ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
(In thousands, except share information)
1. NATURE OF OPERATIONS
AND LIQUIDITY
Cinedigm Corp. (“Cinedigm,” the “Company,”
“we,” “us,” or similar pronouns) was incorporated in Delaware on March 31, 2000. We are (i) a distributor
and aggregator of independent movie, television and other short form content managing a library of distribution rights to thousands
of titles and episodes released across digital, physical, theatrical, home and mobile entertainment platforms and (ii) a servicer
of digital cinema assets for over 12,000 movie screens in both North America and several international countries.
Risks and Uncertainties
The COVID-19 pandemic and related economic repercussions have
created significant volatility, uncertainty, and turmoil in certain industries. Closures of certain entertainment facilities and
retail locations have significantly impacted consumers’ behaviors as a result of the virus outbreak and corresponding preventative
measures taken around the world to mitigate the spread of the virus. As part of our Content & Entertainment business, we sell
physical goods, including DVDs and Blu-ray discs, at brick-and-mortar stores. Many of such stores in the United States closed
during the spring of 2020 due to COVID-19 restrictions, and many of those have not yet re-opened, or have re-opened on a limited
basis. We expect that we will experience a loss of sales of such physical goods due to such closures, and we cannot predict the
extent of such losses, or how long the closures or limited openings of the stores may last. As part of our Cinema Equipment business,
we earn revenues that are generated when movies are exhibited by theatres. Many movie theatres in the United States closed during
the spring of 2020 due to COVID-19 restrictions and many of those have not yet re-opened, or have re-opened on a limited basis.
The majority of major studios moved releases originally scheduled for the three months ended December 31, 2020 to future dates
with the exception of two Studios that had theatrical releases that opened in theatres on the same day as becoming available on
a streaming channel. To the extent movies are not shown in movie theatres due to the closures, we have not received, and will
not receive, related revenue. The studios that produce movies may elect to delay the release of movies until theatres re-open,
or to bypass exhibiting movies in theatres at all and distribute the movies through other means, such as on streaming platforms,
in which case we would not earn revenues at all from such movies.
The East West Bank (“EWB”) credit facility has
a maturity date of June 30, 2021. The Company intends to negotiate another extension of the EWB maturity date but in the event
it is unable to do so successfully, the Company has the funds to pay the debt in full when due.
The Prospect Loan matures on March 31, 2021. The Company and
Prospect are negotiating to extend the maturity date to March 31, 2022 which may include a prepayment amount on the principal upon
execution of an amendment.
These events have negatively affected, and are expected to
continue to negatively affect, our business and results of operations. Given the dynamic nature of these events, we cannot reasonably
estimate the period of time that the COVID-19 pandemic and related closures and market conditions will persist, or the extent
of the impact they will have on our business or results of operations and financial condition.
Liquidity
We have incurred net losses historically and have an accumulated
deficit of $467.2 million and negative working capital of $16.6 million as of December 31, 2020. We may continue to generate
net losses for the foreseeable future. In addition, we have significant debt-related contractual obligations as of December 31,
2020 and beyond. Based on these conditions, the Company entered into the following transactions described below:
Capital Raise
On February 2, 2021, the Company entered into a securities
purchase agreement (the “Securities Purchase Agreement”) with a single institutional investor for the purchase and
sale of 5,600,000 shares (the “February Shares”) of the Company’s Class A common stock for net proceeds of $6.5
million. (see Note 11 – Subsequent events).
In July 2020, we entered into an At-the-Market sales agreement
(the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B.
Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from
time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on The Nasdaq Global Market at
the time of the sale of such shares. The Company is not obligated to sell any shares under the Sales Agreement. Any sales of shares
made under the Sales Agreement will be made pursuant to an effective registration statement on Form S-3 filed by the Company with
the Securities and Exchange Commission (“SEC”) on July 6, 2020, for an aggregate offering price of up to $30 million.
During the three months ended December 31, 2020, we sold 28,405,840
shares of Common Stock under the ATM Sales Agreement. Net proceeds from such sales totaled $18.6 million.
On July 16, 2020, the Company entered into a securities purchase
agreement (the “July Securities Purchase Agreement”) for the sale of 7,213,334 shares (the “July Shares”)
of Class A common stock at a purchase price of $1.50 per share, in a registered direct offering, pursuant to an effective shelf
registration statement on Form S-3 (Reg. No. 333-239710) which was declared effective by the Securities and Exchange Commission
on July 10, 2020 and an applicable prospectus supplement. This registration statement covers offerings of up to an aggregate offering
price of $75.0 million.
The Company closed the transaction on July 20, 2020. The aggregated
gross proceeds from the sale of the July Shares were approximately $10.8 million. The net proceeds to the Company from the
sale of the July Shares, after deducting the fees of the placement agents but before paying the Company’s estimated offering
expenses, was approximately $10.1 million.
On May 20, 2020, the Company entered into a securities purchase
agreement (the “Securities Purchase Agreement”) with certain investors (the “Investors”) for the purchase
and sale of 10,666,666 shares (the “Shares”) of the Company’s Class A common stock, par value $0.001 per share,
(the “Common Stock” or “Class A common stock”), at a purchase price of $0.75 per share, in a registered
direct offering, pursuant to an effective shelf registration statement on Form S-3 (Reg. No. 333-238183) which was declared effective
by the Securities and Exchange Commission on May 14, 2020 and an applicable prospectus supplement.
The Company closed the transaction on May 22, 2020. The aggregate
gross proceeds for the sale of the Shares was $8.0 million. The net proceeds to the Company from the sale of the Shares,
after deducting the fees of the placement agents but before paying the Company’s estimated offering expenses, were approximately
$7.1 million.
Equity Investment in Starrise, a related party transaction
On December 27, 2019, the Company entered into, and on February
14, 2020 amended, (see Note 2 - Summary of Significant Accounting Policies), a stock purchase agreement (as so amended, the “Starrise
Stock Purchase Agreement”) with BeiTai Investment LP (“BeiTai”) and Aim Right Ventures Limited (“Aim Right”),
two shareholders of Starrise Media Holdings Limited, a leading Chinese entertainment company (“Starrise”), to buy
from them an aggregate of 410,901,000 outstanding Starrise ordinary shares (the “Share Acquisition”). On February
14, 2020, the Company purchased 162,162,162 of the Starrise ordinary shares from BeiTai and issued BeiTai 21,646,604 shares of
Class A common stock as consideration.
On April 10, 2020, the Company, in accordance with the terms
of the Starrise Stock Purchase Agreement, terminated its obligation to purchase Starrise ordinary shares from Aim Right under
the December 27, 2019 stock purchase agreement. On April 10, 2020, the Company entered into another stock purchase agreement (the
“April Stock Purchase Agreement”) with five (5) shareholders of Starrise - Bison Global Investment SPC - Bison Global
No. 1 SP (“Bison Global”), Huatai Investment LP, Antai Investment LP, Mingtai Investment LP (“Mingtai”)
and Shangtai Asset Management LP - to buy an aggregate of 223,380,000 outstanding Starrise ordinary shares from them and for the
Company to issue to them an aggregate of 29,855,081 shares of its Class A common stock in consideration therefore (the “April
Share Acquisition”). On April 15, 2020, the April Share Acquisition was consummated and recorded as an equity investment
in Starrise and is a related party transaction.
Starrise’s ordinary shares (HK 1616) are listed on the
main board of the Stock Exchange of Hong Kong Limited. Based on the closing price of HKD 0.163 per share on February 19, 2021,
calculated at an exchange rate of $7.75 Hong Kong Dollars to 1 US dollar, the market value of Cinedigm’s ownership in Starrise
ordinary shares was approximately $7.6 million.
Borrowings
On April 15, 2020, the Company received $2.2 million from
East West Bank, the Company’s existing lender, pursuant to the Paycheck Protection Program (the “PPP Loan”)
of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 10, 2022
(the “PPP Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part without penalty.
No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial six-month
period is due and payable, together with the principal, on the PPP Maturity Date. The Company used all proceeds from the PPP Loan
to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19
pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and could be subject
to repayment.
On June 24, 2020, the Company entered into an exchange agreement
(the “Exchange Agreement”) pursuant to which the Company issued 329,501 shares of its Class A common stock, in exchange
for $842 thousand principal amount and accrued and unpaid interest of outstanding Second Lien Loans (as defined in Note 6
- Notes Payable). The surrendered Second Lien Loans were immediately canceled. The exchange was consummated on June 24,
2020.
On June 26, 2020, the Company signed a consent agreement with
the holders of the Second Lien loans to extend the maturity date to September 30, 2020 and grant the Company options to extend
further to March 31, 2021 and then to June 30, 2021. A consent fee of $100,000 was paid in connection with this extension. On
September 21, 2020, the Company exercised its option to extend to March 31, 2021.
In a separate exchange with another holder of Second Lien Notes,
on November 19, 2020, the Company issued 452,499 shares of Common Stock in exchange for $247,108 principal amount of Second Lien
Notes. The exchanged Second Lien Notes were immediately cancelled.
On December 4, 2020, the Company entered into exchange agreements
(the “December Exchange Agreements”) with certain holders of notes under its Second Lien Loan Agreement dated as of
July 14, 2016 among the Company, the lenders party thereto, and Cortland Capital Market Services LLC, as Agent (“Second
Lien Notes”). Pursuant to the December Exchange Agreements, the Company issued an aggregate of 2,776,284 shares of its Class
A common stock, par value $0.001 per share Common Stock in exchange for an aggregate of $1,386,106 of principal amount of Second
Lien Notes. The exchanged Second Lien Notes were immediately cancelled.
In January 2021, the Company entered into exchange agreements
with holders of the Second Lien Loan to exchange $2,389,650 of Second Lien Loans for 2,517,574 of Class A Common Stock. (see Note
11 – Subsequent events).
On February 9, 2021, the Company prepaid substantially all
of the outstanding Second Lien Loans (see Note 11 – Subsequent Events).
On April 15, 2020, the Company executed a letter amendment
(the “Letter Amendment”) to the Bison Convertible Note (as defined in Note 6 - Notes Payable). Among other
things, the Letter Amendment amended the Note, effective as of March 4, 2020, to extend the maturity date of the Bison Convertible
note to March 4, 2021.
On October 9, 2019, the Company signed an extension to the
Ming Tai Note of $5.0 million for the first of two (2) permitted additional (1) year extensions at the Company’s option
from the original maturity date to October 9, 2020. This note will continue in full force and effect in accordance with its terms,
including the Company’s reservation of its right to further extend the maturity date of this note, if it so elects.
On June 25, 2020, the Company signed an amendment to extend
the maturity date of the East West Credit Facility (as defined in Note 6 - Notes Payable) with East West Bank from March
30, 2021 to June 30, 2021.
On September 11. 2020, the Bison and Mingtai Notes, having
an aggregate of $15 million principal amount (the “Notes”) were converted in full into an aggregate of 10,000,000
shares of Common Stock at a conversion price of $1.50 per share in accordance with the terms of the Notes. Accordingly, the Notes
have been extinguished. The Notes were held by Bison Global and, both of which are affiliates of Peixin Xu, the Chairman of Bison
Capital Holding Company Limited, which is indirectly Cinedigm’s largest stockholder. See Note 6 - Notes Payable.
We believe the combination of: (i) our cash and cash equivalent
balances as of December 31, 2020, (ii) expected cash flows from operations, (iii) cost cutting measures including payroll expense
reduction and real estate occupancy cost reductions, and (iv) the extension or extinguishment of our borrowings, the Starrise
equity investment, the capital raises during and the support or availability of funding from other capital resources and financings
will be sufficient to satisfy our contractual obligations, as well as liquidity for our operational and capital requirements,
for twelve months from the filing of this document. Our capital requirements will depend on many factors, and we may need to use
capital resources and obtain additional capital. Failure to generate additional revenues, obtain additional capital or manage
discretionary spending could have an adverse effect on our financial position, results of operations and liquidity.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying condensed consolidated financial statements
are unaudited and include the accounts of the Company, its wholly owned and majority owned subsidiaries, and reflect all normal
and recurring adjustments necessary for the fair presentation of its consolidated financial position, results of operations and
cash flows. All material inter-company accounts and transactions have been eliminated in consolidation.
Investments in which we do not have a controlling
interest or are not the primary beneficiary but have the ability to exert significant influence are accounted for under the equity
method of accounting. Noncontrolling interests for which we have been determined to be the primary beneficiary are consolidated
and recorded as net loss attributable to noncontrolling interest.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates
and assumptions that affect the assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the
adequacy of accounts receivable reserves, return reserves, inventory reserves, recovery of advances, assessment of goodwill impairment,
intangible asset impairment, fair value for asset acquisition, and estimated amortization lives and valuation allowances for income
taxes. Actual results could differ from these estimates.
Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules
and regulations of the Securities and Exchange Commission (“SEC”), although we believe that the disclosures are adequate
to make the information presented not misleading. The results of operations for the respective interim periods are not necessarily
indicative of the results expected for the full year. These Condensed Consolidated Financial Statements and accompanying notes
should be read in conjunction with our annual consolidated financial statements and the notes thereto, included in our Annual
Report on Form 10-K for the fiscal year ended March 31, 2020.
SIGNIFICANT ACCOUNTING POLICES
The significant accounting policies used
in the preparation of these condensed consolidated financial statements for the three and nine months ended December 31, 2020
are consistent with those disclosed in Note 2 to the consolidated financial statements in the Company’s Annual Report on
Form 10-K for the year ended March 31, 2020.
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
We consider all highly liquid investments with an original
maturity of three months or less to be “cash equivalents.” We maintain bank accounts with major banks, which from
time to time may exceed the Federal Deposit Insurance Corporation’s insured limits. We periodically assess the financial
condition of the institutions and believe that the risk of any loss is minimal. Our Prospect Loan (as defined below) requires
that we maintain specified cash balances that are restricted to repayment of interest thereunder. See Note 6 - Notes Payable
for information about our restricted cash balances.
Cash, cash equivalents, and restricted cash consisted of the
following:
|
|
As of
|
|
(in thousands)
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
Cash and Cash Equivalents
|
|
$
|
26,207
|
|
|
$
|
14,294
|
|
Restricted Cash
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
$
|
27,207
|
|
|
$
|
15,294
|
|
EQUITY INVESTMENT IN STARRISE, A RELATED
PARTY
On February 14, 2020, the Company acquired an approximately
11.5% interest in Starrise Media Holdings Limited (“Starrise”), a leading publicly traded Chinese entertainment company
whose ordinary shares are listed on the Stock Exchange of Hong Kong. The Company acquired such interest as a strategic investment
and in a private transaction from a shareholder of Starrise that is related to our major shareholders. Our major shareholders
also maintain a significant beneficial interest ownership in Starrise. Upon consummation of the transaction on February 14, 2020,
the Company recorded an initial investment of approximately $25.1 million, which is the fair market value of the Starrise shares
on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common stock of $11.2 million,
valued as of the date of the issuance of the Class A common stock of the Company. The difference in value of shares received in
Starrise and shares issued by the Company is deemed as contributed capital and recorded in additional paid-in capital.
On April 10, 2020, the Company purchased an additional 15%
interest in Starrise in a private transaction from shareholders of Starrise that are affiliated with the major shareholder of
the Company. The Company recorded an additional equity investment of approximately $28.2 million, which is the fair market
value of the Starrise shares on the transaction date on the Stock Exchange of Hong Kong, in exchange for the Company’s common
stock of $11.0 million, valued at the date of the issuance of the Class A common stock of the Company. The difference in
the value of shares received in Starrise and shares issued by the Company is deemed as contributed capital and recorded in additional
paid-in capital. This transaction was also recorded as an equity investment in Starrise.
The Company has accounted for these investments under the equity
method of accounting as the Company can exert significant influence over Starrise with its direct ownership and affiliation with
the Company’s majority shareholders. The Company has made an irrevocable election to apply the fair value option under ASC
825-10, Financial Instruments, as it relates to its equity investment in Starrise.
During the nine months ended December 31, 2020, the Company
sold 8,370,000 of Starrise shares for net proceeds of approximately $0.8 million which resulted in a loss on sale of approximately
$73 thousand.
As of December 31, 2020 and March, 31, 2020, the value of our
equity investment in Starrise, using the readily determinable fair value method from the quoted trading price of the Stock Exchange
of Hong Kong, was approximately $7.6 million and $23.4 million, respectively, resulting in a change in fair value of approximately
$42.4 million for the nine months ended December 31, 2020, on our condensed consolidated statement of operations.
NON-MONETARY TRANSACTIONS
During the three and nine months ended December 31, 2020, respectively,
the Company entered into agreements with certain vendors to transfer 5,139,762 and 14,184,765 Starrise shares to satisfy outstanding
liabilities with these vendors. Upon the sale of the Starrise shares by the vendors, with certain restrictions on sales unless
the Company gives consent to sell, if the proceeds do not satisfy the amount due to the vendor, the Company is liable for the
balance owed. Pursuant to such agreements, the Company reduced the amount payable to its vendors by $0.8 million as of December
31, 2020.
There was no gain or loss resulting from
these transactions for the three and nine months ended December 31, 2020.
ACCOUNTS RECEIVABLE
We maintain reserves for potential credit
losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations,
customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these
reserves. Reserves are recorded primarily on a specific identification basis.
We record accounts receivable, long-term in connection with
activation fees that we earn from our digital cinema equipment (the “Systems”) deployments that have extended payment
terms. Such accounts receivable are discounted to their present value at prevailing market rate.
ADVANCES
Advances, which are recorded within prepaid and other current
assets on the condensed consolidated balance sheets, represent amounts prepaid to studios or content producers for which we provide
content distribution services. We evaluate advances regularly for recoverability and record impairment charges for amounts that
we expect may not be recoverable as of the consolidated balance sheet date. Impairments and accelerated amortization related to
advances were $0.3 million and $0.3 million, for the three months ended December 31, 2020 and 2019. Impairments and
accelerated amortization related to advances were $0.3 million and $0.7 million, respectively, for nine months ended
December 31, 2020 and 2019.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation expense is recorded using the straight-line method over the estimated useful lives
of the respective assets as follows:
Computer equipment and software
|
|
|
3 - 5 years
|
|
Internal use software
|
|
|
5 years
|
|
Digital cinema projection systems
|
|
|
10 years
|
|
Machinery and equipment
|
|
|
3 - 10 years
|
|
Furniture and fixtures
|
|
|
3 - 6 years
|
|
We capitalize costs associated with software developed or obtained
for internal use when the preliminary project stage is completed, and it is determined that the software will provide significantly
enhanced capabilities and modifications. These capitalized costs are included in property and equipment and include external direct
cost of services procured in developing or obtaining internal-use software and personnel and related expenses for employees who
are directly associated with, and who devote time to internal-use software projects. Capitalization of these costs ceases once
the project is substantially complete and the software is ready for its intended use. Once the software is ready for its intended
use, the costs are amortized over the useful life of the software. Post-configuration training and maintenance costs are expensed
as incurred.
Leasehold improvements are amortized over
the shorter of the lease term or the estimated useful life of the leasehold improvements. Repair and maintenance costs are charged
to expense as incurred. Major renewals, improvements and additions are capitalized. Upon the sale or other disposition of any
property and equipment, the cost and related accumulated depreciation and amortization are removed from the accounts and the gain
or loss on disposal is included in the condensed consolidated statements of operations.
FAIR VALUE MEASUREMENTS
The fair value measurement disclosures
are grouped into three levels based on valuation factors:
|
●
|
Level
1 – quoted prices in active markets for identical investments
|
|
●
|
Level
2 – other significant observable inputs (including quoted prices for similar investments
and market corroborated inputs)
|
|
●
|
Level
3 – significant unobservable inputs (including our own assumptions in determining
the fair value of investments)
|
Assets and liabilities measured at fair value on a recurring
basis use the market approach, where prices and other relevant information are generated by market transactions involving identical
or comparable assets or liabilities.
The equity investment in Starrise is in Hong
Kong dollars and was translated into US dollars as of December 31, 2020 and March 31, 2020 at an exchange rate of 7.75 and 7.8
Hong Kong Dollars to 1 US Dollar, respectively. The fair value of this equity investment is measured by the quoted market price
of Starrise on the Stock Exchange of Hong Kong.
The following tables summarize the levels
of fair value measurements of our financial assets and liabilities as of December 31, 2020 and March 31, 2020:
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Restricted cash
|
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
Equity investment in Starrise, at fair value
|
|
|
7,584
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,584
|
|
|
|
$
|
8,584
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
8,584
|
|
As of March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Restricted cash
|
|
$
|
1,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
Equity investment in Starrise, at fair value
|
|
|
23,433
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,433
|
|
|
|
$
|
24,433
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
24,433
|
|
Our cash and cash equivalents, accounts receivable,
unbilled revenue and accounts payable and accrued expenses are financial instruments and are recorded at cost in the condensed
consolidated balance sheets. The estimated fair values of these financial instruments approximate their carrying amounts because
of their short-term nature. At December 31, 2020 and March 31, 2020, the estimated fair value of our fixed rate debt
approximated its carrying amounts. We estimated the fair value of debt based upon current interest rates available to us at the
respective balance sheet dates for arrangements with similar terms and conditions. Based on borrowing rates currently available
to us for loans with similar terms, the fair value of the variable rate debt is $11.8 million and lease obligations approximates
fair value.
IMPAIRMENT OF LONG-LIVED AND FINITE-LIVED ASSETS
We review the recoverability of our long-lived assets and finite-lived
intangible assets, when events or conditions occur that indicate a possible impairment exists. The assessment for recoverability
is based primarily on our ability to recover the carrying value of our long-lived and finite-lived assets from expected future
undiscounted net cash flows. If the total of expected future undiscounted net cash flows is less than the total carrying value
of the asset, the asset is deemed not to be recoverable and possibly impaired. We then estimate the fair value of the asset
to determine whether an impairment loss should be recognized. An impairment loss will be recognized if the asset’s
fair value is determined to be less than its carrying value. Fair value is determined by computing the expected future discounted
cash flows. During the three months and nine months ended December 31, 2020 and 2019, no impairment charge was recorded from
operations for long-lived assets or finite-lived assets.
ASSET ACQUISITIONS
An asset acquisition is an acquisition
of an asset, or a group of assets, that does not meet the definition of a business. Asset acquisitions are accounted for by using
the cost accumulation model whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets
acquired on the basis of relative fair values.
GOODWILL
Goodwill is the excess of the purchase price paid over the
fair value of the net assets of an acquired business. Goodwill is tested for impairment on an annual basis or more often if warranted
by events or changes in circumstances indicating that the carrying value may exceed fair value, also known as impairment indicators.
Inherent in the fair value determination for each reporting
unit are certain judgments and estimates relating to future cash flows, including management’s interpretation of current
economic indicators and market conditions, and assumptions about our strategic plans with regard to its operations. To the extent
additional information arises, market conditions change, or our strategies change, it is possible that the conclusion regarding
whether our remaining goodwill is impaired could change and result in future goodwill impairment charges that will have a material
effect on our consolidated financial position or results of operations.
No goodwill impairment charge was recorded in the three and
nine months ended December 31, 2020 and 2019.
Gross amounts of goodwill and accumulated impairment charges
that we have recorded are as follows:
(In thousands)
|
|
|
|
Goodwill
|
|
$
|
32,701
|
|
Accumulated impairment charges
|
|
|
(24,000
|
)
|
Goodwill at December 31, 2020 and March 31, 2020
|
|
$
|
8,701
|
|
REVENUE RECOGNITION
We determine revenue recognition by:
|
●
|
identifying the contract, or contracts,
with the customer;
|
|
●
|
identifying the performance obligations
in the contract;
|
|
●
|
determining the transaction price;
|
|
●
|
allocating the transaction price to performance
obligations in the contract; and
|
|
●
|
recognizing revenue when, or as, we satisfy
performance obligations by transferring the promised goods or services.
|
We recognize revenue in the amount that reflects the consideration
we expect to receive in exchange for the services provided, sales of physical products (DVDs and Blu-ray Discs) or when the content
is available for subscription on the digital platform or available on the point-of-sale for transactional and video on demand
services which is when the control of the promised products and services is transferred to our customers and our performance obligations
under the contract have been satisfied. Revenues that might be subject to various taxes are recorded net of transaction taxes
assessed by governmental authorities such as sales value-added taxes and other similar taxes.
Payment terms and conditions vary by customer and typically
provide net 30 to 90 day terms. We do not adjust the promised amount of consideration for the effects of a significant financing
component when we expect, at contract inception, that the period between our transfer of a promised product or service to our
customer and payment for that product or service will be one year or less. We have in the past entered into arrangements in connection
with activation fees due from our System deployments that had extended payment terms. The outstanding balances on these arrangements
are insignificant and hence the impact of significant financing would be insignificant.
Cinema Equipment Business
Virtual print fees (“VPFs”) are earned, net of
administrative fees, pursuant to contracts with movie studios and distributors, whereby amounts are payable by a studio to Cinedigm
Digital Funding I, LLC. (“Phase 1 DC”) and to Access Digital Cinema Phase 2 Corp. (“Phase 2 DC”) when
movies distributed by the studio are displayed on screens utilizing our Systems installed in movie theatres. VPFs are earned and
payable to Phase 1 DC based on a defined fee schedule until the end of the VPF term. One VPF is payable for every digital title
initially displayed per System. The amount of VPF revenue is dependent on the number of movie titles released and displayed using
the Systems in any given accounting period. VPF revenue is recognized in the period in which the digital title first plays on
a System for general audience viewing in a digitally equipped movie theatre, as Phase 1 DC’s and Phase 2 DC’s performance
obligations have been substantially met at that time.
Phase 2 DC’s agreements with distributors require the
payment of VPFs, according to a defined fee schedule, for ten years from the date each system is installed; however, Phase 2 DC
may no longer collect VPFs once “cost recoupment,” as defined in the contracts with movie studios and distributors,
is achieved. Cost recoupment will occur once the cumulative VPFs and other cash receipts collected by Phase 2 DC have equaled
the total of all cash outflows, including the purchase price of all Systems, all financing costs, all “overhead and ongoing
costs”, as defined, and including service fees, subject to maximum agreed upon amounts during the three-year rollout period
and thereafter. Further, if cost recoupment occurs before the end of the eighth contract year, the studios will pay us a one-time
“cost recoupment bonus.” The Company evaluated the constraining estimates related to the variable consideration, i.e.,
the one-time bonus and determined that it is not probable to conclude at this point in time that a significant reversal in the
amount of cumulative revenue recognized will occur when the uncertainty associated with the variable consideration is subsequently
resolved.
Under the terms of our standard cinema equipment licensing
agreements, exhibitors will continue to have the right to use our Systems through the end of the term of the licensing agreement,
after which time, they have the option to: (1) return the Systems to us; (2) renew their license agreement for successive one-year
terms; or (3) purchase the Systems from us at fair market value. As permitted by these agreements, we typically pursue the sale
of the Systems to such exhibitors. Such sales were as originally contemplated as the conclusion of the digital cinema deployment
plan. Cinedigm completed the sale of 15 and 24 digital projection Systems, respectively, for an aggregate sales price of approximately
$150 thousand and $240 thousand, and recognized revenue of $66 thousand and $240 thousand, during the three months ended
December 31, 2020 and 2019, respectively. Cinedigm completed the sale of 45 and 136 digital projection Systems, respectively,
for an aggregate sales price of approximately $345 thousand and $1.5 million, and recognized revenue of $157 thousand
and $1.3 million, during the nine months ended December 31, 2020 and 2019, respectively.
Revenues earned in connection with up front exhibitor contributions
are deferred and recognized over the expected cost recoupment period.
Exhibitors who purchased and own Systems using their own financing
in the Cinema Equipment Business paid us an upfront activation fee of approximately $2.0 thousand per screen (the “Exhibitor-Buyer
Structure”). Upfront activation fees were recognized in the period in which these Systems were delivered and ready for content,
as we had no further obligations to the customer after that time and collection was reasonably assured. In addition, we recognize
activation fee revenue of between $1.0 thousand and $2.0 thousand on Phase 2 DC Systems and for Systems installed by CDF2 Holdings,
a related party, (See Note 3 - Other Interests) upon installation and such fees are generally collected upfront upon installation.
Our services segment manages and collects VPFs on behalf of exhibitors, for which it earns an administrative fee equal to 10%
of the VPFs collected.
The Cinema Equipment Business earns an administrative fee of
approximately 5% of VPFs collected and, in addition, earns an incentive service fee equal to 2.5% of the VPFs earned by Phase
1 DC. This administrative fee is related to the collection and remittance of the VPF’s and the performance obligation is
satisfied at that time the related VPF fees are due which is at the time the movies are displayed on screens utilizing our Systems
installed in movie theatres. The service fees are recognized as a point in time revenue when the corresponding VPF fees are due
from the movie studios and distributors.
Content & Entertainment Business
CEG earns fees for the distribution of content in the home
entertainment markets via several distribution channels, including digital, video on demand (“VOD”), and physical
goods (e.g., DVD and Blu-ray Discs). Fees earned are typically based on the gross amounts billed to our customers less the amounts
owed to the media studios or content producers under distribution agreements, and gross media sales of owned or licensed content.
Depending upon the nature of the agreements with the platform and content providers, the fee rate that we earn varies. The Company’s
performance obligations include the delivery of content for subscription on the digital platform, shipment of DVD and Blu-ray
Discs, or make available at point-of-sale for transactional and VOD services. Revenue is recognized at the point in time when
the performance obligation is satisfied which is when the content is available for subscription on the digital platform, at the
time of shipment for physical goods, or point-of-sale for transactional and VOD services as the control over the content or the
physical title is transferred to the customer. The Company considers the delivery of content through various distribution channels
to be a single performance obligation. Revenue is recognized after deducting the reserves for product returns and other allowances,
which are accounted for as variable consideration.
Reserves for product returns and other allowances are recorded
based upon historical experience. If actual future returns and allowances differ from past experience, adjustments to our allowances
may be required.
CEG also has contracts for the theatrical
distribution of third party feature movies and alternative content. CEG’s distribution fee revenue and CEG’s participation
in box office receipts is recognized at the time a feature movie and alternative content are viewed. CEG has the right to receive
or bill a portion of the theatrical distribution fee in advance of the exhibition date, and therefore such amount is recorded
as a receivable at the time of execution, and all related distribution revenue is deferred until the third party feature movies’
or alternative content’s theatrical release date.
Principal Agent Considerations
We determine whether revenue should be reported on a gross
or net basis based on each revenue stream. Key indicators that we use in evaluating gross versus net treatment include, but are
not limited to, the following:
|
●
|
which party is primarily responsible for
fulfilling the promise to provide the specified good or service; and
|
|
●
|
which party has discretion in establishing
the price for the specified good or service.
|
Shipping and Handling
Shipping and handling costs are incurred to move physical goods
(e.g., DVD and Blu-ray Discs) to customers. We recognize all shipping and handling costs as an expense in cost of goods sold because
we are responsible for delivery of the product to our customers prior to transfer of control to the customer.
Contract Liabilities
We generally record a receivable related to revenue when we
have an unconditional right to invoice and receive payment, and we record deferred revenue (contract liability) when cash payments
are received or due in advance of our performance, even if amounts are refundable.
We maintain reserves for potential credit
losses on accounts receivable. We review the composition of accounts receivable and analyze historical bad debts, customer concentrations,
customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these
reserves. Reserves are recorded primarily on a specific identification basis.
Our CEG segment recognizes accounts receivable,
net of an estimated allowance for product returns and customer chargebacks, at the time that it recognizes revenue from a sale.
Reserves for product returns and other allowances is variable consideration as part of the transaction price. If actual future
returns and allowances differ from past experience, adjustments to our allowances may be required.
We record accounts receivable, long-term in connection with
activation fees that we earn from Systems deployments that have extended payment terms. Such accounts receivable are discounted
to their present value at prevailing market rates. The outstanding balances on these arrangements are insignificant and hence
the impact of significant financing would be insignificant.
Deferred revenue pertaining to our Content & Entertainment
Business includes amounts related to the sale of DVDs with future release dates.
Deferred revenue relating to our Cinema Equipment Business
pertains to revenues earned in connection with up front exhibitor contributions that are deferred and recognized over the expected
cost recoupment period. It also includes unamortized balances in connection with activation fees due from the Systems deployments
that have extended payment terms.
The ending deferred revenue balance, including current and
non-current balances, as of December 31, 2020 was $1.3 million. For the three months ended December 31, 2020, the additions to
our deferred revenue balance were primarily due to cash payments received or due in advance of satisfying performance obligations,
while the reductions to our deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our
performance obligations, both of which were in the ordinary course of business.
During the three and nine months ended December 31, 2020, $1.2
million and $2.5 million, respectively of revenue was recognized that was included in the deferred revenue balance at the beginning
of the period. As of December 31, 2020, the aggregate amount of contract revenue allocated to unsatisfied performance obligations
was $0.1 million. We expect to recognize approximately $1.3 million of this balance over the next 12 months, and the remainder
thereafter.
Disaggregation of Revenue
The Company disaggregates revenue into different revenue categories
for the Cinema Equipment and CEG Businesses. The Cinema Equipment Business revenue categories are: Phase I Deployment revenue,
Phase II Deployment revenue, Services, and Digital System Sales, and the Content & Entertainment Business revenue categories
are: Base Distribution Business and OTT Streaming and Digital.
The following tables present the Company’s revenue categories
for the three and nine months ended December 31, 2020 and 2019: (in thousands):
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cinema Equipment Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
Phase I Deployment
|
|
$
|
281
|
|
|
$
|
1,402
|
|
|
$
|
424
|
|
|
$
|
4,797
|
|
Phase II Deployment
|
|
|
367
|
|
|
|
444
|
|
|
|
1,067
|
|
|
|
1,326
|
|
Services
|
|
|
196
|
|
|
|
1,043
|
|
|
|
481
|
|
|
|
3,378
|
|
Digital System Sales
|
|
|
66
|
|
|
|
240
|
|
|
|
186
|
|
|
|
1,266
|
|
Total Cinema Equipment Business revenue
|
|
$
|
910
|
|
|
$
|
3,129
|
|
|
$
|
2,158
|
|
|
$
|
10,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Content & Entertainment Business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Distribution Business
|
|
$
|
4,152
|
|
|
$
|
5,286
|
|
|
$
|
9,218
|
|
|
$
|
11,944
|
|
OTT Streaming and Digital
|
|
|
4,892
|
|
|
|
3,097
|
|
|
|
11,778
|
|
|
|
8,845
|
|
Total Content & Entertainment Business revenue
|
|
$
|
9,044
|
|
|
$
|
8,383
|
|
|
$
|
20,996
|
|
|
$
|
20,789
|
|
STOCK-BASED COMPENSATION
Employee and director stock-based compensation
expense related to our stock-based awards was as follows:
|
|
Three Months Ended
December 31,
|
|
|
Nine Months Ended
December
31,
|
|
(In thousands)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
$
|
960
|
|
|
$
|
178
|
|
|
$
|
2,172
|
|
|
$
|
367
|
|
|
|
$
|
960
|
|
|
$
|
178
|
|
|
$
|
2,172
|
|
|
$
|
367
|
|
During the three and nine months ended December 31, 2020 and
2019, the Company granted 5,550,000 stock appreciation rights (“SARs”). The SARs were granted under the Company’s
2017 Equity Incentive Plan (the “2017 Plan. All SARs issued have an exercise price equal to the fair value of the Company’s
common stock on the date of grant and a maturity date of 10 years. The SARs were valued on the grant date utilizing an option
pricing model, as follows:
Grant Date: November 19, 2020 – December 23, 2020
Maturity Date: November 19, 2030 – December 31, 2030
Fair value of class A common stock on grant date: $0.54 - $0.74
Volatility: 91.05% - 91.71%
Discount rate: 0.88% - 0.96%
There was $739 thousand and $111 thousand, of stock-based
compensation recorded for the three months ended December 31, 2020 and 2019, respectively and $961 thousand and $332 thousand
for the nine months ended December 31, 2020 and 2019 respectively, relating to these SARs.
Total SARs outstanding are as follows:
|
|
Nine
Months Ended December 31,
2020
|
|
SARs Outstanding March 31, 2020
|
|
|
1,462,610
|
|
Issued
|
|
|
5,550,000
|
|
Forfeited
|
|
|
—
|
|
Total SARs Outstanding December 31, 2020
|
|
|
7,012,610
|
|
There are 696,050 units of performance stock units (“PSU”)
which were granted on July 26, 2018 fully vested but not paid yet. There was no stock-based compensation recorded related to these
units for the nine months ended December 31, 2020 and there was a cumulative adjustment of $166 thousand of stock-based compensation
recorded for the nine months ended December 31, 2019. During the nine months ended December 31, 2020, the vested PSU’s were
settled for 693,647 shares of Class A Common Stock. In addition, the Company issued 689,364 shares of Class A Common Stock as
a bonus to employees. The Company recorded $786 thousand as stock compensation expense related to the bonus awards based
on the $1.14 Class A common share value on the date of grant during the nine months ended December 31, 2020.
In addition, during the three months ended December 31, 2020,
the Company granted and issued 320,000 shares of Class A common stock to the Company’s Chief Executive Officer as a compensatory
bonus. The shares were valued on the date of grant utilizing the fair value of the Company’s class A common stock. The Company
recognized stock compensation of $166 thousand for the issuance.
There was $1 thousand and $4 thousand of stock-based
compensation recorded for both the three and nine months ended December 31, 2020 and 2019, respectively, related to employees’
restricted stock awards.
There was $54 thousand and $0 of stock-based compensation recorded
for the three months ended December 31, 2020 and 2019 respectively related to the board of directors. There was $188 thousand
and $0 of stock-based compensation for the nine months ended December 31, 2020 and 2019 related to board of directors.
On September 1, 2020, we issued 80,000
shares of Class A common stock to Ronald L. Chez as a bonus payable to him under the Strategic Investor Agreement between the
Company and him dated as of April 3, 2017. During the nine months ended December 31, 2020, we recognized an expense of $71 thousand
based on the stock price of the Class A common stock on the date of grant.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to
operating loss and tax credit carryforwards and for differences between the carrying amounts of existing assets and liabilities
and their respective tax bases.
Valuation allowances are established when management is unable
to conclude that it is more likely than not that some portion, or all, of the deferred tax asset will ultimately be realized.
The Company is primarily subject to income taxes in the United States.
The Company accounts for uncertain tax positions in accordance
with an amendment to ASC Topic 740-10, Income Taxes (Accounting for Uncertainty in Income Taxes), which
clarified the accounting for uncertainty in tax positions. This amendment provides that the tax effects from an uncertain tax
position can be recognized in the financial statements only if the position is “more-likely-than-not” to be sustained
were it to be challenged by a taxing authority. The assessment of the tax position is based solely on the technical merits of
the position, without regard to the likelihood that the tax position may be challenged. If an uncertain tax position meets the
“more-likely-than-not” threshold, the largest amount of tax benefit that is more than 50% likely to be recognized
upon ultimate settlement with the taxing authority is recorded. The Company has no uncertain tax positions.
NET LOSS PER SHARE ATTRIBUTABLE TO
COMMON SHAREHOLDERS
Basic and diluted net loss per common
share has been calculated as follows:
Basic
and diluted net loss per common share
attributable to common stockholders =
|
Net
loss attributable to common stockholders
|
Weighted
average number of common stock
outstanding during the period
|
Stock issued and treasury stock repurchased during the period
are weighted for the portion of the period that they are outstanding. Shares issued and any shares that are reacquired during
the period are weighted for the portion of the period that they are outstanding.
We incurred net losses for the three and nine months ended
December 31, 2020 and 2019, and therefore the impact of potentially dilutive common shares from outstanding stock options and
warrants, totaling 9,040,138 shares and 4,066,172 shares as of December 31, 2020 and 2019, respectively, were excluded from the
computations of loss per share as their impact would have been anti-dilutive.
COMPREHENSIVE LOSS
As of the three and nine months ended December 31, 2020 and
2019, comprehensive loss consisted of net loss and foreign currency translation adjustments.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Not yet adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments
– Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”),
which provides new guidance regarding the measurement and recognition of credit impairment for certain financial assets. Such
guidance will impact how the Company determines its allowance for estimated uncollectible receivables and evaluates its available-for-sale
investments for impairment. ASU 2016-13 is effective for the Company in the first quarter of 2023. The Company is currently
evaluating the effect that ASU 2016-13 will have on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, “Fair
Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”.
The amendments in ASU 2018-13 modify the disclosure requirements associated with fair value measurements based on the concepts
in the Concepts Statement, including the consideration of costs and benefits. The amendments on changes in unrealized gains and
losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and
the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual
period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods
presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15,
2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We
are currently assessing the impact this pronouncement may have on our consolidated financial statements
On December 18, 2019, the FASB issued ASU 2019-12, “Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes by
removing certain exceptions to the general principles in Topic 740. The update also simplifies GAAP for other areas of Topic 740
by clarifying and amending existing guidance to improve consistent application. The amendment in this update is effective for
fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. We
are currently assessing the impact this pronouncement may have on our consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04,
“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”
ASU 2020-04 provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions
that reference LIBOR or another reference rate if certain criteria are met. The amendments of ASU No. 2020-04 are effective immediately,
as of March 12, 2020, and may be applied prospectively to contract modifications made and hedging relationships entered into on
or before December 31, 2022. We are currently assessing the impact this pronouncement may have on our consolidated financial statements
3. OTHER INTERESTS
Investment in CDF2 Holdings
We indirectly own 100% of the common equity of CDF2 Holdings,
LLC (“CDF2 Holdings”), which was created for the purpose of capitalizing on the conversion of the exhibition industry
from film to digital technology. CDF2 Holdings assists its customers in procuring the equipment necessary to convert their systems
to digital technology by providing financing, equipment, installation and related ongoing services.
CDF2 Holdings is a Variable Interest Entity (“VIE”),
as defined in Accounting Standards Codification Topic 810 (“ASC 810”), “Consolidation.” ASC 810 requires
the consolidation of VIEs by an entity that has a controlling financial interest in the VIE which entity is thereby defined as
the primary beneficiary of the VIE. To be a primary beneficiary, an entity must have the power to direct the activities of a VIE
that most significantly impact the VIE’s economic performance, among other factors. Although we indirectly, wholly own CDF2
Holdings, we, a third party that also has a variable interest in CDF2 Holdings, and an independent third party manager must mutually
approve all business activities and transactions that significantly impact CDF2 Holdings’ economic performance. We have
therefore assessed our variable interests in CDF2 Holdings and determined that we are not the primary beneficiary of CDF2 Holdings.
As a result, CDF2 Holdings’ financial position and results of operations are not consolidated in our financial position
and results of operations. In completing our assessment, we identified the activities that we consider most significant to the
economic performance of CDF2 Holdings and determined that we do not have the power to direct those activities, and therefore we
account for our investment in CDF2 Holdings under the equity method of accounting.
As of December 31, 2020 and March 31, 2020, our maximum
exposure to loss, as it relates to the non-consolidated CDF2 Holdings entity, represents accounts receivable for service fees
under a master service agreement with CDF2 Holdings. Such accounts receivable was $0.2 million and $0.4 million as of December
31, 2020 and March 31, 2020 which are included in accounts receivable, net on the accompanying condensed consolidated balance
sheets.
The accompanying Condensed Consolidated Statements of Operations
include $47 thousand and $83 thousand of digital cinema servicing revenue from CDF2 Holdings for each of the three months
and nine months ended December 31, 2020, respectively. The accompanying Condensed Consolidated Statements of Operations include
$0.3 million and $0.9 million of digital cinema servicing revenue from CDF2 Holdings for each of three months and nine
months ended December 31, 2019.
Total Stockholders’ Deficit of CDF2 Holdings at December
31, 2020 and March 31, 2020 was $43.3 million and $31.8 million, respectively. We have no obligation to fund the
operating loss or the stockholders’ deficit beyond our initial investment of $2.0 million and, accordingly, our investment
in CDF2 Holdings as of December 31, 2020 and March 31, 2020 is carried at $0.
Majority Interest in CONtv
We own an 85% interest in CON TV, LLC, a worldwide digital
network that creates original content, and sells and distributes on-demand digital content on the Internet and other consumer
digital distribution platforms, such as gaming consoles, set-top boxes, handsets, and tablets.
4. ASSET ACQUISTION
On December 21, 2020, the Company acquired substantially all
of the assets of The Film Detective, LLC (“TFD”), a leading content distributor and streaming channel company focused
on classic film and television programming. The purchase price for the TFD acquisition was $750,000 in cash and 2,504,592 shares
of the Company’s class A common stock at $0.74 per share or $1,853,000, as of the acquisition date (physical stock certificates
were issued by the Company’s transfer agent subsequently on January 11, 2021). In addition, TFD may be entitled to receive
earnout amounts of up to an aggregate of $1,600,000 for the four years beginning on April 1, 2021, payable in cash or with
respect to a portion thereof, at the Company’s discretion and subject to certain conditions, in shares of Common Stock. This
acquisition is accounted for as an asset acquisition as substantially all of the value acquired resides in a single group of assets.
Accordingly, the acquisition cost related to the transaction is capitalized and the potential earnout will only be recognized when
the contingency is probable and estimable in the future. Acquired intangible assets include TFD’s content library, distribution
contracts, trade name and other and the final fair value allocation was as follows:
Asset
|
|
Amount
in ($000)
|
|
|
Useful
Life
|
|
Content Library
|
|
$
|
2,471
|
|
|
|
20 years
|
|
Distribution Contracts
|
|
|
124
|
|
|
|
2 years
|
|
Trade Name
|
|
|
24
|
|
|
|
2 years
|
|
Other
|
|
|
32
|
|
|
|
3 years
|
|
Total
|
|
$
|
2,651
|
|
|
|
|
|
5. INCOME TAXES
We calculate income tax expense based upon an annual effective
tax rate forecast, including estimates and assumptions. We recorded an income tax benefit (expense) of approximately $0 and $181
for the three and nine months ended December 31, 2020. We recorded income tax expense of approximately $136 thousand and $210
thousand, respectively, for the three and nine months ended December 31, 2019. We have not recorded tax benefits on our loss before
income taxes because we have provided for a full valuation allowance that offsets potential deferred tax assets resulting from
net operating loss carry forwards, reflecting our inability to use such loss carry forwards.
Our effective tax rate for the nine months
ended December 31, 2020 and 2019 was 0.3% and negative 2.09%, respectively.
On March 27, 2020, the Coronavirus Aid, Relief,
and Economic Security (CARES) Act was signed into law. The Act contains several new or changed income tax provisions, including
but not limited to the following: increased limitation threshold for determining deductible interest expense; class life changes
to qualified improvements (in general, from 39 years to 15 years); and the ability to carry back net operating losses incurred
from tax years 2018 through 2020 up to the five preceding tax years. The Company has evaluated the new tax provisions of the CARES
Act and determined the impact to be either immaterial or not applicable.
6.
NOTES PAYABLE
Notes
payable consisted of the following:
|
|
December 31, 2020
|
|
|
March 31, 2020
|
|
(In thousands)
|
|
Current Portion
|
|
|
Long Term Portion
|
|
|
Current Portion
|
|
|
Long Term Portion
|
|
Prospect Loan
|
|
$
|
12,036
|
|
|
$
|
—
|
|
|
$
|
12,205
|
|
|
$
|
—
|
|
Total non-recourse notes payable
|
|
|
12,036
|
|
|
|
—
|
|
|
|
12,205
|
|
|
|
—
|
|
Less: Unamortized debt issuance costs and debt discounts
|
|
|
(146
|
)
|
|
|
—
|
|
|
|
(763
|
)
|
|
|
—
|
|
Total non-recourse notes payable,
net of unamortized debt issuance costs and debt discounts
|
|
$
|
11,890
|
|
|
$
|
—
|
|
|
$
|
11,442
|
|
|
$
|
—
|
|
Bison Note Payable
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
10,000
|
|
|
$
|
—
|
|
Second Lien Loans
|
|
|
6,040
|
|
|
|
—
|
|
|
|
8,222
|
|
|
|
—
|
|
Credit Facility
|
|
|
5,113
|
|
|
|
—
|
|
|
|
14,487
|
|
|
|
—
|
|
Mingtai Convertible Note
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
—
|
|
PPP Loan
|
|
|
—
|
|
|
|
2,152
|
|
|
|
—
|
|
|
|
—
|
|
Total recourse notes payable
|
|
|
11,153
|
|
|
|
2,152
|
|
|
|
37,709
|
|
|
|
—
|
|
Less: Unamortized debt issuance costs and debt discounts
|
|
|
—
|
|
|
|
—
|
|
|
|
(460
|
)
|
|
|
—
|
|
Total recourse notes payable,
net of unamortized debt issuance costs and debt discounts
|
|
$
|
11,153
|
|
|
$
|
2,152
|
|
|
$
|
37,249
|
|
|
$
|
—
|
|
Total notes payable, net of unamortized debt issuance costs
|
|
$
|
23,043
|
|
|
$
|
2,152
|
|
|
$
|
48,691
|
|
|
$
|
—
|
|
Non-recourse
debt is generally defined as debt whereby the lenders’ sole recourse with respect to defaults, is limited to the value of
the asset, which is collateral for the debt. Certain of our subsidiaries are liable with respect to, and their assets serve as
collateral for, certain indebtedness for which our assets and the assets of our other subsidiaries that are not parties to the
transaction are generally not liable. We have referred to this indebtedness as “non-recourse debt” because the recourse
of the lenders is limited to the assets of specific subsidiaries. Such indebtedness includes the Prospect Loan.
Prospect
Loan
In
February 2013, our DC Holdings, AccessDM and Phase 2 DC subsidiaries entered into a term loan agreement (the “Prospect Loan”)
with Prospect Capital Corporation (“Prospect”), pursuant to which DC Holdings borrowed $70.0 million. The Prospect
Loan bears interest at LIBOR plus 9.0% (with a 2.0% LIBOR floor), which is payable in cash, and at an additional 2.50% to be accrued
as an increase to the aggregate principal amount of the Prospect Loan until the Prospect Loan is paid off, at which time all accrued
interest will be payable in cash.
Collections
of DC Holdings accounts receivable are deposited into accounts designated to pay certain operating expenses, principal, interest,
fees, costs and expenses relating to the Prospect Loan. On a quarterly basis, if there is excess cash flow, it is used for prepayment
of the Prospect Loan. We also maintain a debt service fund under the Prospect Loan for future principal and interest payments.
As of December 31, 2020, and March 31, 2020, the debt service fund had a balance of $1.0 million, which is classified as
part of restricted cash on our Condensed Consolidated Balance Sheets.
The
Prospect Loan matures on March 31, 2021 and may be accelerated upon a change in control (as defined in the agreement) or other
events of default as set forth therein and would be subject to mandatory acceleration upon insolvency of DC Holdings. We are permitted
to pay the full outstanding balance of the Prospect Loan at any time after the second anniversary of the initial borrowing, subject
to the following prepayment penalties:
|
●
|
5.0% of the principal amount prepaid between the second and third anniversaries of issuance;
|
|
●
|
4.0% of the principal amount prepaid between the third and fourth anniversaries of issuance;
|
|
●
|
3.0% of the principal amount prepaid between the fourth and fifth anniversaries of issuance;
|
|
●
|
2.0% of the principal amount prepaid between the fifth and sixth anniversary of issuance;
|
|
●
|
1.0% of the principal amount prepaid between the sixth and seventh anniversaries of issuance; and
|
|
●
|
No
penalty if the balance of the Prospect Loan, including accrued interest, is prepaid thereafter.
|
The
Prospect Loan is secured by, among other things, a first priority pledge of the stock of CDF2 Holdings, our wholly owned unconsolidated
subsidiary, the stock of AccessDM, owned by DC Holdings, and the stock of our Phase 2 DC subsidiary, and is also guaranteed by
AccessDM and Phase 2 DC. We provide limited financial support to the Prospect Loan not to exceed $1.5 million per year in the
event financial performance does not meet certain defined benchmarks.
The
Prospect Loan contains customary representations, warranties, affirmative covenants, negative covenants and events of default.
The
following table summarizes the activity related to the Prospect Loan:
|
|
As of
|
|
(In thousands)
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
Prospect Loan, at issuance
|
|
$
|
70,000
|
|
|
$
|
70,000
|
|
PIK Interest
|
|
|
4,778
|
|
|
|
4,778
|
|
Payments to date
|
|
|
(62,888
|
)
|
|
|
(62,573
|
)
|
Prospect Loan, gross
|
|
$
|
11,890
|
|
|
$
|
12,205
|
|
Less unamortized debt issuance costs and debt discounts
|
|
|
—
|
|
|
|
(763
|
)
|
Prospect Loan, net
|
|
|
11,890
|
|
|
|
11,442
|
|
Less current portion
|
|
|
(11,890
|
)
|
|
|
(11,442
|
)
|
Total long term portion
|
|
$
|
—
|
|
|
$
|
—
|
|
Bison
Note Payable
In
December 2017, the Company entered into a loan with Bison for $10.0 million (the “Bison Loan”) and issued Warrants
to purchase 1,400,000 shares of the Company’s Class A common stock. See Note 7 - Stockholders’ Deficit for
further discussion of the warrants.
The
loan was made in accordance with the Stock Purchase Agreement between the Company and Bison Entertainment Investment Limited,
another affiliate of Bison, entered into on June 29, 2017.
On
July 20, 2018, the Company entered into a term loan agreement (the “2018 Loan Agreement”) with Bison Global, pursuant
to which the Company borrowed from Bison Global $10.0 million (the “2018 Loan”), the proceeds of which were used to
pay off the Bison Loan. The 2018 Loan has a one (1) year term that may be extended by mutual agreement of Bison Global and the
Company and bears interest at 5% per annum, payable quarterly in cash. On July 12, 2019, we entered into a Termination Agreement
for the 2018 Loan and at the same time entered into a $10.0 million convertible note with Bison Global (the “Bison Convertible
Note”).
Bison
Convertible Note
The
Bison Convertible Note has a term ending on March 4, 2021, and bears interest at 5% per annum. The principal is due on March 4,
2021, in cash or in shares of Common Stock, or a combination of cash and Common Stock, at the Company’s option. The Bison
Convertible Note is convertible at the Company’s option, at any time prior to payment in full of the principal balance and
all accrued interest of the note, to convert this note in whole or in part, into fully paid and nonassessable shares of the Company’s
Class A common stock. The Bison Convertible Note is Convertible into 6,666,666 shares of Company’s Class A common stock,
based on initial conversion price of $1.50 per share.
The
Bison Convertible Note is unsecured and may be prepaid without premium or penalty, and contains customary covenants, representations
and warranties. The proceeds of the Bison Convertible Note were used to repay the 2018 Loan. On April 15, 2020, the Company executed
a letter amendment to the Bison Convertible Note dated July 12, 2019, amending the Bison Convertible Note, effective as of March
4, 2020, to change the maturity date of the note to March 4, 2021.
The
Bison Convertible Note, offset by the concurrent payoff and termination of the 2018 Loan, did not result in any increase to the
Company’s outstanding debt balance.
On September 11. 2020, Bison Global converted the Bison Convertible
Note in full into an aggregate of 6,666,667 shares of Common Stock at a conversion price of $1.50 per share. Accordingly, the
Bison Convertible Note has been extinguished. In accordance with ASC 470, the Company recognized a loss on extinguishment of $285 thousand
related to unamortized debt issuance costs for the nine months ended December 31, 2020.
Second
Secured Lien Loans
On
July 14, 2016, we entered into a Second Lien Loan Agreement (the “Second Lien Loan Agreement”), under which we may
borrow up to $15.0 million (the “Second Lien Loans”), subject to certain limitations imposed on us regarding the number
of shares that we may issue in connection with the loans. As of December 31, 2020 we have an outstanding balance of $6.0 million
which includes $4.7 million borrowed from Ronald L. Chez, at that time a member of the Board of Directors. Mr. Chez resigned from
the Board of Directors in April 2017, and became a strategic advisor to the Company through September 2020. The Second Lien Loans
bear interest at 12.75%, payable 7.5% in cash and 5.25% in cash or in kind at our option. Before the June 30, 2019 maturity date,
on June 28, 2019, the Company entered into a consent agreement with lenders of the Second Lien Loans to an extension of the Second
Lien Loans pursuant to which (i) the Company paid down a portion of the outstanding principal amount plus accrued interest to
date, and (ii) the maturity date of the remaining outstanding principal amount of the Second Lien Loans was extended to September
30, 2019.
In
addition, under the terms of the Second Lien Loan Agreement, we are required to issue 98,000 shares of our Class A common stock
for every $1.0 million borrowed, subject to pro rata adjustments. As of December 31, 2020, we have issued 906,450 shares
of Class A common stock cumulatively under the Second Lien Loan Agreement. The Second Lien Loans may be prepaid without premium
or penalty and contain customary covenants, representations and warranties. The obligations under the Second Lien Loans are guaranteed
by certain of our existing and future subsidiaries. We have pledged substantially all of our assets, except those assets related
to our digital cinema deployment business, to secure payment on the Second Lien Loans.
On
June 24, 2020, the Company entered into an exchange agreement (the “Exchange Agreement”) pursuant to which the Company
issued 329,501 shares of its Class A common stock in exchange for $842 thousand principal amount and accrued and unpaid interest
of Second Lien Loans with the holders of such notes. The surrendered notes were immediately canceled and the Company recognized
a gain on extinguishment of $23 thousand.
The
Exchange Agreement included a true-up clause. The true-up clause stated that if the gross proceeds from the sale of the Company’s
Class A common stock are less than $758 thousand, the Company shall pay up to an aggregate maximum of $50 thousand of such shortfall
in cash, and, with respect to any balance of the shortfall remaining after the cash payment, shall issue such additional number
of shares of common stock not to exceed, together with the Shares, 1,000,000 shares equal in value, based on the closing price
of the common stock.
On July 2, 2020, in accordance with the true-up clause, an
additional 33,465 shares of Class A common stock ($61 thousand based on the stock price of the Company’s Class A common
stock on the date of issue) were issued as a true-up adjustment pursuant to the Exchange Agreement. In addition, the Company paid
an additional $50 thousand in July 2020.
On
June 26, 2020, the Company entered into a consent agreement to extend the maturity date to September 30, 2020 and grant the Company
options to extend further to March 31, 2021 and then to June 30, 2021.There was a consent fee of $100,000 paid in connection with
this extension. On September 21, 2020, the Company extended the maturity date to March 31, 2021 upon payment of a fee of $50,000.
On November 19, 2020, the Company issued 452,500 shares of
Common Stock in exchange for $250 thousand of principal and interest of Second Lien Notes. The exchanged Second Lien Notes were
immediately cancelled and the Company recorded a gain on extinguishment of $5 thousand.
On December 4, 2020, the Company entered into exchange agreements
(the “December Exchange Agreements”) with certain holders of notes under its Second Lien Loan Agreement dated as of
July 14, 2016 among the Company, the lenders party thereto, and Cortland Capital Market Services LLC, as Agent (“Second
Lien Notes”). Pursuant to the December Exchange Agreements, the Company issued an aggregate of 2,776,283 shares of its Class
A common stock, par value $0.001 per share Common Stock in exchange for an aggregate of $1,400 thousand of principal and interest
of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled and the Company recorded a loss on extinguishment
of $545 thousand.
See Note 11 – Subsequent Events for exchange agreements
subsequent to December 31, 2020.
Credit
Facility and Cinedigm Revolving Loans
On
March 30, 2018, the Company entered into the Loan, Guaranty and Security Agreement, dated as of March 30, 2018, by and between
the Company, East West Bank and the Guarantors named therein (the “Credit Facility”) for a maximum of $19.0 million
in revolving loans outstanding at any one time with a maturity date of March 31, 2020, which may be extended for two successive
one-year periods at the sole discretion of the lender, subject to certain conditions.
Interest
under the Credit Facility is due monthly at a rate elected by the Company of either 0.5% plus Prime Rate or 3.25% above LIBOR
Rate established by the lender.
As
of December 31, 2020 and March 31, 2020, there was $5.1 million and $14.5 million outstanding, respectively, and there
was $4.0 million available, under the Credit Facility based on the Company’s borrowing base as of December 31, 2020.
On July 3, 2019, the Company entered into the EWB Amendment to the Credit Facility. The EWB Amendment reduced the size of the
facility to $18.0 million, required certain prepayments and daily cash sweeps from collections of receivables to be made, changed
in certain respects how the borrowing base is calculated, and extended the maturity date to June 30, 2020. In connection with
the EWB Amendment, three of our subsidiaries became Guarantors under the Credit Facility. On June 25, 2020, the Company signed
amendment No. 4 with East West Bank to extend the maturity of the Credit Facility to June 30, 2021 and waive events of default
provisions. This amendment also includes a financial covenant that began on August 31, 2020. For the three months ended December
31, 2020, the Company was in compliance with this financial covenant.
Mingtai
Convertible Note
On
October 9, 2018, the Company issued a subordinated convertible note (the “Mingtai Convertible Note”) to Mingtai for
$5.0 million. All proceeds from the Mingtai Convertible Note were used to pay the then-outstanding $5.0 million 2013 Notes. The
$5.0 million in aggregate principal bears interest at 8% maturing on October 9, 2019 with two one year extensions at the Company’s
option. The Mingtai Convertible Note is convertible into 3,333,333 shares of the Company’s Class A common stock, based on
initial conversion price of $1.50 per share. On October 9, 2019, the Company signed an extension, for one additional year from
the original maturity date to be due on October 9, 2020.
The
Mingtai Convertible Note is convertible at the option of the Lender, or the Company, at any time prior to payment in full of the
principal balance, and all accrued interest of this Convertible Note in whole, or in part, into fully paid and non-assessable
shares of Company’s Class A common stock at the conversion rate of $1.50.
Upon
conversion prior to maturity by Mingtai, or the Company, we may elect to settle such conversion in shares of our Class A common
stock, cash or a combination thereof. Upon the maturity date, the Company has the option to pay in Class A common shares convertible
at the greater of the closing price of the Class A common stock or $1.10. As a result of our cash conversion option, we separately
accounted for the value of the embedded conversion option as a debt discount (with an offset to additional paid-in capital) of
$270 thousand. The value of the embedded conversion option was determined based on the estimated fair value of the debt without
the conversion feature, which was determined using market comparables to estimate the fair value similar nonconvertible debt;
the debt discount is being amortized to interest expense using the effective interest method over the one year term of the Mingtai
Convertible Note.
On
September 11, 2020, Mingtai converted the Notes in full into an aggregate of 3,333,333 shares of Common Stock at a conversion
price of $1.50 per share. Accordingly, the Note has been extinguished. In accordance with ASC 470, the Mingtai Convertible Note
was analyzed for potential debt extinguishment. The discount on the note had been fully accreted prior to conversion, resulting
in no gain or loss from extinguishment.
PPP
Loan
On
April 15, 2020, the Company received $2.2 million from East West Bank, the Company’s existing lender. The PPP Loan matures
on April 10, 2022 (the “PPP Maturity Date”), accrues interest at 1% per annum and may be prepaid in whole or in part
without penalty. No interest payments are due within the initial six months of the PPP Loan. The interest accrued during the initial
six-month period is due and payable, together with the principal, on the PPP Maturity Date. The Company used all proceeds from
the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout
the COVID-19 pandemic, which amounts are intended to be eligible for forgiveness, subject to the provisions of the CARES Act and
could be subject to repayment.
7.
STOCKHOLDERS’ DEFICIT
COMMON
STOCK
During
the nine months ended December 31, 2020, we issued 92,236,505 shares of Class A common stock which consists of the sale of 28,405,840
shares of our Class A common stock, 29,855,081 in connection with the Starrise transaction, settlement of a portion of the outstanding
second lien loan, issuance of restricted shares to employees and consultants, and the issuances of Class A common stock for warrants
exercised and preferred stock dividends. See Note - 9 Supplemental Cash Flow Disclosure.
In July 2020, we entered into an At-the-Market sales agreement
(the “ATM Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”) and B. Riley FBR, Inc. (“B.
Riley” and, together with A.G.P., the “Sales Agents”), pursuant to which the Company may offer and sell, from
time to time, through the Sales Agents, shares of Common Stock at the market prices prevailing on The Nasdaq Global Market at
the time of the sale of such shares. The Company is not obligated to sell any shares under the Sales Agreement. Any sales of shares
made under the Sales Agreement will be made pursuant to an effective registration statement on Form S-3 filed by the Company with
the SEC on July 6, 2020, for an aggregate offering price of up to $30 million.
During the quarter ended December 31, 2020, we sold 28,405,840
shares of Common Stock under the ATM Sales Agreement. Net proceeds from such sales totaled $18.6 million. Proceeds were used to
strengthen our liquidity and working capital position.
On September 1, 2020, we issued 80,000
shares of Class A common stock to Ronald L. Chez as a bonus payable to him under the Strategic Investor Agreement between the
Company and him dated as of April 3, 2017. We recognized an expense of $71 thousand based on the stock price of the Class A common
stock on the date of grant.
On October 23, 2020, the Company filed a Certificate of Amendment
to the Fifth Amended and Restated Certificate of Incorporation, pursuant to which the number of shares of Class A common stock
authorized for issuance was increased to 200,000,000 shares.
On November 19, 2020, the Company issued 452,499 shares of
Common Stock in exchange for $247,108 of principal amount of Second Lien Notes. The exchanged Second Lien Notes were immediately
cancelled.
On December 4, 2020, the Company entered into Exchange Agreements
with certain holders of the Second Lien Loans. Pursuant to the Exchange Agreements, the Company issued an aggregate of 2,776,284
shares of its Class A common stock, par value $0.001 per share Common Stock in exchange for an aggregate of $1,386,106 of principal
amount of Second Lien Notes. The exchanged Second Lien Notes were immediately cancelled. The exchange was consummated on December
4, 2020.
PREFERRED
STOCK
Cumulative
dividends in arrears on preferred stock were $0.1 million as of December 31, 2020 and 2019. In January 2021, we paid the preferred
stock dividends in arrears in the form of 171,933 shares of Class A common stock.
TREASURY
STOCK
We
have treasury stock, at a cost, consisting of 1,313,836 shares of Class A common stock at December 31, 2020 and March 31, 2020.
CINEDIGM’S
EQUITY INCENTIVE PLANS
Stock
Based Compensation Awards
Awards
issued under our 2000 Equity Incentive Plan (the “2000 Plan”) may be in any of the following forms (or a combination
thereof) (i) stock option awards; (ii) stock appreciation rights; (iii) stock or restricted stock or restricted stock units; or
(iv) performance awards. The 2000 Plan provides for the granting of incentive stock options (“ISOs”) with exercise
prices not less than the fair market value of our Class A Common Stock on the date of grant. ISOs granted to shareholders having
more than 10% of the total combined voting power of the Company must have exercise prices of at least 110% of the fair market
value of our Class A Common Stock on the date of grant. ISOs and non-statutory stock options granted under the 2000 Plan are subject
to vesting provisions, and exercise is subject to the continuous service of the participant. The exercise prices and vesting periods
(if any) for non-statutory options are set at the discretion of our compensation committee. On November 1, 2017, upon the consummation
of the initial equity investment in Cinedigm by Bison, as a result of which there was a change of control of the Company, all
stock options (incentive and non-statutory) and shares of restricted stock were vested immediately and the options became fully
exercisable.
In
connection with the grants of stock options and shares of restricted stock under the 2000 Plan, we and the participants have executed
stock option agreements and notices of restricted stock awards setting forth the terms of the grants. The 2000 Plan provided for
the issuance of up to 2,380,000 shares of Class A Common Stock to employees, outside directors and consultants.
As
of December 31, 2020, there were 265,887 stock options outstanding in the Plan with weighted average exercise price of $15.02
and a weighted average contract life of 2.36 years. As of March 31, 2020, there were 272,766 shares pursuant to stock options
outstanding in the Plan with weighted average exercise price of $15.00 and a weighted average contract life of 3.11 years.
In
August 2017, the Company adopted the 2017 Plan. The 2017 Plan replaced the 2000 Plan, and applies to employees and directors of,
and consultants to, the Company. The 2017 Plan provided for the issuance of up to 2,108,270 shares of Class A common stock, in
the form of various awards, including stock options, stock appreciation rights, stock, restricted stock, restricted stock units,
performance awards and cash awards. The Compensation Committee of the Company’s Board of Directors (the “Board”)
is authorized to administer the 2017 Plan and make grants thereunder. The approval of the 2017 Plan does not affect awards already
granted under the 2000 Plan. On December 4, 2019, upon shareholder approval, the 2017 Plan was amended to increase the maximum
number of shares of Class A common stock authorized for issuance thereunder from 2,108,270 shares to 4,098,270.
On
October 23, 2020, the Company amended its 2017 Equity Incentive Plan to increase the number of shares authorized for issuance
thereunder from 4,098,270 to 14,098,270.
The
analysis of all options outstanding under the 2000 Plan as of December 31, 2020 is as follows:
As of December 31, 2020
|
|
Range of Prices
|
|
|
Options Outstanding
|
|
|
Weighted Average Remaining
Life in Years
|
|
|
Weighted Average Exercise
Price
|
|
|
Aggregate Intrinsic Value
(In thousands)
|
|
$1.16 - $7.40
|
|
|
|
5,000
|
|
|
|
4.5
|
|
|
$
|
7.40
|
|
|
$
|
—
|
|
$13.70 - $24.40
|
|
|
|
253,387
|
|
|
|
2.37
|
|
|
|
14.72
|
|
|
|
—
|
|
$30.00 - $50.00
|
|
|
|
7,500
|
|
|
|
0.63
|
|
|
|
30.00
|
|
|
|
—
|
|
|
|
|
|
265,887
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
OPTIONS
GRANTED OUTSIDE CINEDIGM’S EQUITY INCENTIVE PLAN
In
October 2013, we issued options outside of the 2000 Plan to 10 individuals who became employees as a result of a business combination.
The employees received options to purchase an aggregate of 62,000 shares of our Class A Common Stock at an exercise price of $17.50
per share. The options were fully vested as of October 2017 and expire 10 years from the date of grant, if unexercised. As of
December 31, 2020, 12,500 of such options remained outstanding.
In
December 2010, we issued options to purchase 450,000 shares of Class A Common Stock outside of the 2000 Plan as part of our Chief
Executive Officer’s initial employment agreement with the Company. Such options have exercise prices per share between $15.00
and $50.00, were vested as of December 2013 and expired in December 2020. As of December 31, 2020, none of such options remained
outstanding.
WARRANTS
The
following table presents information about outstanding warrants to purchase shares of our Class A common stock as of December
31, 2020. All of the outstanding warrants are fully vested and exercisable.
Recipient
|
|
Amount outstanding
|
|
|
Expiration
|
|
|
Exercise price per share
|
|
Strategic management service provider
|
|
|
52,500
|
|
|
July 2021
|
|
|
$
|
17.20 - $30.00
|
|
Warrants issued in connection with Convertible Notes exchange transaction
|
|
|
244,141
|
|
|
December 2021
|
|
|
$
|
1.31
|
|
5-year Warrant issued to BEMG in connection with a term loan agreement
|
|
|
1,400,000
|
|
|
December 2022
|
|
|
$
|
1.80
|
|
Certain
warrants issued in connection with the Second Lien Loans (See Note 6 - Notes Payable) to Ronald L. Chez, at the time a
member of our Board of Directors, contain a cashless exercise provision and customary anti-dilution rights. On June 4, 2020, Ronald
L. Chez exercised all such warrants to purchase 236,899 shares of Class A common stock in connection with the Second Lien Loans,
resulting in gross proceeds of $301 thousand.
8.
COMMITMENTS AND CONTINGENCIES
We
operate from leased properties under non-cancelable operating lease agreements, certain of which contain escalating lease clauses.
During
the first quarter of 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842),” which requires leases with durations
greater than twelve months to be recognized on the balance sheet. The Company adopted the standard using the modified retrospective
approach with an effective date as of April 1, 2019. The Company did not apply the new standard to comparative periods and therefore,
those amounts are not presented below.
The
Company elected the package of three practical expedients. As such, the Company did not reassess whether expired or existing contracts
are or contain a lease and did not need to reassess the lease classifications or reassess the initial direct costs associated
with expired or existing leases. The Company did not elect the hindsight practical expedient. The land easement practical expedient
was not applicable to the Company. Also, the Company has elected to take the practical expedient to not separate lease and non-lease
components for all asset classes. The Company made an accounting policy election to continue not to recognize leases with durations
of twelve months or less on the consolidated balance sheet.
The
Company leases office space under operating leases. The Company’s portfolio of leases is primarily related to real estate
and since most of our leases do not provide a readily determinable implicit rate, the Company estimated its incremental borrowing
rate to discount the lease payments based on information available at either the implementation date of Topic 842 or at lease
commencement for leases entered into thereafter.
The
table below presents the lease-related assets and liabilities recorded on the balance sheet as of December 31, 2020
(In thousands)
|
|
Classification on the Balance Sheet
|
|
December 31,
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Noncurrent
|
|
Operating lease right-of-use asset
|
|
$
|
—
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
Operating leases - current portion
|
|
|
117
|
|
Noncurrent
|
|
Operating leases - long-term portion
|
|
|
17
|
|
Total operating lease liabilities
|
|
|
|
$
|
134
|
|
Weighted-average discount rate (1)
|
(1)
|
Upon adoption of
the new lease standard, discount rates used for existing leases were established at April
1, 2019.
|
Lease Costs
The table below presents certain information related to lease
costs for leases:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(In thousands)
|
|
December 31, 2020
|
|
Operating lease cost
|
|
$
|
37
|
|
|
$
|
160
|
|
Total lease cost
|
|
$
|
37
|
|
|
$
|
160
|
|
Other Information
The table below presents supplemental cash flow information
related to leases:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(In thousands)
|
|
December 31, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
|
|
Operating cash flows used for operating leases
|
|
$
|
37
|
|
|
$
|
162
|
|
The Company terminated an office lease in Los Angeles in April
2020 and a lease for office equipment was terminated in June 2020. The Company removed the right-of-use assets of $927 thousand
and the lease liabilities of $1.0 million as of June 30, 2020. The estimated future lease liabilities are not expected to be material
for the remaining outstanding office and equipment leases.
9.
SUPPLEMENTAL CASH FLOW INFORMATION
|
|
Nine
Months Ended
December 31,
|
|
(In
thousands)
|
|
2020
|
|
|
2019
|
|
Cash interest paid
|
|
$
|
3,014
|
|
|
$
|
3,934
|
|
Accrued dividends on preferred stock
|
|
|
89
|
|
|
|
89
|
|
Issuance of Class A common stock for payment
of preferred stock dividends
|
|
|
267
|
|
|
|
267
|
|
Issuance of Class A common stock to Starrise,
a related party
|
|
|
11,046
|
|
|
|
—
|
|
Contributed capital under the Starrise transaction,
a related party
|
|
|
17,187
|
|
|
|
—
|
|
Settlement of second lien loan with Class A
common stock
|
|
|
3,008
|
|
|
|
—
|
|
Conversion of note payable
|
|
|
15,000
|
|
|
|
—
|
|
Class A common stock to be issued in connection with the asset acquisition
|
|
|
1,853
|
|
|
|
—
|
|
Right-of-use assets and operating lease liability
recorded upon adoption of ASU 842, net
|
|
|
—
|
|
|
|
90
|
|
Amounts accrued in connection with addition
of property and equipment
|
|
|
—
|
|
|
|
232
|
|
Starrise shares used to pay down vendors
|
|
|
897
|
|
|
|
—
|
|
10.
SEGMENT INFORMATION
We
operate in two reportable segments: Cinema Equipment Business and Content & Entertainment Business. Our segments were determined
based on the economic characteristics of our products and services, our internal organizational structure, the manner in which
our operations are managed and the criteria used by our CODM to evaluate performance, which is generally the segment’s operating
income (loss) before depreciation and amortization.
Operations of:
|
|
Products and services provided:
|
Cinema Equipment Business
|
|
Financing vehicles and administrators for 3,313 Systems installed nationwide in our first deployment phase (“Phase I Deployment”) to theatrical exhibitors and for 3,104 Systems installed domestically and internationally in our second deployment phase (“Phase II Deployment”).
We retain ownership of the Systems and the residual cash flows related to the Systems in Phase I Deployment after the repayment of all non-recourse debt at the expiration of exhibitor master license agreements. For certain Phase II Deployment Systems, we do not retain ownership of the residual cash flows and digital cinema equipment in Phase II Deployment after the completion of cost recoupment and at the expiration of the exhibitor master license agreements.
The Cinema Equipment Business also provides monitoring, collection, verification and management services to this segment, as well as to exhibitors who purchase their own equipment, and also collects and disburses VPFs from motion picture studios, distributors and ACFs from alternative content providers, movie exhibitors and theatrical exhibitors (collectively, “Services”).
|
|
|
|
Content & Entertainment Business
|
|
Leading distributor of independent content, and collaborates with producers and other content owners to market, source, curate and distribute independent content to targeted and profitable audiences in theatres and homes, and via mobile and emerging platforms.
|
The
following tables present certain financial information related to our reportable segments and Corporate:
|
|
As of December
31, 2020
|
|
(In thousands)
|
|
Intangible Assets,
net
|
|
|
Goodwill
|
|
|
Total Assets
|
|
|
Notes Payable,
Non-Recourse
|
|
|
Notes Payable
|
|
|
Operating lease
liabilities
|
|
Cinema Equipment Business
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,160
|
|
|
$
|
11,153
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Content & Entertainment Business
|
|
|
8,036
|
|
|
|
8,701
|
|
|
|
48,868
|
|
|
|
—
|
|
|
|
—
|
|
|
|
98
|
|
Corporate
|
|
|
3
|
|
|
|
—
|
|
|
|
25,661
|
|
|
|
|
|
|
|
11,890
|
|
|
|
36
|
|
Total
|
|
$
|
8,039
|
|
|
$
|
8,701
|
|
|
$
|
91,689
|
|
|
$
|
11,153
|
|
|
$
|
11,890
|
|
|
$
|
134
|
|
|
|
As of March 31, 2020
|
|
(In thousands)
|
|
Intangible Assets, net
|
|
|
Goodwill
|
|
|
Total Assets
|
|
|
Notes Payable, Non-Recourse
|
|
|
Notes Payable
|
|
|
Operating lease liabilities
|
|
Cinema Equipment Business
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
34,465
|
|
|
$
|
11,442
|
|
|
$
|
—
|
|
|
$
|
594
|
|
Content & Entertainment Business
|
|
|
6,895
|
|
|
|
8,701
|
|
|
|
49,923
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73
|
|
Corporate
|
|
|
6
|
|
|
|
—
|
|
|
|
26,052
|
|
|
|
—
|
|
|
|
37,249
|
|
|
|
610
|
|
Total
|
|
$
|
6,924
|
|
|
$
|
8,701
|
|
|
$
|
110,440
|
|
|
$
|
11,442
|
|
|
$
|
37,249
|
|
|
$
|
1,277
|
|
|
|
Statements of Operations
|
|
|
|
Three Months Ended December 31, 2020
|
|
|
|
(Unaudited, in thousands)
|
|
|
|
Cinema Equipment Business
|
|
|
Content & Entertainment
Business
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
910
|
|
|
$
|
9,044
|
|
|
$
|
—
|
|
|
$
|
9,954
|
|
Direct operating (exclusive of depreciation and
amortization shown below)
|
|
|
150
|
|
|
|
4,235
|
|
|
|
—
|
|
|
|
4,385
|
|
Selling, general and administrative
|
|
|
524
|
|
|
|
2,244
|
|
|
|
2,593
|
|
|
|
5,361
|
|
Allocation of corporate overhead
|
|
|
143
|
|
|
|
964
|
|
|
|
(1,107
|
)
|
|
|
—
|
|
Provision for doubtful accounts
|
|
|
70
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70
|
|
Depreciation and amortization of property and equipment
|
|
|
706
|
|
|
|
108
|
|
|
|
8
|
|
|
|
822
|
|
Amortization of intangible
assets
|
|
|
8
|
|
|
|
588
|
|
|
|
1
|
|
|
|
597
|
|
Total operating expenses
|
|
|
1,601
|
|
|
|
8,139
|
|
|
|
1,495
|
|
|
|
11,235
|
|
Loss from operations
|
|
$
|
(691
|
)
|
|
$
|
905
|
|
|
$
|
(1,495
|
)
|
|
$
|
(1,281
|
)
|
Employee and director stock-based compensation expense related
to the Company’s stock-based awards was negative $1.0 million for the three months ended December 31, 2020.
(In thousands)
|
|
Cinema Equipment Business
|
|
|
Content & Entertainment
Business
|
|
|
Corporate
|
|
|
Consolidated
|
|
Direct operating
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Selling, general and administrative
|
|
|
—
|
|
|
|
39
|
|
|
|
921
|
|
|
|
960
|
|
Total stock-based compensation
|
|
$
|
—
|
|
|
$
|
39
|
|
|
$
|
921
|
|
|
$
|
960
|
|
|
|
Statements
of Operations
|
|
|
|
Three
Months Ended December 31, 2019
|
|
|
|
(Unaudited,
in thousands)
|
|
|
|
Cinema Equipment Business
|
|
|
Content & Entertainment
Business
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
3,129
|
|
|
$
|
8,383
|
|
|
$
|
—
|
|
|
$
|
11,512
|
|
Direct operating (exclusive of depreciation and
amortization shown below)
|
|
|
312
|
|
|
|
5,414
|
|
|
|
—
|
|
|
|
5,726
|
|
Selling, general and administrative
|
|
|
536
|
|
|
|
2,294
|
|
|
|
167
|
|
|
|
2,997
|
|
Allocation of Corporate overhead
|
|
|
200
|
|
|
|
1,249
|
|
|
|
(1,449
|
)
|
|
|
—
|
|
Provision (recovery) for doubtful accounts
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(5
|
)
|
Depreciation and amortization of property and equipment
|
|
|
1,475
|
|
|
|
77
|
|
|
|
42
|
|
|
|
1,594
|
|
Amortization of intangible assets
|
|
|
11
|
|
|
|
576
|
|
|
|
2
|
|
|
|
589
|
|
Total operating expenses
|
|
|
2,529
|
|
|
|
9,610
|
|
|
|
(1,238
|
)
|
|
|
10,901
|
|
Income (loss) from operations
|
|
$
|
600
|
|
|
$
|
(1,227
|
)
|
|
$
|
1,238
|
|
|
$
|
611
|
|
Employee
and director stock-based compensation expense related to the Company’s stock-based awards was $0.2 million for the
three months ended December 31, 2019.
(In thousands)
|
|
Cinema Equipment Business
|
|
|
Content & Entertainment
Business
|
|
|
Corporate
|
|
|
Consolidated
|
|
Direct operating
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Selling, general and administrative
|
|
|
—
|
|
|
|
26
|
|
|
|
152
|
|
|
|
178
|
|
Total stock-based compensation
|
|
$
|
—
|
|
|
$
|
26
|
|
|
$
|
152
|
|
|
$
|
178
|
|
|
|
Statements of Operations
|
|
|
|
Nine Months Ended December 31, 2020
|
|
|
|
(Unaudited, in thousands)
|
|
|
|
Cinema Equipment Business
|
|
|
Content & Entertainment
Business
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
2,158
|
|
|
$
|
20,996
|
|
|
$
|
—
|
|
|
$
|
23,154
|
|
Direct operating (exclusive of depreciation and amortization
shown below)
|
|
|
504
|
|
|
|
10,890
|
|
|
|
—
|
|
|
|
11,394
|
|
Selling, general and administrative
|
|
|
1,704
|
|
|
|
6,667
|
|
|
|
6,998
|
|
|
|
15,369
|
|
Allocation of corporate overhead
|
|
|
438
|
|
|
|
2,883
|
|
|
|
(3,321
|
)
|
|
|
—
|
|
Recovery for doubtful accounts
|
|
|
(123
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(123
|
)
|
Depreciation and amortization of property and equipment
|
|
|
3,348
|
|
|
|
312
|
|
|
|
31
|
|
|
|
3,691
|
|
Amortization of intangible assets
|
|
|
23
|
|
|
|
1,752
|
|
|
|
3
|
|
|
|
1,778
|
|
Total operating expenses
|
|
|
5,894
|
|
|
|
22,504
|
|
|
|
3,711
|
|
|
|
32,109
|
|
Loss from operations
|
|
$
|
(3,736
|
)
|
|
$
|
(1,508
|
)
|
|
$
|
(3,711
|
)
|
|
$
|
(8,955
|
)
|
Employee and director stock-based compensation expense related
to the Company’s stock-based awards was $2.1 million for the nine months ended December 31, 2020.
(In thousands)
|
|
Cinema Equipment Business
|
|
|
Content & Entertainment
Business
|
|
|
Corporate
|
|
|
Consolidated
|
|
Direct operating
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Selling, general and administrative
|
|
|
—
|
|
|
|
91
|
|
|
|
2,081
|
|
|
|
2,172
|
|
Total stock-based compensation
|
|
$
|
—
|
|
|
$
|
91
|
|
|
$
|
2,081
|
|
|
$
|
2,172
|
|
|
|
Statements of Operations
|
|
|
|
Nine Months Ended December 31, 2019
|
|
|
|
(Unaudited, in thousands)
|
|
|
|
Cinema Equipment Business
|
|
|
Content & Entertainment
Business
|
|
|
Corporate
|
|
|
Consolidated
|
|
Revenues
|
|
$
|
10,767
|
|
|
$
|
20,789
|
|
|
$
|
—
|
|
|
$
|
31,556
|
|
Direct operating (exclusive of depreciation and amortization
shown below)
|
|
|
908
|
|
|
|
12,517
|
|
|
|
—
|
|
|
|
13,425
|
|
Selling, general and administrative
|
|
|
1,636
|
|
|
|
8,109
|
|
|
|
4,090
|
|
|
|
13,834
|
|
Allocation of corporate overhead
|
|
|
605
|
|
|
|
3,785
|
|
|
|
(4,390
|
)
|
|
|
—
|
|
Provision (recovery) for doubtful accounts
|
|
|
322
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
321
|
|
Depreciation and amortization of property and equipment
|
|
|
4,612
|
|
|
|
239
|
|
|
|
126
|
|
|
|
4,977
|
|
Amortization of intangible assets
|
|
|
34
|
|
|
|
2,140
|
|
|
|
4
|
|
|
|
2,178
|
|
Total operating expenses
|
|
|
8,117
|
|
|
|
26,789
|
|
|
|
(170
|
)
|
|
|
34,735
|
|
Loss from operations
|
|
$
|
2,650
|
|
|
$
|
(6,000
|
)
|
|
$
|
170
|
|
|
$
|
(3,179
|
)
|
Employee
and director stock-based compensation expense related to the Company’s stock-based awards was $0.4 million for the
nine months ended December 31, 2019.
(In thousands)
|
|
Cinema Equipment Business
|
|
|
Content & Entertainment
Business
|
|
|
Corporate
|
|
|
Consolidated
|
|
Direct operating
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Selling, general and administrative
|
|
|
(6
|
)
|
|
|
29
|
|
|
|
344
|
|
|
|
367
|
|
Total stock-based compensation
|
|
$
|
(6
|
)
|
|
$
|
29
|
|
|
$
|
344
|
|
|
$
|
367
|
|
11.
SUBSEQUENT EVENTS
On January 21, 2021, the Company entered into an exchange
agreement (the “Exchange Agreement”) with a holder of notes under its Second Lien Loan Agreement dated as of July 14,
2016 among the Company, the lenders party thereto, and Cortland Capital Market Services LLC, as Agent (“Second Lien Notes”).
Pursuant to the Exchange Agreement, the Company issued an aggregate of 1,247,626 shares of its Class A common stock, par
value $0.001 per share Common Stock in exchange for an aggregate of $1,289,650 of principal amount of Second Lien Notes. The exchanged
Second Lien Notes were immediately cancelled.
In two separate exchanges with another holder of Second Lien
Notes, on January 14, 2021 and January 21, 2021, the Company issued 689,500 shares and 580,448 shares (an aggregate of 1,269,948
shares) of Class A Common Stock in exchange for $500,000 and $600,000 (an aggregate of $1,100,000) principal amount of Second
Lien Notes. The exchanged Second Lien Notes were immediately cancelled.
On February 9, 2021, the Company prepaid substantially all of
the outstanding obligations in respect of principal, interest, fees and expenses under the Second Lien Loan Agreement, among the
Company, certain lenders and Cortland Capital Market Services LLC. The payoff amount of approximately $3.18 million was comprised
of (i) $3.1 million of principal, (2) accrued payment-in-kind interest of $.018 million, (3) accrued current interest of $0.007
million, and (4) fees and expenses of $0.004 million. Upon such prepayment, the Second Lien Loan Agreement was terminated effective
February 9, 2021.
On February 2, 2021, the Company entered into a Securities
Purchase Agreement with a single institutional investor for the purchase and sale of 5,600,000 shares the Company’s Class
A common stock, par value $0.001 per share, at a purchase price of $1.25 per share, in a registered direct offering, pursuant
to an effective shelf registration statement on Form S-3 which was declared effective by the Securities and Exchange Commission
on July 10, 2020 (File No. 333-239710) and an applicable prospectus supplement.
The closing of the sale of the February Shares under the Securities
Purchase Agreement occurred on February 5, 2021. The aggregate gross proceeds for the sale of the February Shares was approximately
$7.0 million. The net proceeds to the Company from the sale of the Shares, after deducting the fees of the placement agent but
before paying the Company’s estimated offering expenses, was approximately $6.5 million.