chosen_1sa
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-SA
[X] SEMIANNUAL REPORT PURSUANT TO REGULATION A
or
[ ] SPECIAL FINANCIAL REPORT PURSUANT TO REGULATION A
For the
fiscal semiannual period ended: June 30, 2021
The
Chosen, LLC
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(Exact
name of issuer as specified in its charter)
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Utah
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82-3246222
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State
or other jurisdiction of incorporation or organization
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(I.R.S.
Employer Identification No.)
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4 S
2600 W, Suite 5, Hurricane, Utah 84737
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(Full
mailing address of principal executive offices)
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(833)
924-6736
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(Issuer’s
telephone number, including area code)
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Item 1. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Forward Looking Statements
This Semi-Annual Report on Form 1-SA of The Chosen, LLC, a Utah
limited liability company, referred to herein as “we”,
“us,” “our” or “the Company”,
contains certain forward-looking statements that are subject to
various risks and uncertainties. Forward-looking statements are
generally identifiable by use of forward-looking terminology such
as “may” “will,” “should,”
“potential,” “intend,”
“expect,” “outlook,” “seek,”
“anticipate,” “estimate,”
“approximately,” “believe,”
“could,” “project,” “predict,”
or other similar words or expressions. Forward-looking statements
are based on certain assumptions, discuss future expectations,
describe future plans and strategies, contain financial and
operating projections or state other forward-looking information.
Our ability to predict results or the actual effect of future
events, actions, plans or strategies is inherently uncertain.
Although we believe that the expectations reflected in our
forward-looking statements are based on reasonable assumptions, our
actual results and performance could differ materially from those
set forth or anticipated in our forward-looking statements. Factors
that could have a material adverse effect on our forward-looking
statements and upon our business, results of operations, financial
condition, funds derived from operations, cash available for
dividends or distribution, cash flows, liquidity and prospects
include, but are not limited to, the factors referenced in our
offering circular dated June 15, 2018 filed pursuant to Rule
253(g)(2) (the “Final Offering Circular”) under the
caption “RISK
FACTORS” and which are incorporated herein by
reference.
https://www.sec.gov/Archives/edgar/data/1733443/000165495418006710/chosen_253g2.htm
When considering forward-looking statements, you should keep in
mind the risk factors and other cautionary statements in this
report. Readers are cautioned not to place undue reliance on any of
these forward-looking statements, which reflect our views as of the
date of this report. The matters summarized below and elsewhere in
this report could cause our actual results and performance to
differ materially from those set forth or anticipated in
forward-looking statements. Accordingly, we cannot guarantee future
results or performance. Furthermore, except as required by law, we
are under no duty to, and we do not intend to, update any of our
forward-looking statements after the date of this report, whether
as a result of new information, future events or
otherwise.
General
The
Chosen is the first-ever multi-season TV series about the life of
Christ and those He touched. The Company produces and markets the
series to a worldwide market. Their large faith-based audience has
risen to the call to help fund and support the project as devoted
fans and investors, contributing to The Chosen’s
success.
The
Company has successfully released Season 1 and Season 2 and
commenced writing in anticipation of producing Season 3 in the
spring of 2022. During the interim period of January 1, 2021
through June 30, 2021, there were significant changes in liquidity
of the Company as the Series has seen an increase in sales with the
completion and release of Season 2. The funds generated from Season
1 and Season 2 physical media and merchandise sales are being used
to cover significant marketing expenses related to the promotion of
the Series and the general and administrative costs of the growing
company. The remaining funds are sufficient to begin pre-production
of Season 3.
Operating Results
Semi-Annual Period Ended June 30, 2021
Revenues
Revenue
produced by Season 1 through the Exclusive Video-on-demand and
Subscription video-on-demand license agreement with Angel Studios,
Inc. was just over $12,700,000 through June 30, 2021. In addition
to digital media revenues, physical media sales were just over
$3,550,000 and merchandise sales were approaching
$2,100,000.
Expenses
Final
production and post-production costs of Season 2, along with
pre-production costs of Season 3 consisting mainly of script
writing, through June 30, 2021, were $5,568,425. Film costs are
capitalized and amortized over a period of time in proportion to
ultimate revenue production. Amortization of the Season 1 and
Season 2 film costs through June 30, 2021 was $1,004,653 and
$2,105,305, respectively. Additionally, there were merchandise
costs of goods sold of $305,965 through March 17, 2021. Beginning
March 18, 2021, our distribution partner Angel Studios handled our
inventory purchases and other merchandise related
costs.
Operating expenses
for the six-month period ended June 30, 2021, were $2,698,194,
primarily attributable to $1,206,747 in advertising and marketing,
$506,470 in payroll and related taxes, $389,358 in legal and
professional fees, $319,482 in royalties, $119,853 in costs related
to a past and contemplated but not initiated capital raise, and
$156,284 in insurance, fees, office expenses, meal reimbursements,
and other traveling expenses.
Liquidity and Capital Resources
Liquid
and capital resources as of June 30, 2021, and through September
15, 2021, are as follows:
●
11,190,030
preferred class A units were issued by June 30, 2019. No new units
were issued through June 30, 2021. This issuances provided the
funds necessary to finalize the production of the entirety of
Season 1.
●
Pre-production,
including scripts, were expended for Season 3 of approximately
$335,000.
●
As of June 30,
2021, the cash funds available to the Company, along with expected
future revenues, were expected to be sufficient to cover the
production and post-production costs expected to be incurred in
producing Season 3.
●
Revenues from
Season 1 and 2 are expected to be used for operations and to
advertise and market the digital and physical sales of Season 1 and
2 along with the writing and production of Season 3.
Plan of Operations
Our
plan of operations, including material expenditures, over the 2021
fiscal year, is currently focused on the development of Season 3 of
the Series and the continued marketing of Seasons 1 and 2, of which
the final episode was released early July 2021. The production of
Season 3 expected to begin in the spring of 2022. As of June 30,
2021, the direct costs associated with the pre-production of Season
3 is approximately $335,000 and the Company is expected to incur
additional expenses of approximately $18 million through the end of
production and post production of the entirety of Season 3. The
budget for season 3 is an approximate 30 percent increase over the
cost to produce season 2 due to higher equipment rental costs,
additional union costs, and increased quality of production. The
Company expects to incur approximately $1-3 million for marketing,
publicity and promotion of the Series through the first six months
of 2022.
Trend Information
To
date, revenues for 2021 have been ahead of management’s
anticipations. Other than a slight delay in filming season 3, which
is expected to begin in the Spring of 2022, we have not identified
any known trends, uncertainties, demands, commitments or events
involving our business that are reasonably likely to have a
material effect on our revenues, income from continuing operations,
profitability, liquidity or capital resources, or that would cause
the reported financial information in this report to not be
indicative of future operating results or financial
condition.
Item 2. Other Information
None
Index
to Financial Statements
Interim consolidated financial statements for the six-month period
ended June 30, 2021 (unaudited)
Interim
Consolidated Balance Sheets
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5
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Interim
Consolidated Statements of Operations
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6
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Interim Consolidated Statements of Members’
Equity
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7
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Interim
Consolidated Statements of Cash Flow
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8
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Notes to the Interim Consolidated Financial Statements
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9
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The Chosen, LLC
Interim Consolidated Balance Sheets
As of June 30, 2021 and December 31, 2020 (unaudited)
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Assets
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Current assets
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Cash
and cash equivalents
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$11,785,425
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$5,693,461
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Accounts
receivable
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7,158,946
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3,982,295
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Other
current assets
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58,688
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103,086
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Total
current assets
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19,003,059
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9,778,842
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Property and equipment
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Equipment,
net of depreciation
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4,524
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6,221
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Furniture
and fixtures, net of depreciation
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15,121
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-
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Buildings,
net of depreciation
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1,020,032
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468,582
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Land
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89,545
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-
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Total
property and equipment
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1,129,222
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474,803
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Other assets
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Film
costs, net of amortization
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11,874,726
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9,416,259
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Trademark,
net of amortization
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8,422
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8,881
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Capital
raise costs
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-
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119,853
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Total
other assets
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11,883,148
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9,544,993
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Total assets
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$32,015,429
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$19,798,638
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Liabilities and Members' Equity
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Current liabilities
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Accounts
and credit cards payable
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$220,334
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$608,607
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Other
current liabilities
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504,924
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421,083
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Income
taxes payable
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5,446,956
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-
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Total
current liabilities
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6,172,214
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1,029,690
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Long-term liabilities
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Deferred
tax liability
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4,436,535
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2,216,700
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Total
long-term liabilities
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4,436,535
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2,216,700
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Total
liabilities
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10,608,749
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3,246,390
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Commitments
and contingencies (see Notes 2, and 4)
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Members' equity
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21,406,680
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16,552,248
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Total liabilities and members' equity
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$32,015,429
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$19,798,638
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The accompanying notes are an integral part of the financial
statements.
The Chosen, LLC
Interim Consolidated Statements of Operations
For the Six Months Ended June 30, 2021 and 2020
(unaudited)
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Revenues
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Licensing
revenues, net
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$16,265,525
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$6,830,388
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Merchandise
sales
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2,088,774
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1,341,420
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Other
revenues
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342,910
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6,321
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Total
revenues
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18,697,209
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8,178,129
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Cost of goods sold
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305,965
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688,910
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Gross profit
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18,391,244
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7,489,219
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Operating expenses
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Advertising
and marketing
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1,206,747
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872,202
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Amortization
of film costs
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3,109,958
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2,189,906
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Depreciation
and amortization expense
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13,809
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-
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General
and administrative
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1,477,638
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442,850
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Total
operating expenses
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5,808,152
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3,504,958
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Net operating income/(loss)
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12,583,092
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3,984,261
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Other income
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Interest
income
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233
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13
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Net income/(loss) before benefit/(provision)
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for income taxes
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12,583,325
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3,984,274
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Benefit/(provision)
for income taxes
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(7,728,893)
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(252,598)
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Net income
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$4,854,432
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$3,731,676
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Earnings
per common unit, basic and diluted
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$0.34
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$0.27
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Weighted
average common units, basic and diluted
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14,380,466
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13,900,000
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The accompanying
notes are an integral part of the financial
statements.
The Chosen, LLC
Interim Consolidated Statements of Members’
Equity
For the Six Months Ended June 30, 2021 and the Year Ended December
31, 2020 (unaudited)
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Balance at December 31, 2019 (unaudited)
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13,900,000
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11,190,030
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$10,249,559
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$(808,110)
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$9,441,449
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Issuance
of common units for offering expense
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480,466
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-
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-
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-
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-
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Net
income
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-
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-
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-
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7,110,799
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7,110,799
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Balance at December 31, 2020 (unaudited)
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14,380,466
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11,190,030
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10,249,559
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6,302,689
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16,552,248
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Net
income
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4,854,432
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4,854,432
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Members' equity as of June 30, 2020 (unaudited)
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14,380,466
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11,190,030
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$10,249,559
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$11,157,121
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$21,406,680
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The accompanying
notes are an integral part of the financial
statements.
The Chosen, LLC
Interim Consolidated Statements of Cash Flows
For the Six-Months Ended June 30, 2021 and 2020
(unaudited)
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Cash flows from operating activities
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Net
income
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$4,854,432
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$3,731,676
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Adjustments
to reconcile net income to
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net
cash from operating activities:
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Depreciation
and amortization expense
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13,349
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-
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Amortization
of film costs
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3,110,415
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2,189,906
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Capital
raise costs abandoned
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119,853
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Deferred
income tax (benefit)/provision
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2,219,835
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252,598
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Changes
in operating assets and liabilities
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(Increase)/decrease
in accounts receivable
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(3,176,651)
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(4,072,467)
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(Increase)/decrease
in other current assets
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44,398
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-
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(Increase)/decrease
in film costs
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(5,568,425)
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(227,264)
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Increase/(decrease)
in accrued expenses
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83,841
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242,717
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Increase/(decrease)
in income tax payable
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5,446,956
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-
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Increase/(decrease)
in accounts payable
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(388,273)
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(52,788)
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Net
cash flows from operating activities
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6,759,730
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2,064,378
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Cash flows from investing activities
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Acquisition
of property & equipment
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(667,766)
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-
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Net
cash flows from investing activities
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(667,766)
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-
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Cash flows from financing activities
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Capital
raise costs
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-
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(375)
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Net
cash flows from financing activities
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-
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(375)
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Net change in cash and cash equivalents
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6,091,964
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2,064,003
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Cash
and cash equivalents, beginning of period
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5,693,461
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630,325
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Cash and cash equivalents, end of period
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11,785,425
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$2,694,328
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Supplemental disclosure of cash flow information:
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Cash
paid for income taxes
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$100
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$100
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Capital
raise costs abandoned
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$119,853
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services
see Note 1
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The accompanying
notes are an integral part of the financial
statements.
The Chosen, LLC
Notes to the Interim Consolidated Financial Statements
June 30, 2021
Note 1.
Summary of Significant Accounting Policies
Organization
The
Chosen, LLC (Chosen), a Utah limited liability company, is an
independent television and film production company formed on
October 24, 2017 solely to develop and produce an episodic
television series entitled “The Chosen.” 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.
Consolidation
The
consolidated financial statements include the accounts of The
Chosen, LLC and its wholly owned subsidiaries The Chosen Texas, LLC
and The Chosen House, LLC (collectively, the Company). All
significant intercompany balances and transactions have been
eliminated in consolidation.
Recently Issued Accounting Pronouncements
In May
2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with
Customers (Topic 606). Topic 606 supersedes the revenue recognition
requirements in Accounting Standards Codification (ASC) Topic 605,
Revenue Recognition (Topic 605), and requires the recognition of
revenue when promised goods or services are transferred to
customers in an amount that reflects the consideration to which the
entity expects to be entitled to in exchange for those goods or
services. Topic 606 also includes Subtopic 340-40, Other Assets and
Deferred Costs – Contracts with Customers, which requires the
deferral of incremental costs of obtaining a contract with a
customer. The Company adopted the requirements of Topic 606
effective January 1, 2019, utilizing the modified retrospective
method of transition. Adoption of Topic 606 did not result in
adjustments to revenue, deferred revenue, receivables, or deferred
costs.
Use of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates. Key management estimates include the
estimated ultimate revenues of the series for the amortization of
film costs, and valuation allowances for net deferred income tax
assets.
Cash and Cash Equivalents
The
Company classifies cash as bank cash, check deposits, and cash in
hand in the form of notes and coins. Cash equivalents are
short-term financial instruments held by the Company.
The Chosen, LLC
Notes to the Interim Consolidated Financial Statements
June 30, 2021
Note
1
Summary of Significant Accounting Policies, continued
Property and Equipment
Property
and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method. Expenditures
for major renewals and betterments that extend the useful lives of
property and equipment have been capitalized. Expenditures for
routine repairs are expensed as incurred. Depreciation is based on
the following useful lives:
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Years
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Buildings &
Improvements
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25
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Furniture and
Fixtures
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5
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Equipment
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3
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Concentrations of Credit Risk
The
Company maintains its cash in bank deposit accounts which, at
times, exceed federally insured limits. As of June 30, 2021 and
December 31, 2020, the bank balance exceeded the federally insured
limit by $11,259,022 and $4,772,891, respectively.
A major
customer is considered to be one that comprises more than 10% of
the Company’s accounts receivable or annual revenues. For the
six-months ended June 30, 2021 and June 30, 2020, 92.3% and 83.5%,
respectively, of the Company’s revenues related to one
customer – Angel Studios, Inc. (previous to March 8, 2021,
Angel Studios, Inc. was named VidAngel, Inc.). As of June 30, 2021
and December 31, 2020, 98% and 100%, respectively, of the
Company’s accounts receivable is related to Angel Studios,
Inc.
Accounts Receivable
Accounts
receivable are carried at original invoice amount less an estimate
for doubtful accounts based on a review of all outstanding amounts.
Management determines the allowance for doubtful accounts by
identifying specific troubled accounts and applying historical
experience. Receivables are written off when management determines
the likelihood of collection is remote. Recoveries of receivables
previously written off are recorded when payment is
received.
Revenue Recognition
The
Company generates revenue from 1) licensing agreements with Angel
Studios relating to the streaming of the Company’s
intellectual property via digital media – Video-on-Demand
(VOD) and Subscription Video-on-Demand (SVOD), 2) physical media
sales, 3) combination of physical media and digital media, 4)
merchandise sales, and 5) ad share revenue. The Company recognizes revenue when a customer
obtains control of promised products or services. The amount of
revenue recognized reflects the consideration that the Company
expects to be entitled to receive in exchange for these products or
services. To achieve the core principle of Topic 606, the Company
applies the following five steps:
1)
Identify the contract with the customer
2) Identify
the performance obligations in the contract
3) Determine
the transaction price
4) Allocate
the transaction price to performance obligations in the
contract
5) Recognize
revenue when or as the Company satisfies a performance
obligation
The Chosen, LLC
Notes to the Interim Consolidated Financial Statements
June 30, 2021
Note 1
Summary of Significant Accounting Policies, continued
Revenue Recognition, continued
Digital Media (VOD and SVOD)
Digital media revenue stems from licensing agreements with Angel
Studios, wherein Angel Studios streams the Company’s
intellectual property. The license is not distinct from the
streaming services, and the arrangement represents a sale or
usage-based royalty with the license representing the predominant
item to which the royalty relates. The VOD sales and SVOD usage
revenues are determined according to the licensing agreement based
on hours viewed by Angel Studios’s customers during each
quarter of the year. Angel Studios provides the Company quarterly
royalty reports detailing the sales or usage-based royalties, which
amounts Angel Studios remits to the Company. The Company recognizes
revenue based on these royalty reports, which represents when the
sales or usage occurred and the satisfaction of the performance
obligation to the end customer. During the six-months ended
June 30, 2021 and June 30, 2020, the
digital media revenue was substantially all related to the first
and second television seasons of The Chosen. As Angel Studios is primarily responsible to
fulfil the performance obligation and sets the pricing, the Company
recognizes revenue on a net basis, which represents the royalty
amounts the Company receives from Angel
Studios.
Physical Media
The Company sells Blu-Ray discs, DVD’s, books, and related
print material to end users. The Company does not own or maintain
the physical media inventory. The inventory is owned by Angel
Studios, and Angel Studios fulfills the sales. Revenue is
recognized when the end customer receives and pays for the physical
media. Angel Studios remits a portion of the sales amount to the
Company. The Company recognizes revenue on a net
basis.
Combination of physical media and digital media
The
Company sells Blu-Ray discs and DVD’s to end users in a
combination pack with digital media. The Company does not own or
maintain the physical media inventory. As noted in the description
of physical media above, the inventory is owned by Angel Studios,
and Angel Studios fulfills the sales. As noted in the description
above of digital media, digital media stems from licensing
agreements with Angel Studios, wherein Angel Studios streams the
Company’s intellectual property. The Company recognizes
revenue on a net basis when the customer receives the physical
media and access to the digital media.
Merchandise revenue
The
Company sells The Chosen
merchandise – mainly T-shirts. Revenue is recognized when the
customer receives and pays for the merchandise. The Company does
not own or maintain the merchandise inventory. However, when the
goods ship from the third party to the customer, the Company has
risk-of-loss, and is responsible for goods in transit. Through
Mid-March, the Company managed an online store through a
third-party application and orders were drop shipped to end
customers using the third-party platform. The Company contracted
with a third-party supplier that was responsible for fulfilling the
sales. The third-party supplier invoiced the Company for inventory
sold and fulfillment services; all of the cost of goods sold were
related to the third-party supplier costs. The Company recognized
revenue and respective expenses on a gross basis. Revenue was
disaggregated from contracts with customers by goods or services as
we believed it best depicted how the nature, amount, timing and
uncertainty of our revenue and cash flows were affected by economic
factors. Since Mid-March, merchandise sales are managed by Angel
Studios and inventories are maintained and recognized in the same
manner as physical media.
The Chosen, LLC
Notes to the Interim Consolidated Financial Statements
June 30, 2021
Note 1
Summary of Significant Accounting Policies, continued
Revenue Recognition, continued
Ad share revenue
The
Company has monetized their YouTube and Facebook marketing videos
allowing the Company to share in revenue from advertisements shown
before, during or alongside the uploaded clip. Revenue is
recognized when the ad share payment is payable from the various
social media platforms.
The
following table presents the Company’s revenue disaggregated
by the previously mentioned performance obligations for the
six-months ended June 30, 2021 and 2020.
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|
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|
|
|
Combination
of physical media and digital media
|
$-
|
$199
|
Physical
media
|
3,552,846
|
2,528,684
|
Digital
media - VOD/SVOD
|
12,712,680
|
4,301,505
|
Merchandise
|
2,088,774
|
1,341,420
|
Ad
share
|
325,620
|
6,321
|
Other
revenue
|
17,289
|
-
|
|
$18,697,209
|
$8,178,129
|
|
|
|
Film Costs
Costs
incurred in the direct production of video content are capitalized
and stated at the lower of the unamortized costs or net realizable
value. The Company periodically evaluates the net realizable value
of content by considering expected future revenue generation. The
Company has determined no impairment existed during the periods
presented. The following table represents the components of film
costs as of June 30:
|
|
|
|
|
|
Released
and completed film costs
|
$20,481,512
|
$8,270,567
|
Not
released, in production film costs
|
-
|
6,809,891
|
In
development or preproduction film costs
|
294,989
|
127,618
|
|
20,776,501
|
15,208,076
|
Accumulated
amortization
|
(8,901,775)
|
(5,791,817)
|
|
$11,874,726
|
$9,416,259
|
The
Company amortizes film costs in proportion to the recognition of
the related revenue from each episodic production block.
Amortization expense for film costs for the six-months ended June
30, 2021 and 2020, was $3,109,958 and $2,189,906,
respectively.
The Chosen, LLC
Notes to the Interim Consolidated Financial Statements
June 30, 2021
Note 1
Summary of Significant Accounting Policies, continued
Film Costs, continued
The
future aggregate amounts of amortization expense expected to be
recognized over the next six years related to released and
completed film costs as of June 30, 2021, are as
follows:
Years
Ending June 30:
|
|
2022
|
$3,007,461
|
2023
|
2,124,367
|
2024
|
1,928,607
|
2025
|
1,790,779
|
2026
|
1,717,959
|
2027
|
1,010,564
|
Total
|
$11,579,737
|
|
|
Capital Raise Costs
The
Company filed a preliminary offering under Regulation A on
September 3, 2020, for an additional $20,000,001 to fund the
production of future seasons of The Chosen. Costs expended in
preparation for this potential capital raise are included in the
Company’s financial statements as an asset until such time as
the Offering is activated or abandoned. In 2021, the Company made
the decision to not initiate the offering and the previously
capitalized costs, totaling $119,853, have been written off as
general and administrative expense.
Income Taxes
The
Company is a Utah limited liability company which has elected to be
taxed as a C-Corporation. Under this structure, the Company is
liable for the income taxes on the Company’s income or loss
at the Federal and State levels. Its members are also liable for
income taxes on any distributions (dividends) received by the
Company.
The
Company accounts for income taxes under the asset and liability
method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements. Under this method,
the Company determines deferred tax assets and liabilities on the
basis of the differences between the financial statement and tax
bases of assets and liabilities by using enacted tax rates in
effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes
the enactment date.
The
Company recognizes deferred tax assets to the extent that these
assets are considered to be realizable. In making such a
determination, the Company considers all available positive and
negative evidence, including future reversals of existing taxable
temporary differences, projected future taxable income,
tax-planning strategies, and results of recent operations. If the
Company determines that deferred tax assets would be realized in
the future in excess of their net recorded amount, an adjustment
would be made to the deferred tax asset valuation allowance, which
would reduce the provision for income taxes.
The Chosen, LLC
Notes to the Interim Consolidated Financial Statements
June 30, 2021
Note 1
Summary of Significant Accounting Policies, continued
Income Taxes, continued
The
(provision)/benefit for income taxes for the six-months ended June
30, 2021 and the year ended December 31,2020, is comprised of the
following components:
|
|
|
|
|
|
Deferred
provision for income tax
|
$(2,219,833)
|
$(252,598)
|
Current
income taxes
|
(5,509,060)
|
-
|
|
$(7,728,893)
|
$(252,598)
|
|
|
|
Significant
components of the Company’s deferred income tax
assets/(liabilities) are as follows:
|
|
|
|
|
|
Film
costs
|
$(3,282,763)
|
$(2,448,227)
|
Cash
basis adjustments
|
(1,677,329)
|
(822,017)
|
Net
operating loss carryforwards
|
525,457
|
1,050,925
|
Other
|
(1,900)
|
2,619
|
|
$(4,436,535)
|
$(2,216,700)
|
|
|
|
The
Company has concluded that there are no significant uncertain tax
position requiring disclosure, and there are no material amounts of
unrecognized tax benefits.
Advertising
Advertising
costs are expensed as incurred. Advertising expenses for the
six-months ended June 30, 2021 and 2020 totaled $1,206,747 and
$872,202, respectively.
Subsequent Events
Management
has evaluated events and transactions for potential recognition or
disclosure through September 22, 2021, which is the date the
financial statements were available to be issued.
Reclassifications and Revision
During
our reconciliation of the preferred units at the end of 2020, it
was noted that the prior year’s issuance of preferred units
for cash number was misstated by 3,270 units. Current year
information reflects a revision to properly state Class A Preferred
Units as of December 31, 2019. There was no change to the amounts
recorded in equity.
The Chosen, LLC
Notes to the Interim Consolidated Financial Statements
June 30, 2021
Note 1
Summary of Significant Accounting Policies, continued
Intangibles – Trademark
The
Company has one intangible asset, a trademark that is amortized
over its economic life.
|
|
|
|
Gross
carrying value
|
$9,187
|
Accumulated
amortization
|
(765)
|
Net
carrying value
|
$8,422
|
|
|
Note 2
Commitments and Contingencies
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.
Exclusivity Agreement
In
2018, the Company entered into an exclusive video-on-demand and
subscription licensing agreement with Angel Studios, for
distribution of the Company’s television series. This
agreement was amended in November 2019 and September
2020.
Consulting and Coordination Agreement
During
the year ended December 31, 2020, the Company issued Angel Studios
480,466 common units. This issuance was for the completion of
services included in the 2018 consulting and coordination agreement
related to the Company’s Regulation A offering for Preferred
A Units. As these care costs of the equity offering, the units are
presented on a net basis in contributed capital.
Employee Agreements
The
Company has entered into employment agreements with members of
management and certain contractors. The terms of the agreements
vary but include one or more of the following provisions:
stipulated base salary, profit sharing, royalties, retention
bonuses, vacation benefits, and severance.
The Chosen, LLC
Notes to the Interim Consolidated Financial Statements
June 30, 2021
The
Company’s Class A Preferred Units (Units) are non-voting. If
and when distributions are declared, distributions are first made
to the holders of the Units until 120% of $1 per Unit has been
distributed to the holders in proportion to their interest.
Thereafter, distributions are made to the holders of the common
units in proportion to their interest.
The
Company has authorized 2,857,143 non-voting Class B Preferred
Units; none are issued and outstanding. After any issuance of Class
B Preferred Units, and if and when distributions are declared,
Class B unitholders receive distributions after the Class A
unitholders and before common unit holders until 110% of $7 per
unit has been distributed to the Class B unitholders in proportion
to their interest.
Note 4
Related Party Transactions
The
Company entered into an agreement with a member of the Company as a
Director and Writer for the second season and paid the member
$87,500 during 2020 related to writing and pre-production work on
season 2.
During
2019, the Company engaged an advertising agency, which is wholly
owned by one of the members of the Company’s parent company.
The Company paid the advertising agency $37,925 in 2020 and $0 in
2021.
On May
4, 2020, the Company entered into an agreement with a company owned
by a member of the Company and the member’s spouse to write
two devotional books based on the Series. The related company
received $6,000 for the writing and, in the future, will receive a
2/3 share of 12.5% of the revenue from the book sales made by Angel
Studios and received by the Company. The amount paid and accrued to
the related company for these residuals was $23,741 as of December
31, 2020 and $30,283 as of June 30, 2021.
On
October 7, 2020, the Company entered into an agreement with a
member’s spouse to write a children’s book based on the
Series. The member’s spouse receives 7.5% of the revenue from
the book sales made by Angel Studios and received by the Company.
The amount paid and accrued to the related company for these
residuals was $6,131 in 2020 and $10,174 as of June 30,
2021.
In
2021, the Company entered into an agreement with a company owned by
a member of the Company and the member’s spouse to write a
study guide based on the Series. The related company receives 40.2%
of the revenues received by the Company. Additionally, the related
company receives 8.33% of the revenue from the book sales made by
Angel Studios and received by the Company. As of June 30, 2021, the
amount paid and accrued to the related company for these residuals
was $14,699.
Item 4. Exhibits
Exhibit Number
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Exhibit Description
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SIGNATURES
Pursuant
to the requirements of Regulation A, the issuer has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized,
Date:
September 28, 2021
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The Chosen, LLC
|
|
|
|
|
|
|
|
By: The
Chosen Productions, LLC
|
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Its: Manager
|
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By:
|
/s/ Derral
Eves
|
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Derral
Eves
|
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Manager
|
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Pursuant
to the requirements of Regulation A, this report has been signed
below by the following persons on behalf of the issuer and in the
capacities and on the dates indicated.
|
By:
|
/s/ Derral
Eves
|
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Derral
Eves
|
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Principal
Executive Officer, Principal Financial Officer and Principal
Accounting Officer
|
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