | | | | |
|
| As of | ||||
| |
| ||||
|
| | (Unaudited) |
| |
|
Assets |
| |
|
| |
|
Cash | | $ | i 108,942 | | $ | i 124,790 |
Accounts receivable, net of allowances of $ i 158 and $ i 0 at June 30, 2023 and December 31, 2022, respectively | |
| i 6,058 | |
| i 8,983 |
Inventory | |
| i 7,978 | |
| i 6,110 |
Prepaid assets | |
| i 2,812 | |
| i 754 |
Other current assets | |
| i 1,733 | |
| i 864 |
Total current assets | |
| i 127,523 | |
| i 141,501 |
Property and equipment, net | |
| i 31,601 | |
| i 34,426 |
Film costs, net | |
| i 50,808 | |
| i 33,276 |
Other assets | |
| i 1,328 | |
| i 1,042 |
Total assets | | $ | i 211,260 | | $ | i 210,245 |
Liabilities and Equity | |
| | |
|
|
Accounts payable | | $ | i 2,252 | | $ | i 5,549 |
Accrued expenses and other current liabilities | |
| i 6,791 | |
| i 12,827 |
Current portion of long-term debt and lease liabilities | |
| i 2,527 | |
| i 2,463 |
Total current liabilities | |
| i 11,570 | |
| i 20,839 |
Long-term debt and lease liabilities, net | |
| i 142,860 | |
| i 143,377 |
Other noncurrent liabilities | |
| i 3,069 | |
| i 2,571 |
Deferred tax liability, net | |
| i 8,244 | |
| i 5,104 |
Total liabilities | |
| i 165,743 | |
| i 171,891 |
Commitments and contingencies | |
| — | |
| — |
Series A Preferred Stock, $ i i 0.001 / par value; i i 120 / % dividend preference; i i 8,000 / shares authorized; i 0 and i 4,341 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | |
| — | |
| i 5 |
Series A Common Stock, $ i i 0.001 / par value; i i 10,900 / shares authorized; i i i i 6,950 / / / issued and outstanding at June 30, 2023 and December 31, 2022, respectively | |
| i 7 | |
| i 7 |
Series B Common Stock, $ i i 0.001 / par value; i i 25,000 / shares authorized; i 5,595 and i 1,254 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively | |
| i 6 | |
| i 1 |
Additional paid-in capital | |
| i 10,237 | |
| i 10,237 |
Retained earnings | |
| i 27,678 | |
| i 18,004 |
Noncontrolling interest | |
| i 7,589 | |
| i 10,100 |
Total equity | |
| i 45,517 | |
| i 38,354 |
Total liabilities and equity | | $ | i 211,260 | | $ | i 210,245 |
See accompanying notes to the condensed consolidated financial statements.
- 3 -
The Chosen, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
| | | | | | | | | | | | |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
| | 2023 |
| 2022 | | 2023 |
| 2022 | ||||
Revenues |
| |
|
| |
|
| |
|
| |
|
Licensed content and merchandise revenues | | $ | i 12,476 | | $ | i 2,650 | | $ | i 28,463 | | $ | i 7,933 |
Contribution revenues | |
| i 14,259 | |
| — | | | i 22,985 | | | — |
Total revenues | |
| i 26,735 | |
| i 2,650 | | | i 51,448 | | | i 7,933 |
| | | | | | | | | | | | |
Cost of revenues | |
| i 5,519 | |
| i 262 | | | i 11,429 | | | i 649 |
Advertising | |
| i 2,559 | |
| i 68 | | | i 4,186 | | | i 326 |
Amortization of film costs | |
| i 4,688 | |
| i 535 | | | i 8,676 | | | i 1,389 |
Depreciation and amortization | |
| i 2,232 | |
| i 65 | | | i 4,377 | | | i 96 |
General and administrative | |
| i 6,888 | |
| i 2,507 | | | i 13,372 | | | i 4,215 |
Net operating income (loss) | |
| i 4,849 | |
| ( i 787) | | | i 9,408 | | | i 1,258 |
Interest income (expense), net | |
| i 210 | |
| — | | | i 765 | | | — |
Other income | |
| i 5 | |
| — | | | i 21 | | | — |
Net income (loss) before income taxes | |
| i 5,064 | |
| ( i 787) | | | i 10,194 | | | i 1,258 |
Benefit (provision) for income taxes | |
| ( i 1,527) | |
| i 192 | | | ( i 3,141) | | | ( i 335) |
Net income (loss) | |
| i 3,537 | |
| ( i 595) | | | i 7,053 | | | i 923 |
Net loss attributable to noncontrolling interest | |
| i 1,353 | |
| i 63 | | | i 2,621 | | | i 92 |
Net income (loss) attributable to The Chosen, Inc. | | $ | i 4,890 | | $ | ( i 532) | | $ | i 9,674 | | $ | i 1,015 |
Less: | |
| | |
| | | | | | | |
Contractual preferred distributions to participating securities | |
| — | |
| — | | | — | | | i 1,015 |
Income allocated to participating securities | |
| — | |
| — | | | — | | | — |
Net income (loss) attributable to Common Stock/Common Units | | $ | i 4,890 | | $ | ( i 532) | | $ | i 9,674 | | $ | — |
Earnings (loss) per Common Stock/Common Units, basic and diluted(1) | | $ | i i 0.39 / | | $ | ( i i 0.07 / ) | | $ | i i 0.77 / | | $ | — |
Weighted average Common Stock/Common Units outstanding, basic and diluted(1) | |
| i i 12,545 / | |
| i i 7,190 / | | | i i 12,545 / | | | i i 7,190 / |
(1) | Represents earnings (loss) per share and weighted average issued and outstanding Series A Common Stock and Series B Common Stock for the period after the change in share structure as result of the Company’s conversion on November 29, 2022 (see Note 3 and Note 6). |
See accompanying notes to the condensed consolidated financial statements.
- 4 -
The Chosen, Inc.
Condensed Consolidated Statements of Equity
(Unaudited, in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Members’ Equity | | Stockholders’ Equity | | | | | | | | | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Class A | | Series A | | Series B | | Series A | | Additional | | | | Non | | | |||||||||
| | Common | | Preferred Units | | Common Stock | | Common Stock | | Preferred Stock | | Paid-In | | Retained | | controlling | | Total | |||||||||
Three and Six Months Ended June 30, 2023 |
| Units |
| Units |
| Amount | | Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| earnings |
| Interest |
| Equity | |
Balance as of March 31, 2023 | | — | | — | | — |
| i 6,950 | | i 7 | | i 5,595 | | i 6 | | — | | — | | i 10,237 | | i 22,788 | | | i 8,942 | | i 41,980 |
Contributions from noncontrolling interest | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | | — | | — |
Net income (loss) |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| i 4,890 |
| | ( i 1,353) |
| i 3,537 |
Balance as of June 30, 2023 |
| — |
| — |
| — |
| i 6,950 |
| i 7 |
| i 5,595 |
| i 6 |
| — |
| — |
| i 10,237 |
| i 27,678 |
| $ | i 7,589 |
| i 45,517 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2022 |
| — |
| — |
| — |
| i 6,950 |
| i 7 |
| i 1,254 |
| i 1 |
| i 4,341 |
| i 5 |
| i 10,237 |
| i 18,004 |
| | i 10,100 |
| i 38,354 |
Conversion to Series B Common Stock |
| — |
| — |
| — |
| — |
| — |
| i 4,341 |
| i 5 |
| ( i 4,341) |
| ( i 5) |
| — |
| — |
| | — |
| — |
Contributions from noncontrolling interest |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | i 110 |
| i 110 |
Net income (loss) |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| i 9,674 |
| $ | ( i 2,621) |
| i 7,053 |
Balance as of June 30, 2023 |
| — |
| — |
| — |
| i 6,950 |
| i 7 |
| i 5,595 |
| i 6 |
| — |
| — |
| i 10,237 |
| i 27,678 |
| $ | i 7,589 |
| i 45,517 |
See accompanying notes to the condensed consolidated financial statements.
- 5 -
The Chosen, Inc.
Condensed Consolidated Statements of Equity
(Unaudited, in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Members’ Equity | | Stockholders’ Equity | | | | | | | | | | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Class A | | Series A | | Series B | | Series A | | Additional | | | | Non | | | |||||||||
| | Common | | Preferred Units | | Common Stock | | Common Stock | | Preferred Stock | | Paid-In | | Retained | | controlling | | Total | |||||||||
Three and Six Months Ended June 30, 2022 |
| Units |
| Units |
| Amount | | Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| earnings |
| Interest |
| Equity | |
Balance as of March 31, 2022 | | i 14,380 | | i 11,190 | | i 11,190 |
| — | | — | | — | | — | | — | | — | | ( i 940) | | i 33,762 | | | i 5,443 | | i 49,455 |
Contributions from noncontrolling interest | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | | | i 594 | | i 594 |
Net income (loss) |
| — |
| — | | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | ( i 532) | | | ( i 63) | | ( i 595) |
Balance as of June 30, 2022 |
| i 14,380 |
| i 11,190 | | i 11,190 |
| — |
| — |
| — |
| — |
| — |
| — |
| ( i 940) | | i 33,230 | | $ | i 5,974 | | i 49,454 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2021 |
| i 14,380 |
| i 11,190 | | i 11,190 |
| — |
| — |
| — |
| — |
| — |
| — |
| ( i 940) | | i 32,215 | | | i 1,914 | | i 44,379 |
Conversion to Series B Common Stock |
| — |
| — | | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | — | | | — | | — |
Contributions from noncontrolling interest |
| — |
| — | | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | — | | | i 4,152 | | i 4,152 |
Net income (loss) |
| — |
| — | | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — | | i 1,015 | | $ | ( i 92) | | i 923 |
Balance as of June 30, 2022 |
| i 14,380 |
| i 11,190 | | i 11,190 |
| — |
| — |
| — |
| — |
| — |
| — |
| ( i 940) | | i 33,230 | | $ | i 5,974 | | i 49,454 |
See accompanying notes to the condensed consolidated financial statements.
- 6 -
The Chosen, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| | | | | | |
| | Six Months Ended | ||||
| | |||||
|
| 2023 |
| 2022 | ||
Cash flows from operating activities | | | | | | |
Net income |
| $ | i 7,053 |
| $ | i 923 |
Adjustments to reconcile net income to net cash from operating activities: | | | | | | |
Depreciation and amortization expense | | | i 4,377 | | | i 96 |
Amortization of film costs | | | i 8,676 | | | i 1,389 |
Deferred income tax provision | | | i 3,141 | | | i 613 |
Amortization of debt issuance costs | | | i 67 | | | — |
Non-cash lease expense | | | i 33 | | | i 60 |
Allowance for doubtful accounts | | | ( i 158) | | | — |
Changes in operating assets and liabilities: | | | | | | |
(Increase) decrease in accounts receivable | | | i 2,937 | | | i 12,949 |
(Increase) decrease in inventory | | | ( i 1,868) | | | — |
(Increase) decrease in prepaids and other current assets | | | ( i 2,927) | | | i 1,286 |
(Increase) decrease in film costs | | | ( i 26,437) | | | ( i 13,265) |
Increase (decrease) in accounts payable | | | ( i 3,347) | | | ( i 1,035) |
Increase (decrease) in accrued expenses and other current liabilities | | | i 4,381 | | | ( i 184) |
Increase (decrease) in other noncurrent liabilities | | | i 498 | | | — |
Net cash flows provided by (used in) operating activities | | | ( i 3,574) | | | i 2,832 |
Cash flows from investing activities | | | | | | |
Acquisition of property & equipment | | | ( i 1,488) | | | ( i 13,094) |
Proceeds from sale of property & equipment | | | — | | | i 86 |
Net cash flows (used in) investing activities | | | ( i 1,488) | | | ( i 13,008) |
Cash flows from financing activities | | | | | | |
Contributions from noncontrolling interest member | | | i 110 | | | i 4,152 |
Principal paid on finance lease | | | ( i 9) | | | ( i 7) |
Principal paid on debt | | | ( i 470) | | | — |
Dividends paid | | | ( i 10,417) | | | — |
Net cash flows provided by (used in) financing activities | | | ( i 10,786) | | | i 4,145 |
Net change in cash | | | ( i 15,848) | | | ( i 6,030) |
Cash, beginning of period | | | i 124,790 | | | i 15,932 |
Cash, end of period |
| $ | i 108,942 |
| $ | i 9,902 |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid for interest | | $ | i 731 | | $ | i 1 |
See accompanying notes to the condensed consolidated financial statements.
- 7 -
The Chosen, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
iNote 1 – Basis of Presentation and Summary of Significant Accounting Policies
The Chosen, Inc., a Delaware corporation, is an independent television and film production company, which was created to develop and produce an episodic television series entitled The Chosen (the “Series”). The Series is based on the gospels of the Bible and tells the story of the life of Jesus Christ primarily through the perspectives of those who met him throughout his life.
The condensed consolidated financial statements of The Chosen, Inc., its wholly owned subsidiaries, and its variable controlling interest in Impossible Math, LLC (collectively the “Company”), have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report for the year ended December 31, 2022 included in the Company’s amended registration statement on Form 10 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 2, 2023 and amended on April 3, 2023 and May 23, 2023 (as amended, the “Form 10”). The preparation of the condensed consolidated financial statements in conformity with U.S. 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 the amortization of content assets and the recognition and measurement of income tax assets and liabilities. The Company bases its estimates on 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 related notes included in the Company’s Form 10. Interim results are not necessarily indicative of the results for a full year.
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 for the year ended December 31, 2022.
iRevision of Previously Issued Financial Statements
In connection with the preparation of the Company’s consolidated financial statements, certain prior period adjustments in previously issued interim financial statements filed within the Company’s Form 1-SA dated September 30, 2022 were identified. The Company evaluated the errors, both qualitatively and quantitatively, and concluded that the corrections did not have a material impact on, nor require amendment of, any previously issued financial statements. The prior period misstatement related to Deferred tax liability, net in the Condensed Consolidated Balance Sheets as of June 30, 2022. The correction of this misstatement resulted in an increase to Deferred tax liability, net by $ i 3,003 thousand in the Condensed Consolidated Balance Sheets as of June 30, 2022 and an increase to Provision for income taxes by $ i i 3,003 / thousand in the Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 2022. This correction decreased net income by $ i i 3,003 / thousand for the three months and six months ended June 30, 2022. The Company retrospectively corrected the misstatements and revised the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations.
/ iAccounts Receivable
Accounts receivable are carried at the original invoice amount less an allowance for doubtful accounts. Management determines the allowance for doubtful accounts by identifying accounts and by using historical experience applied to an aging of accounts. Accounts receivable are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. The Company does not charge interest on past due balances or require collateral on its accounts receivable. As of June 30, 2023 and December 31, 2022, the allowance for doubtful accounts was $ i 158 and $ i 0, respectively.
/ /- 8 -
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts which, at times, exceed federally insured limits. As of June 30, 2023 and December 31, 2022, the bank balance exceeded the federally insured limit by $ i 23,580 thousand and $ i 124,293 thousand, respectively.
A major customer is considered to be one that comprises more than i 10% of the Company’s accounts receivable or annual revenues. During the three months and six months ended June 30, 2023, i 86.7% and i 78.3%, respectively, of the Company’s revenues were with Angel Studios, Inc. (“Angel Studios”) and the Come and See Foundation, Inc. (“CAS”). During the three months and six months ended June 30, 2022, i 95.2% and i 93.5%, respectively, of the Company's revenues were with Angel Studios. As of June 30, 2023 and December 31, 2022, i 82.5% and i 92.0%, respectively, of the Company’s accounts receivable was due from Angel Studios and CAS.
/ iNote 2 - Revenue Recognition
The Company primarily earns its revenue from licensing its intellectual property rights related to the Series. Licensed content revenues are primarily earned from royalties based on (i) subscription video-on-demand usage for hours viewed, and (ii) video-on-demand (“VOD”), physical media, merchandise, books, printed materials, and box office sales. Merchandise revenue is generated from online store and wholesale sales of The Chosen merchandise and DVDs.
The Company also generates revenues from funds received under a non-reciprocal agreement with CAS for donation proceeds received by CAS through The Chosen App to be used in furtherance of the charitable purposes of CAS, which include the production of the Series. Contributions received from voluntary donations pursuant to the agreement with CAS are reported as Contribution revenues in the Consolidated Statements of Operations in accordance with ASC Topic 958, Not-for-Profit Entities, being a core source of revenue from the Series and used to market, produce and distribute the Series.
The following table presents the Company’s revenue disaggregated by licensed content and merchandise revenues as well as contribution revenues (in thousands):
i
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | |||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Licensed content | | $ | i 4,727 | | $ | i 2,650 | | $ | i 13,270 | | $ | i 7,933 |
Merchandise | |
| i 7,749 | |
| — | |
| i 15,193 | |
| — |
Licensed content and merchandise revenues | | $ | i 12,476 | | $ | i 2,650 | | $ | i 28,463 | | $ | i 7,933 |
Contribution revenues | |
| i 14,259 | |
| — | |
| i 22,985 | |
| — |
Total revenues | | $ | i 26,735 | | $ | i 2,650 | | $ | i 51,448 | | $ | i 7,933 |
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in advance of the Company’s right to bill and receive consideration and that right is conditioned upon something other than the passage of time. The Company did not have any contract assets as of June 30, 2023 and December 31,2022.
Contract liabilities are recorded when consideration is received from a customer prior to fully satisfying a performance obligation in a contract. The Company’s contract liabilities consist of deferred revenue for cash received related to licensed content arrangements under which a payment has been received and the content has not yet been made available to the customer and cash received related to merchandise arrangements under which a payment has been received and the order is unfulfilled. These contract liabilities will be recognized as revenues when control of the related product or service is transferred to the customer.
/- 9 -
The following table presents contract liabilities included on the Condensed Consolidated Balance Sheets (in thousands):
i
| | | | | | |
| | As of | ||||
| | June 30, | | |||
| | 2023 | | 2022 | ||
Accrued expenses and other current liabilities |
| $ | i 896 |
| $ | i 165 |
Other noncurrent liabilities (1) | |
| i 1,929 | |
| i 2,571 |
Total contract liabilities | | $ | i 2,825 | | $ | i 2,736 |
(1) | This amount reflects the cash payment received from the CAS transaction for performance obligations that were not satisfied as of June 30, 2023. |
Revenue recognized during the three months and six months ended June 30, 2023, from amounts included in total contract liabilities as of December 31, 2022, was $ i 165 and $ i 0 thousand, respectively. There was i i no / revenue recognized from amounts included in total contract liabilities for the three months and six months ended June 30, 2022.
iNote 3 – Earnings (loss) per share
Earnings (loss) per share (“EPS”) is calculated using the two-class method, which requires the allocation of earnings to each class of common stock outstanding and to participating securities with rights to earnings that would otherwise have been available to common stockholders. Except with respect to the number of votes per share, Series A Common Stock and Series B Common Stock have the same rights and preferences, including equal rights to participation in the dividends and other distributions of the Company (see Note 6). Accordingly, basic and diluted earnings per share is the same for both classes and EPS for the three months and six months ended June 30, 2023 have been presented as a single class of common stock.
All Series A Preferred Stock were previously reflected as converted into Class B Common Stock for basic EPS as of December 31, 2022 following the declaration of the Dividend to Series A Preferred Stockholders (See Note 6 and the Company’s Annual Report for the year ended December 31, 2022 included in the amended Form 10). Diluted weighted average common stock outstanding for the three months and six months ended June 30, 2022 does not include the effects of the conversion of the participating Series A Preferred Stock as the inclusion of these instruments would have been anti-dilutive. As of June 30, 2023, the Company does not have any potentially dilutive instruments outstanding.
iNote 4 – Balance Sheet Components
Inventory
iAs of June 30, 2023 and December 31, 2022, inventory consisted of the following (in thousands):
| | | | | | |
|
| As of | ||||
| | June 30, | | |||
| | 2023 |
| 2022 | ||
Raw materials | | $ | i 985 | | $ | i 985 |
Finished goods | |
| i 6,993 | |
| i 5,125 |
Inventory | | $ | i 7,978 | | $ | i 6,110 |
/- 10 -
Property and Equipment
Property and Equipment and accumulated depreciation consisted of the following:
i
| | | | | | | | |
|
| As of |
| | ||||
| | June 30, | | December 31, | | Estimated | ||
| | 2023 |
| 2022 |
| Useful Lives | ||
| | (in thousands) | | (in years) | ||||
Land | | $ | i 90 | | $ | i 90 | |
|
Buildings and improvements | |
| i 37,099 | |
| i 36,495 | | i i 4 / – i i 30 / |
Equipment | |
| i 771 | |
| i 290 | | i i 3 / – i i 15 / |
Furniture and fixtures | |
| i 74 | |
| i 16 | | i i 5 / |
Vehicles | |
| i 758 | |
| i 758 | | i i 8 / |
Construction in process | |
| i 395 | |
| — | |
|
Property and equipment, gross | |
| i 39,187 | |
| i 37,649 | |
|
Accumulated depreciation | |
| ( i 7,586) | |
| ( i 3,223) | |
|
Property and equipment, net | | $ | i 31,601 | | $ | i 34,426 | |
|
i i i i No / / / impairment of property and equipment was recorded during the three months and six months ended June 30, 2023 and 2022.
Film Costs
iThe following table represents the components of film costs (in thousands):
| | | | | | |
| | As of | ||||
| | June 30, | | |||
|
| 2023 |
| 2022 | ||
Released and completed film costs | | $ | i 47,612 | | $ | i 47,362 |
Not released, in production film costs | |
| i 28,589 | |
| i 2,250 |
In development or preproduction film costs | |
| i 378 | |
| i 759 |
Film costs, gross | |
| i 76,579 | |
| i 50,371 |
Accumulated amortization | |
| ( i 25,771) | |
| ( i 17,095) |
Film costs, net of amortization | | $ | i 50,808 | | $ | i 33,276 |
Amortization expense for film costs during the three months ended June 30, 2023 and 2022 was $ i 4,688 thousand and $ i 535 thousand, respectively. Amortization expense for film costs during the six months ended June 30, 2023 and 2022 was $ i 8,676 thousand and $ i 1,389 thousand, respectively.
iThe future aggregate amounts of amortization expense expected to be recognized over the next five years related to released and completed film costs as of June 30, 2023 are as follows (in thousands):
| | | |
Years Ending December 31: |
| Amount | |
Remainder of 2023 | | $ | i 9,755 |
2024 | |
| i 5,231 |
2025 | |
| i 4,948 |
2026 | |
| i 1,567 |
2027 | |
| i 340 |
Total | | $ | i 21,841 |
- 11 -
Leases
The Company has operating and finance leases for some of the Company’s operating and office facilities and vehicles. The leases expire at various dates through 2027 and provide for renewal options ranging from i one month to i four terms of i ten-years. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.
iThe Company’s operating and finance right-of-use assets and lease liabilities consisted of the following (in thousands):
| | | | | | |
|
|
| ||||
Right-of-use assets (1) |
| |
|
| |
|
Operating leases | | $ | i 1,043 | | $ | i 889 |
Finance leases | |
| i 76 | |
| i 86 |
Total right-of-use assets | | $ | i 1,119 | | $ | i 975 |
| | | | | | |
Short-term lease liabilities (2) | |
| | |
|
|
Operating leases | | $ | i 389 | | $ | i 533 |
Finance leases | |
| i 19 | |
| i 19 |
| | $ | i 408 | | $ | i 552 |
Long-term lease liabilities (3) | |
| | |
|
|
Operating leases | | $ | i 440 | | $ | i 338 |
Finance leases | |
| i 59 | |
| i 68 |
| | $ | i 499 | | $ | i 406 |
Total lease liabilities | | $ | i 907 | | $ | i 958 |
| (1) | Included in Other assets in the Condensed Consolidated Balance Sheets. |
| (2) | Included in Current portion of long-term debt and lease liabilities in the Condensed Consolidated Balance Sheets. |
| (3) | Included in Long-term debt and lease liabilities in the Condensed Consolidated Balance Sheets. |
The components of lease costs consisted of the following (in thousands):
| | | | | | | | | | | | |
|
| Three Months Ended |
| Six Months Ended | ||||||||
| | June 30, | | |||||||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
Lease costs |
| |
|
| |
|
| |
|
| |
|
Finance lease cost |
| |
|
| |
|
| |
|
| |
|
Amortization of right-of-use assets | | $ | i 5 | | $ | i 3 | | $ | i 10 | | $ | i 3 |
Interest on lease liabilities | |
| i 1 | | | i 1 | | | i 2 | | | i 1 |
Operating lease cost | |
| i 185 | | | i 32 | | | i 361 | | | i 63 |
Variable and short-term lease cost | |
| i 623 | | | i 317 | | | i 814 | | | i 317 |
Total lease cost | | $ | i 814 | | $ | i 353 | | $ | i 1,187 | | $ | i 384 |
Cash paid during the period for amounts included in the measurement of lease liabilities consisted of the following (in thousands):
| | | | | | |
|
| Six Months Ended | ||||
| | |||||
| | 2023 | | 2022 | ||
Cash paid for amounts included in the measurement of lease liabilities: |
| |
|
| |
|
Operating cash flows for finance leases | | $ | i 2 | | $ | i 2 |
Operating cash flows for operating leases | |
| i 330 | | | i 3 |
| | | | | | |
Right-of-use assets obtained in exchange for lease obligations: | |
| | | | |
Operating leases | | $ | i 293 | | $ | i 561 |
Finance leases | |
| — | | | i 97 |
- 12 -
Supplemental balance sheet information related to leases consisted of the following (in thousands):
| | | | | |
|
|
|
| ||
Weighted average remaining lease term (in years): |
|
|
|
| |
Operating leases |
| i 2.56 years |
| i 4.28 years | |
Finance leases |
| i 3.83 years |
| i 4.83 years | |
Weighted average discount rate: |
|
|
|
| |
Operating leases |
| i 6.06 | % | i 6.35 | % |
Finance leases |
| i 4.26 | % | i 4.26 | % |
i iMaturities of lease liabilities as of June 30, 2023 were as follows (in thousands):
| | | | | | |
|
| Operating Leases |
| Finance Leases | ||
Remainder of 2023 | | $ | i 308 | | $ | i 11 |
2024 | |
| i 220 | | | i 22 |
2025 | |
| i 211 | | | i 22 |
2026 | |
| i 151 | | | i 22 |
2027 | |
| — | | | i 7 |
Thereafter | |
| — | | | — |
Total lease payments | |
| i 890 | | | i 84 |
Imputed interest | |
| ( i 61) | | | ( i 6) |
Total lease liability | | $ | i 829 | | $ | i 78 |
Accrued expenses and other current liabilities
iAccrued expenses and other current liabilities consisted of the following (in thousands):
| | | | | | |
| | As of | ||||
| | June 30, | | |||
|
| 2023 |
| 2022 | ||
| | | | | | |
Accrued compensation | | $ | i 1,729 | | $ | i 273 |
Accrued participant royalties | |
| i 1,384 | |
| i 1,383 |
Accrued contractor payments | |
| i 1,005 | |
| — |
Deferred revenues | | | i 896 | | | i 165 |
Accrued inventory purchases | |
| i 637 | |
| — |
| | | | | | |
Dividends payable | |
| — | |
| i 10,417 |
Other | |
| i 1,140 | |
| i 589 |
Accrued expenses and other current liabilities | | $ | i 6,791 | | $ | i 12,827 |
iNote 5 - Debt
On November 29, 2022, the Company entered into a financing agreement with CAS with an aggregate principal of $ i 145,500 thousand. This loan has no maturity date with no fixed repayment schedule and is non-interest bearing for the first i seven years, after which the loan accrues interest at the then-current applicable federal rate. The Company is required to repay the loan quarterly, based on a specified percentage of i 5% applied to the proceeds received from certain of the Company’s licensed content and merchandise revenues, which continues to be paid to CAS after the aggregate principal balance is repaid. The loan is recorded applying the effective interest method based on the expected repayments and estimated timing and amount due upon a potential liquidity event.
In addition, upon the occurrence of certain events, the Company's repayment of the outstanding principal balance may be accelerated or be declared immediately due. Such events include voluntary or involuntary bankruptcy, change of control, corporate arrangement, or other customary events of default. The loan is secured by the intellectual property rights owned by the Company, whereby CAS receives a first-priority continuing senior security interest.
/- 13 -
The following table presents debt on the Condensed Consolidated Balance Sheets (in thousands):
i
| | | | | | |
| | As of | ||||
| | June 30, | | |||
|
| 2023 |
| 2022 | ||
Long-term debt (1) | | $ | i 142,981 | | $ | i 143,659 |
Current portion of long-term debt (2) | |
| i 2,119 | |
| i 1,911 |
Total long-term debt | | $ | i 145,100 | | $ | i 145,570 |
| (1) | Included in Long-term debt and lease liabilities, net in the Condensed Consolidated Balance Sheets. |
| (2) | Included in Current portion of long-term debt and lease liabilities in the Condensed Consolidated Balance Sheets. |
Long-term debt is net of unamortized debt issuance costs of $ i 620 thousand and $ i 688 thousand as of June 30, 2023 and December 31, 2022, respectively.
iNote 6 - Equity
A dividend of $ i 2.40 for each outstanding share of Series A Preferred Stock totaling $ i 13,428 was declared on November 30, 2022, and the Company initiated the payment to stockholders on December 2, 2022. Upon receipt of payment of the dividend, each share of Series A Preferred Stock is converted into i one share of Series B Common Stock. As of December 31, 2022, i 1,254,391 shares of Series A Preferred Stock had been converted into Series B Common Stock. In March 2023, the Company paid the remaining dividend to holders of Series A Preferred Stock $ i 10,417 thousand or $ i 2.40 to all remaining Series A Preferred Stock holders. As such, all Series A Preferred Stock have been converted to Series B Common Stock and as of June 30, 2023.
Each share of Series A Common Stock is entitled to i ten votes per share, and each share of Series B Common Stock is entitled to i one vote per share. Except with respect to the number of votes per share, Series A Common Stock and Series B Common Stock have the same rights and preferences, including equal rights to participation in the dividends and other distributions of the Company.
/ iNote 7 - Income Taxes
i
| | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | | ||||||||
| | June 30, | | | | |||||||||
|
| 2023 |
| 2022 |
|
| 2023 |
| 2022 |
| ||||
Benefit (provision) for income taxes | | $ | ( i 1,527) | | $ | i 192 | | | $ | ( i 3,141) | | $ | ( i 335) | |
Effective tax rate | |
| i 30 | % |
| i 24 | % | |
| i 31 | % |
| i 27 | % |
The effective tax rates for the three months and six months ended June 30, 2023 and 2022 differed from the federal statutory rate primarily due to the impact from the net loss attributable to noncontrolling interest (“NCI”).
The increase in the effective tax rate of i 6% for the three months ended June 30, 2023 as compared to 2022 was primarily due to the impact from the net loss attributable to NCI of $ i 1,290 thousand. The increase in the effective tax rate of i 4% for the six months ended June 30, 2023 as compared to 2022 was primarily due to the impact from the net loss attributable to NCI of $ i 2,529 thousand.
/- 14 -
Note 8 - Related Party Transactions
In 2018, the Company entered into an exclusive VOD and subscription licensing agreement with Angel Studios, which was a member of the Company, for distribution of the Company’s television series. This agreement was amended in November 2019 and September 2020 to refine certain terms (collectively, the “2018 Angel Studios License Agreement”). On October 18, 2022, the Company entered into a new agreement with Angel Studios which replaced the 2018 Angel Studios License Agreement and grants Angel Studios the right to a limited, non-exclusive and non-sublicensable license to distribute the Company’s television series solely on the Angel App. Any existing sublicensing rights that were granted to Angel Studios under the 2018 Angel Studios License Agreement shall be set to expire, and all rights thereafter shall be exclusively retained by the Company. In October 2022, the Company repurchased the Common Units previously held by Angel Studios and is no longer considered a related party.
The Company recognized revenue from transactions with related parties of $ i 0 thousand and $ i 2,523 thousand during the three months ended June 30, 2023 and 2022, respectively. The Company recognized revenue from transactions with related parties of $ i 0 thousand and $ i 7,417 thousand during the six months ended June 30, 2023, and 2022, respectively. As of June 30, 2023 and December 31, 2022, there were i i no / related party receivable balances.
/ iNote 9 - Commitments and Contingencies
Commitments
Under the Company’s current license agreement with Angel Studios, the Company is required to remit payments to Angel Studios, in perpetuity, based on a specified percentage of certain of the Company’s revenues derived from the Series.
Refer to Note 4 Balance Sheet Components – Leases and Note 5 Debt for information related to the Company’s contractual commitments for leasing and financing arrangements.
Litigation
The Company is involved in legal proceedings from time to time arising in the normal course of business. Management, after consultation with legal counsel, believes that the outcome of these proceedings will not have a material impact on the Company’s financial position, results of operations, or liquidity. For further information on legal proceedings involving the Company, refer to Part II, Item 1 Legal Proceedings.
iNote 10 - Subsequent Events
Management has evaluated events and transactions for potential recognition or disclosure through August 14, 2023, the date the consolidated financial statements were available to be issued. The Company concluded that there were no material subsequent events requiring adjustment to or disclosure in these interim condensed consolidated financial statements.
- 15 -
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Other Financial Information
For purposes of this discussion, the use of the words “we,” “us,” “Company,” or “our” refers to The Chosen, Inc. (f/k/a The Chosen, LLC) and its subsidiaries, except where the context otherwise requires.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the Company’s registration statement on Form 10 filed with the SEC on February 2, 2023 and amended on April 3, 2023 and May 23, 2023 (as amended, the “Form 10”), including the audited consolidated financial statements and the related notes included therein and the condensed consolidated interim financial statements and related notes included elsewhere in this Quarterly Report. Our historical results are not necessarily indicative of the results to be expected for any future period, and results for any interim period are not necessarily indicative of the results to be expected for the full year.
In addition to our condensed consolidated interim financial statements, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. See “Cautionary Statement Concerning Forward-Looking Statements” and the “Risk Factors” set forth in Part II, Item 1A herein for a discussion of the uncertainties, risks and assumptions associated with these statements.
Results of Operations
Overview
The Company is an entertainment company, which develops, produces and licenses for distribution, domestically and internationally, an episodic television series entitled The Chosen. The Company collaborates with content owners to market, source, curate and distribute the Series to targeted audiences through (i) existing and emerging digital home entertainment platforms, including but not limited to Netflix, Hulu, and most VOD streaming platforms, as well as (ii) physical media, including DVD and Blue-ray Discs, (iii) books and (iv) merchandise.
The Company’s revenue model primarily includes royalties received from the licensing of The Chosen as well as online store and wholesale sales of The Chosen merchandise and contributions. Our marketing efforts include limited and strategically focused advertising campaigns through targeted social media campaigns.
- 16 -
Comparison of the Three Months and Six Months Ended June 30, 2023 and June 30, 2022
The following summary of our consolidated results of operations should be read in conjunction with our audited consolidated financial statements, and related notes, included herein.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
|
| |
|
| | | Six Months Ended |
|
| |
|
| | ||||||||
| | June 30, | | Change |
| | June 30, | | Change |
| ||||||||||||||
|
| 2023 | | 2022 |
| 2023 vs. 2022 |
|
| 2023 |
| 2022 |
| 2023 vs. 2022 |
| ||||||||||
| | (in thousands, except percentages) |
| | (in thousands, except percentages) |
| ||||||||||||||||||
Revenues: |
| |
|
| |
|
| |
|
|
|
| | |
|
| |
|
| |
|
|
|
|
Licensed content and merchandise revenues | | $ | 12,476 | | $ | 2,650 | | $ | 9,826 | | 371 | % | | $ | 28,463 | | $ | 7,933 | | $ | 20,530 | | 259 | % |
Contribution revenues | |
| 14,259 | |
| — | |
| 14,259 |
| 100 | % | |
| 22,985 | |
| — | |
| 22,985 |
| 100 | % |
Total revenues | |
| 26,735 | |
| 2,650 | |
| 24,085 |
| 909 | % | |
| 51,448 | |
| 7,933 | |
| 43,515 |
| 549 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Cost of revenues | |
| 5,519 | |
| 262 | |
| 5,257 |
| 2,006 | % | |
| 11,429 | |
| 649 | |
| 10,780 |
| 1,661 | % |
Advertising | |
| 2,559 | |
| 68 | |
| 2,491 |
| 3,663 | % | |
| 4,186 | |
| 326 | |
| 3,860 |
| 1,184 | % |
Amortization of film costs | |
| 4,688 | |
| 535 | |
| 4,153 |
| 776 | % | |
| 8,676 | |
| 1,389 | |
| 7,287 |
| 525 | % |
Depreciation and amortization | |
| 2,232 | |
| 65 | |
| 2,167 |
| 3,334 | % | |
| 4,377 | |
| 96 | |
| 4,281 |
| 4,459 | % |
General and administrative | |
| 6,888 | |
| 2,507 | |
| 4,381 |
| 175 | % | |
| 13,372 | |
| 4,215 | |
| 9,157 |
| 217 | % |
Net operating income (loss) | |
| 4,849 | |
| (787) | |
| 5,636 |
| (716) | % | |
| 9,408 | |
| 1,258 | |
| 8,150 |
| 648 | % |
Interest income (expense), net | |
| 210 | |
| — | |
| 210 |
| 100 | % | |
| 765 | |
| — | |
| 765 |
| 100 | % |
Other income | |
| 5 | |
| — | |
| 5 |
| 100 | % | |
| 21 | |
| — | |
| 21 |
| 100 | % |
Net income (loss) before income taxes | |
| 5,064 | |
| (787) | |
| 5,851 |
| (743) | % | |
| 10,194 | |
| 1,258 | |
| 8,936 |
| 710 | % |
Benefit (provision) for income taxes | |
| (1,527) | |
| 192 | |
| (1,719) |
| (895) | % | |
| (3,141) | |
| (335) | |
| (2,806) |
| 838 | % |
Net income (loss) | | $ | 3,537 | | $ | (595) | | $ | 4,132 |
| (694) | % | | | 7,053 | | | 923 | | | 6,130 |
| 664 | % |
Licensed Content and Merchandise Revenues
Licensed content and merchandise revenues include payments received, principally via royalties, from our licensing agreements, and merchandise sales. Revenues for the three months ended June 30, 2023 increased $9,826 thousand, or 371%, as compared to the three months ended June 30, 2022, primarily due to the Company’s shift from managing licensing, distribution, and merchandise sales through our licensing agreement with Angel Studios to managing these functions internally as of October 2022 and also due to the timing of the release of new episodes of the Series. No episodes were released during the first or second quarters of 2022, while episodes 4 – 8 of Season 3, including a Season 3 finale special in theatres were released in the first quarter of 2023.
Revenues for the six months ended June 30, 2023 increased $20,530 thousand, or 259%, as compared to the six months ended June 30, 2022, primarily due to the Company’s shift from managing licensing, distribution, and merchandise sales through our licensing agreement with Angel Studios to managing these functions internally as of October 2022 and also due to the timing of the release of new episodes of the Series. No episodes were released during the first or second quarters of 2022, while episodes 4 – 8 of Season 3, including a Season 3 finale special in theatres were released in the first quarter of 2023.
Contribution Revenues
Contribution revenues is comprised of contributions received under a non-reciprocal agreement with the Come and See Foundation, Inc. (“CAS”) for donation proceeds received by CAS through The Chosen App. Such agreement requires that the Company utilize such donation receipts for the charitable purposes of CAS, which include the production of the Series. The Company did not receive any Contribution revenues for the three months or six months ended June 30, 2022 as the agreement was entered into in November 2022.
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Cost of Revenues
Cost of revenues primarily include the costs of products, expenses to fulfill third party merchandise sales orders, and participation and residual costs owed to writers, producers, actors and other film participants. Cost of revenues for the three months ended June 30, 2023 increased $5,257 thousand, or 2,006%, as compared to the three months ended June 30, 2022, primarily due to the Company’s shift from managing merchandise sales through our licensing agreement with Angel Studios to managing these functions internally as of October 2022, and increased actor and residual costs as a result of the release of new episodes of the Series.
Cost of revenues for the six months ended June 30, 2023 increased $10,780 thousand, or 1,661%, as compared to the six months ended June 30, 2022, primarily due to the Company’s shift from managing merchandise sales through our licensing agreement with Angel Studios to managing these functions internally as of October 2022, and increased actor and residual costs as a result of the release of new episodes of the Series.
Advertising
Advertising includes costs to promote the Series and primarily includes advertising on social and digital platforms. Advertising expense for the three months ended June 30, 2023 increased $2,491 thousand, or 3,663%, as compared to the three months ended June 30, 2022, which is mostly attributable to increased marketing costs related to the Company’s shift from managing the majority of our marketing through our licensing agreement with Angel Studios to managing these functions internally as of October 2022 as well as increased costs to promote episodes 4 – 8 of Season 3.
Advertising expense for the six months ended June 30, 2023 increased $3,860 thousand, or 1,184%, as compared to the six months ended June 30, 2022, which is mostly attributable to increased marketing costs related to the Company’s shift from managing the majority of our marketing through our licensing agreement with Angel Studios to managing these functions internally as of October 2022 as well as increased costs to promote episodes 4 – 8, including the Season 3 finale special released in theatres.
Amortization of Film Costs
Costs of producing the Series are amortized using the individual-film-forecast method, based on the ratio of the current period’s revenues to the Company’s estimated ultimate revenue.
Amortization of film costs for the three months ended June 30, 2023 increased $4,153 thousand, or 776%, as compared to the three months ended June 30, 2022, primarily due to the additional amortization of film costs as a result of the release of Season 3 in the fourth quarter of 2022 and first and second quarters of 2023.
Amortization of film costs for the six months ended June 30, 2023 increased $7,287 thousand, or 525%, as compared to the six months ended June 30, 2022, primarily due to the additional amortization of film costs as a result of the release of Season 3 in the fourth quarter of 2022 and first quarter of 2023.
Depreciation and Amortization
Depreciation and amortization for the three months ended June 30, 2023 increased $2,167 thousand, or 3,334%, as compared to the three months ended June 30, 2022, primarily due to the Company’s increase in acquired property and equipment to establish a permanent set and film campus during 2022.
Depreciation and amortization for the six months ended June 30, 2023 increased $4,281 thousand, or 4,459%, as compared to the six months ended June 30, 2022, primarily due to the Company’s increase in acquired property and equipment to establish a permanent set and film campus during 2022.
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General and Administrative
General and administrative expenses for the three months ended June 30, 2023 increased $4,381 thousand, or 175%, as compared to the three months ended June 30, 2022, primarily due to $2,166 thousand of increased payroll related expenses mostly attributable to increased headcount related to the Company’s shift from managing marketing, licensing/distribution and merchandising through our licensing agreement with Angel Studios to managing these functions internally as of October 2022. The Company also incurred additional legal, accounting and professional fees of $1,776 thousand, and office related expenses of $398 thousand.
General and administrative expenses for the six months ended June 30, 2023 increased $9,157 thousand, or 217%, as compared to the six months ended June 30, 2022, primarily due to $4,094 thousand of increased payroll related expenses mostly attributable to increased headcount related to the Company’s shift from managing marketing, licensing/distribution and merchandising through our licensing agreement with Angel Studios to managing these functions internally as of October 2022. The Company also incurred additional legal, accounting and professional fees of $3,484 thousand, and office related expenses of $789 thousand.
Income Taxes
Income tax provision for the three months ended June 30, 2023 increased $1,719 thousand, or 895% as compared to the three months ended June 30, 2022, primarily due to the increase in the Company’s net income before provision for income taxes of $5,851.
Income tax provision for the six months ended June 30, 2023 increased $2,806 thousand, or 838% as compared to the six months ended June 30, 2022, primarily due to the increase in the Company’s net income before provision for income taxes of $8,936 thousand.
The effective tax rate for the three months ended June 30, 2023 increased 6%, as compared to the three months ended June 30, 2022, primarily due to the impact from the net loss attributable to NCI of $1,290 thousand.
The effective tax rate for the six months ended June 30, 2023 increased 4%, as compared to the six months ended June 30, 2022, primarily due to the impact from the net loss attributable to NCI of $2,529 thousand.
Liquidity and Capital Resource
Comparison of June 30, 2023 and December 31, 2022
| | | | | | | | | |
| | As of |
|
| | ||||
| | June 30, | | | | | |||
|
| 2023 |
| 2022 |
| Change | |||
| | (in thousands) | |||||||
Cash | | $ | 108,942 | | $ | 124,790 | | $ | (15,848) |
Long-term debt | |
| 145,387 | |
| 145,840 | |
| (453) |
The Company’s primary sources of liquidity are from cash flows generated from operations and financing activities. As of June 30, 2023 and December 31, 2022, the Company had cash of $108,942 thousand and $124,790 thousand, respectively. As of June 30, 2023 and December 31, 2022, the Company had long-term debt of $145,387 thousand and $145,840 thousand, respectively.
The Company’s primary uses of cash generally relate to film costs. The decrease in cash of $15,848 thousand was primarily attributable to an increase of $26,437 thousand in film costs related to the production of Season 4, a payment of $10,417 thousand related to dividends and the acquisition of property and equipment of $1,488 thousand, partially offset by $23,189 of net income, exclusive of non-cash items.
The Company’s long-term debt relates to the agreement with CAS, whereby CAS provided $145,500 thousand for the Company’s use in the development, production, distribution and marketing of the Series and to provide the Company with operating and working capital. See the consolidated financial statements included in our Form 10, starting on page F-1 for further detail regarding the CAS transactions.
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The Company believes its existing cash and expected cash flows from operations will be sufficient to meet our working capital, capital expenditures, and expected cash requirements from known contractual obligations for the next twelve months and beyond.
Comparison of the Six Months Ended June 30, 2023 and 2022
Our cash flow activities were as follows for the periods presented:
| | | | | | | | | |
| | Six Months Ended |
|
| | ||||
| | | | | |||||
|
| 2023 |
| 2022 |
| Change | |||
| | (in thousands) | |||||||
Net cash flows provided by (used in) operating activities | | $ | (3,574) | | $ | 2,832 | | $ | (6,406) |
Net cash flows provided by (used in) investing activities | |
| (1,488) | |
| (13,008) | |
| 11,520 |
Net cash flows provided by (used in) financing activities | |
| (10,786) | |
| 4,145 | |
| (14,931) |
Operating activities
Net cash flows provided by (used in) operating activities was $(3,574) thousand and $2,832 thousand for the six months ended June 30, 2023 and 2022, respectively. The decrease of net cash flows provided by operating activities of $6,406 thousand was primarily driven by the increased change of $13,172 thousand in film costs and a decreased change of $10,012 thousand in accounts receivable, partially offset by the increased change of $20,108 thousand in net income, exclusive of non-cash items, and the increased change of $4,565 thousand in accrued expenses and other accrued liabilities.
Investing activities
Net cash flows used in investing activities was $1,488 thousand and $13,008 thousand for the six months ended June 30, 2023 and 2022, respectively. The decrease of net cash flows used in investing activities of $11,520 thousand was primarily driven by the decrease in acquisition of property and equipment. There were no other significant investing activities during the six months ended June 30, 2023.
Financing activities
The financing activities of $(10,786) thousand for the six months ended June 30, 2023 primarily included dividend payments of $10,417 thousand. The financing activities of $4,145 thousand for the six months ended June 30, 2022 primarily included contributions from noncontrolling interest member of $4,152 thousand.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” of the Notes to condensed consolidated Financial Statements in Item 1 of this Quarterly Report and in the Notes to Consolidated Financial Statements in our Form 10, describe the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates included in our Annual Report on our Form 10 for the year ended December 31, 2022.
Film Costs
Costs of producing the Series are amortized, and residual and participation costs are accrued, using the individual-film-forecast method, based on the ratio of the current period’s revenues to the Company’s estimated remaining ultimate revenue per each episodic block. The initial estimate of ultimate revenue includes estimates of revenues through various distribution channels such as international, home entertainment and other distribution platforms and are based on historical experience for past seasons. The Company regularly monitors the performance of each season, and evaluate whether impairment indicators are present (i.e., low ratings), and based upon our review, the Company revises the estimates as needed.
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Due to the inherent uncertainties involved in making such estimates of ultimate revenues and expenses, these estimates have differed in the past from actual results and are likely to differ to some extent in the future from actual results. In addition, in the normal course of our business, some seasons are more successful or less successful than anticipated. Management regularly reviews and revises, when necessary, its ultimate revenue and cost estimates, which may result in a change in the rate of amortization of film costs and participations and residuals and/or a write-down of all or a portion of the unamortized costs of the film or television program to its estimated fair value.
An increase in the estimate of ultimate revenue will generally result in a lower amortization rate and, therefore, lesser film amortization expense during a given period, while a decrease in the estimate of ultimate revenue will generally result in a higher amortization rate and, therefore, higher film amortization expense during a given period.
The amortization of film costs is on an accelerated basis, as the Company typically expects more upfront viewing. On average, over 50% of the film costs related to our produced content is expected to be amortized within one year after its month of first availability. The Company reviews factors that may impact the amortization of film costs on a monthly basis, such as the increased demand for home entertainment as a result of the global pandemic in 2020, which accelerated the adoption of streaming services and technology by consumers. Our estimates related to these factors require considerable management judgment.
Off-Balance Sheet Arrangements
As of June 30, 2023 and December 31, 2022, the Company had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on the Company’s financial condition, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risks have been omitted as permitted under rules applicable to smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), we evaluated, under the supervision and with the participation of our management, including our President and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on the foregoing evaluation, our President and our Chief Financial Officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level that we would meet our disclosure obligations.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) of the Exchange Act) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Item 1. Legal Proceedings
From time to time we may be involved in various disputes and litigation matters that arise in the ordinary course of business. Other than as set forth below, we are currently not a party to any material legal proceeding.
As disclosed in the Company’s Current Report on Form 8-K filed with the SEC on April 10, 2023, the Company delivered to Angel Studios, Inc. (“Angel Studios”) a Notice of Termination (the “Notice of Termination”) of Content License Agreement, dated October 18, 2022 (the “License Agreement”), between Angel Studios and the Company. The Company seeks to terminate the License Agreement for previously noticed and uncured material breaches of contract in accordance with Section 14 of the License Agreement. The Company and Angel Studios are currently involved in an ongoing arbitration with respect to such matter.
Item 1A. Risk Factors
Other than as set forth below, there have been no material changes from the risk factors previously disclosed within Item 1A “Risk Factors” in the Form 10.
Our business could be adversely affected by labor strikes or other union job actions.
Any strike by, or lockout of, one or more of the unions that provide personnel essential to the production of films or television programs could delay or halt our ongoing production activities. Halts or delays, depending on the length of time and breadth of personnel impacted, could cause a delay or interruption in our release of new television programs (including, but not limited to, future episodes of the Series), which could have a material adverse effect on our business, results of operations and financial condition.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Default upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits
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| | |
101.SCH | | Inline XBRL Schema Document |
| | |
101.CAL | | Inline XBRL Calculation Linkbase Document |
| | |
101.DEF | | Inline XBRL Definition Linkbase Document |
| | |
101.LAB | | Inline XBRL Label Linkbase Document |
| | |
101.PRE | | Inline XBRL Presentation Linkbase Document |
| | |
101.INS | | XBRL Instance Document |
| | |
104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101). |
* |
** | Incorporated by reference to the Registrant’s Form 10 filed on February 2, 2023 and amended on April 3, 2023 and May 23, 2023. |
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SIGNATURES
Pursuant to the requires of the Securities Exchange Act of 1934, the registrant has duly caused this report to be singed on its behalf by the undersigned thereunto duly authorized.
| | |
| THE CHOSEN, INC. | |
| | |
| | |
| By: | /s/ Bradley Pelo |
| | Name: Bradley Pelo |
| | Title: President |
| | |
| | |
| By: | /s/ JD Larsen |
| | Name: JD Larsen |
| | Title: Chief Financial Officer |
| | |
Date: August 14, 2023 | | |
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| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/23 | ||||
| Filed on: | 8/14/23 | |||
| For Period end: | 6/30/23 | |||
| 5/23/23 | 10-12G/A, 10-Q, CORRESP | |||
| 4/10/23 | 8-K | |||
| 4/3/23 | 10-12G/A, CORRESP | |||
| 3/31/23 | 10-Q, NT 10-Q | |||
| 2/2/23 | 10-12G | |||
| 12/31/22 | ||||
| 12/2/22 | 1-U | |||
| 11/30/22 | ||||
| 11/29/22 | ||||
| 10/18/22 | 1-U | |||
| 9/30/22 | 1-SA | |||
| 6/30/22 | 1-SA | |||
| 3/31/22 | ||||
| 12/31/21 | 1-K, 1-K/A, C-AR | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 4/03/23 Chosen, Inc. 10-12G/A 5:1.3M Toppan Merrill/FA 2/02/23 Chosen, Inc. 10-12G 2:837K Toppan Merrill/FA 12/23/22 Chosen, Inc. 1-U:1 12/19/22 2:21K Toppan Merrill/FA 12/02/22 Chosen, Inc. 1-U:1,3,9 11/28/22 6:698K Toppan Merrill/FA 9/03/20 Chosen, Inc. 1-A 9/02/20 9:1.6M Blueprint/FA 6/12/20 Chosen, Inc. 1-K 12/31/19 6:6.5M Blueprint/FA |